The rapid spread of COVID-19 across the world during the first quarter of 2020 has led to a short-term mass change in the way we live. At the time of writing, (21st April) the WTO reported confirmed cases of COVID-19 in 213 countries worldwide. School closures have also been instigated in over 40 countries, with intended closure periods ranging from short-term to mid-April and the Easter break to indefinitely. Feedback from the USA suggests that California is not expecting K-12 schools to open again until September. In the UK, some government advisors have suggested that the lockdown period may be in place for six months, resulting in schools being closed until September. There is no official government position on this yet and for the time being, a three-month lockdown remains in place.
The initial impact of COVID-19 triggered an unseasonably strong demand for devices than traditionally experienced during the opening three months of the year. This has been driven partly by an increase in demand from Education Ministries, school districts and schools in response to impending school closures and the need for students to have devices for distant learning. The second catalyst has been a drawdown of devices by the channel partners, in a bid to ensure inventory ahead of calendar Q2, which is the traditional peak buying season. With concerns over possible shortages during this period, some OEM’s have tried to control the allocation of stock to maintain supply to large, mid-sized and small-scale channel partners alike.
Therefore, high demand levels for Chromebooks and Windows devices has resulted in depleted stock levels for some of the OEM’s and their key distribution partners in some countries.
Inventory levels and the ability for replenishment are a key area of concern for the OEM’s moving forward. Several of the leading tier-one OEM’s entered 2020 with healthy inventory levels, bolstered by unsold stock from 2019. In the USA, inventory levels were swollen by pre-build in anticipation of President Trump’s threatened trade tariffs against China. Consequently, the OEM’s have been well-positioned to withstand the heightened demand levels in calendar Q1.
Nonetheless, some OEM’s and distributors are running with depleted inventories, raising concerns over Q2 and whether OEM’s will be able to replenish stock levels to meet Q2 shipment commitments, both to existing projects and anticipated run-rate orders.
China is relaxing its COVID-19 restrictions. Although, the speed at which the ODM’s can return to full capacity is questionable. Concerns over the total supply chain comprises of not only the components required in mobile devices, but also the availability of raw materials utilised by the component suppliers themselves. Feedback from OEM’s highlighted concerns over shortages of batteries, displays and silicon for CPU’s during 2020.
Clearly, with so many components feeding into the assembly of mobile PC’s, any weak link in the wider supply chain can ripple through the manufacture and assembly process, leading to delays in device shipments.
Initially air freight was used to expedite shipments, but this has proved costly and subsequent restrictions on air travel has increased the reliance on transportation by sea, which lengthens shipment times.
Within the EU, transportation times are also an issue. In mid-March, the EU introduced measures to restrict non-essential travel between member states, in addition to countries outside of the EU. While this will prohibit the movement of the population, goods will still be able to transit between markets. Ultimately, it will be impacted by longer delays due to the reintroduction of border customs checks.
Despite this there is mixed feedback coming from the OEM’s as to the performance of calendar Q2, which is normally the peak buying season. There is some suggestion that, at least in the short term, the device supply situation might be returning to normality. However, there is a widespread view that the quarter will be characterised by a softening in shipment activity, as the supply chain gradually returns to full strength while near to mid-term production issues still prevail. Although, China has relaxed its lockdown and is seeing industry ramp up, it is also seeing an increase in new virus infection rates. This may result in a reintroduction of social and working restrictions as 2020 progresses. Consequently, the quarter is likely to see the OEM’s struggle to meet on-time deliveries. As a result, orders that have already been signed off may be pushed into late Q2 or even into Q3, as the OEM’s try to catch up.
The other issue is what happens with projects that are in the pipeline but have yet to be signed off. With school closures being instigated, focus has shifted to implementing distance learning solutions. Consequently schools, school districts or education authorities may be seeing their key decision-makers out of action due to the virus or be diverted to other tasks. As a result, projects may take longer to be greenlit, thus contributing to the softening of near-term demand activity and placing greater emphasis on Q3. The upside of this is that it will alleviate some of the short-term pressure on the supply chain.
A by-product of expected device shortages is the increasing robustness to the ASP of devices. This will be especially welcomed in the Chromebook sector, which was subject to some severe price aggression during Q4 2019.
Even so, economic issues may cause different currency values to fluctuate, thus impacting device and transportation costs.
The pressure on the OEM’s to replenish inventory levels shines a spotlight on current operational practices right across the supply chain, which are largely focused on ‘Just in Time’ replenishment. While these practices remove the expense of purchasing and storing high levels of stock, as well as alleviating the risk of being left with unsold, obsolete inventory, they leave proponents exposed when the supply chain is compromised.
Although in the short-term, the focus is on minimising Q2 disruption and meeting near-term order commitments, one eye needs to be on next winter and minimising supply chain disruption in the event of any possible reprise of COVID-19. As a result, Q4 may see OEM’s begin to stock build to meet Q1 and part of Q2 2021 demand.
Despite potential blows to the global PC market, many of the EdTech software providers are seeing a boost in share price and user-base as schools close, particularly companies with remote learning capabilities. Instructure and Blackboard, both learning management solution providers, are working towards increasing bandwidth to handle the spike in its user base.
Both Google and Microsoft have been swift in giving support to the education community by making key aspects of their platforms available free of charge until the end of the summer term. Google has made its advanced features for its Hangouts meeting application available to G-Suite for Education users, giving them recording functionality, extended streaming and Hangout meeting capacity. Additionally, Google will delay increasing the price of its management license until January 2021.
Microsoft has made its Minecraft Education Edition free of charge to teachers and students with valid Microsoft 365 Education accounts, complete with 50 lesson plans. In addition, Microsoft has been proactive in reaching out to schools to highlight the range of resources that they have available to enable distance learning. Zoom has also decided to offer free versions of its solution to countries affected by the outbreak, including Italy, US and Japan.
Interest in digital solutions from the teaching community to facilitate home learning is increasing. In Italy, the first European country to go to lockdown due to the rapid spread of COVID-19 has seen increased interest from schools in Office 365 and G-Suite for Education. In addition, the major channel partners C2 and Media Direct have run a series of webinars on how to implement distance learning, which has reportedly been well attended.
The speed at which COVID-19 has spread has created an unprecedented challenge for the K-12 sector in rolling out distance learning programs, but it has also highlighted a disparity between those schools that are invested in digital-based learning platforms and those that aren’t. The latter are exposed in terms of the use of digital education ecosystems, device usage and ability to deploy them and crucially, the ability of teachers to utilise the technology.
Schools in this group often rely on basic tools for homework setting, with little or limited scope for pupil/teacher engagement and are having to quickly move to put provisions in place to facilitate more effective distance-based learning.
Nevertheless, this highlights deficiencies in the school’s utilisation of technology and the skill set that teachers have in being able to use the devices in a teaching environment.
Longer-term, the current crisis and the possibility of it reoccurring in winter 2021 could be a catalyst to spur investment in digital learning later in 2020.
In the US, the outbreak has brought to the forefront a clear divide between the have and the have-nots. Many low-income households do not have access to broadband - the only way to access these platforms. Unable to take part in remote learning like their wealthier peers, this poses a huge disadvantage to these children.
Investment in devices for distance learning at K-12 has not been limited to dedicated education devices. The implementation of school closures has also led to a surge in demand for consumer devices, as parents have scrambled to equip their children with a mobile PC device to allow home learning. This has happened in many markets and was evident in Italy before the lockdown closed non-essential shops. The surge in demand led to short term availability of devices and delays in delivery to consumers from online sources. With no influence from the schools in the device purchase decision, these sales stand outside of the traditional BYOD (Bring Your Own Device) market.
As highlighted, the possibility of COVID-19 resurfacing in Winter 20/21 may well lead to OEM’s and the channel pre-building inventory ahead of Q1 2021 to meet potential demand for distance learning. However, the economic impact of the virus in 2020 may have aftershocks into 2021 and beyond.
The possibility of a global recession is coupled with the fact that governments have had to instigate huge expenditure to fight the virus and cushion the impact on the economy. In what condition this leaves the public purse in with respects to funding availability for investment in education technology is unclear at this point, until the full impact on 2020 is understood. However, if budgets are constrained as a result of cutbacks, then this could be a catalyst for the growth in BYOD (Bring Your Own Device), as the burden of investment in devices is pushed to the parents. However, this itself may be a limited impact proposition in the event of a widespread recession, the subsequent economic downturn and the possibility of rising unemployment.
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