Editor's note: Michael Schroeder is a Brive Consulting European Market Analyst, currently based in Munich. The article reflects the author's views, and not necessarily those of CGTN.

Every time star investor Bill Ackman raises his voice in a public information campaign, it is about something big. When it comes to his recent activism around COVID-19, it is definitely his biggest one so far. This time, his message is clear: Economies can survive a lockdown of one to two months long, but not much longer than that. Since from a health perspective, isolation and quarantine are increasingly becoming an undisputed course of action around the globe, the question of how badly markets around the world are going to be affected, has come down to how long the lockdown will last.

With the upcoming EU-China Summit in Leipzig, 2020 was supposed to be a big year for Chinese companies and their European operations. Especially for Chinese smartphone makers, it is an opportunity that cannot be missed because of the strong performance of the European smartphone market, which in 2019 registered the fastest growth around the globe. The planned 5G rollout around the continent gave a hopeful prospect for the big four from China – Huawei, Xiaomi, Oppo, Vivo – to gain a large share of the cake, by leveraging experiences in their home market. Now in the wake of COVID-19, that prospect look rather dim.

It is true that the smartphone market globally is bound to take a huge hit. According to International Data Cooperation, an analytics firm, the global smartphone market will contract by 2.3 percent over 2020. Here, Q1 2020 will naturally take the hardest slump with an about -13.3 percent growth. Overall, when it comes to manufacturing, firms have managed to avoid slowdowns and delays whenever possible.

Even though Xiaomi, Oppo and Vivo have paused operations at some factories, shortages should only be expected in active/passive components and camera modules, according to TrendForce. One reason for that is that Chinese operators typically hold high stock and inventory before the Chinese New Year festivities. What should not however be forgotten is that further upstream the supply chain might be disrupted with customs procedures slowed down significantly.

This might particularly be the case in Europe, with already more COVID-19 infections than China, and up to now, they show no sign of stopping. It seems that the pandemic will keep Europe on the toes well into early summer this year. To make matters worse, some experts already predict a second global wave of infections during the winter months of Q4 2020 and Q1 2021. Some of the hardest hit countries, including Spain, France, and Italy, are those with the highest debt levels.

The incoming recession might well tip these countries into a new financial crisis. No matter which scenario one picks, the bottom line is, at the very least, European economies will be struggling in the aftermath of COVID-19 for quite some time. The critical factor is for how long.

Many Europeans will face pay cuts or unemployment. This could be well reflected in the smartphone market. Due to the role that smartphones play in people's daily life, it is true that smartphones sales are not the most volatile anymore in face of market disruption. Phones play an indispensable role in businesses and people's daily life, so some fluctuations might be absorbed by customers. Indeed, lessons from the bird flu and SARS have shown that smartphone sales will most likely not grind to a sudden halt. However, the replacement cycle, the interval in which old phones are exchanged with new ones, will be postponed in the face of pay cuts and layoffs.

With millions of Europeans in lockdown and self-isolation according to Strategy Analytics, a research firm, one can expect to see intensified initiatives in the smartphone markets online. The European smartphone market, while being the fastest growing in 2019, is much less dynamic than its Chinese or Indian counterpart and dominated by the established giants Samsung, Apple and Huawei. This will be a challenge for the smaller Chinese firms, Oppo, and Vivo, as their reach as new players is naturally limited. This might weigh particularly heavy as Europeans generally tend to buy less online than for example Asians.

Looking at Chinese smartphone makers individually, nobody will be able to completely dodge the current crisis. While Huawei is an established giant on the European smartphone market, its position in the market might take a considerable hit. Not only will the replacement cycle postponement definitely play a role, it will also suffer particularly from being placed on the U.S. Department of Commerce's entity list, which means that Google Mobile Services cannot be installed on the newest products. As European customers are used to a Google environment, when they decide on purchasing a new phone, it might not be a Huawei.

TrendForce estimated Huawei's sales to contract globally by up to 15 percent in Q1 2020, but in Europe the number might well be higher. Xiaomi had a phenomenal year in 2019 with 48 percent in year over year growth, leading Canalys, a market research firm, to call it a major force in Europe. With a strategy that focuses on online sales, it might struggle to get new momentum in 2020. 

Globally it is projected slow by 10 percent in Q1 2020. The number might be slightly higher in Europe, but not with as big of a margin as Huawei. Oppo and Vivo mostly focus on the Chinese mainland and are hence only small players in Europe. Due to the early COVID-19 outbreak in China it is projected to contract globally, by 14 percent and 15 percent respectively. Due to their limited reach as small and relatively unknown firms in Europe, the impact there will most probably be worse.

Many observers expected a replacement cycle to be induced by the development of 5G infrastructure. This might have been a growth engine for Chinese companies, posing a possible window to enter for Oppo and Vivo, who could draw from experience in their home market. Now, however, with entire countries on lock down, the building of most of 5G infrastructure will be postponed all over Europe most probably not until 2021. As Samsung stated in a public message, 5G will deliver some growth, but will not be the party everyone hoped for.

The longer the COVID-19 causes lockdown and slows down economic activity, the harder Chinese smartphone companies are going to be hit. The longer the current situation goes on, the deeper the financial setback for households will be and the further the building of 5G infrastructure, the central growth motor particularly for Chinese companies, will be postponed. Fighting the economic impact of COVID-19 is a race against the clock - yet it is uncertain who will win.

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