Handel Jones: The Road to Recovery from Covid-19

Covid-19 has created unprecedented problems for health and economies worldwide. Executives must make now important and often very difficult decisions that significantly impact the future of their companies and the lives of their workforces. The Global Semiconductor Alliance (GSA) started a webinar series to provide essential information to its members and – hopefully – help to mitigate the short-term as well as longer-term damage to people, companies, industry, and country.

The GSA’s April 6 webinar, titled “The Road to Recovery”, featured Handel Jones, Founder, Chairman and CEO of International Business Strategies, Inc. (IBS). Jones is well known as a strategic thinker and keen observer of worldwide developments for over 30 years.  He addressed how Covid-19 is impacting our industry’s complex supply chain and what a worldwide recovery from Covid-19 may look like.

Impact on the Economies of Major Countries

Jones started with a very informative, worldwide overview of how countries are getting this virus under control. Based on actual data, available in early April, he compiled this forecast.  See in Figure 1 his virus containment projections.

Please note that by June 30, the end of the second quarter, Jones predicts that most of Asia will be at or above 90% containment. Japan will be at 55%, the U.S. at 50% and Europe only at 35% containment.  Other, mostly low-income countries with weak medical systems, will struggle much longer to contain this virus. In my opinion, how these problems in low-income countries will impact long-term virus eradication in high-income countries, remains to be seen.

Jones also projected how the virus will impact 2020 GDP in major regions. He offered three likely scenarios: Optimistic, with only 5 to 10 % probability / Realistic ~50% / Pessimistic ~50% probability. For global GDP growth in 2020 Jones projects +1.0 / -0.5 / -2.5%, for the U.S. -0.5 / -2.0 /-3.5%, for E.U. -2.0 /-3.5 /-4.5% and for China +3.5 / +2.0 / -0.5% GDP growth in 2020. Based on if/when/how much stimulus governments can provide and people comply with social distances, these numbers may change significantly.

Impact on Semiconductor Revenues

Based on the realistic GDP scenario above, Jones predicts that year-over-year semiconductor revenues in 2020 will, compared to their respective 2019 quarters, grow in Q1 by -0.8%, Q2 -5.9%, Q3 -12.2% and Q4 by -3.0%. Compared to the previous 2020 quarter’s revenue, only Q4 will show Q to Q growth. Jones predicts +9.5%.

Because how Covid-19 will spread is still very unpredictable, how it impacts economies and how successful countermeasures will be, Jones will monitor developments and publish an updated forecast on our recovery from Covid-19 in a few weeks.

Smartphone Volumes Forecast until 2030

Because G4 and G5 smartphones are and will remain major semiconductor revenue drivers, Jones showed a long-term unit forecast for both generations of phones. See Figure 2.

Jones warns that consumer behavior is likely to change after this recession and demand for phones as well as other products and services may not recover that quickly. Compelling new features/benefits may be needed to open consumers’ wallets and purses.

China’s Quest Towards Semiconductor Independence

Jones also commented briefly on China’s efforts towards self-sufficiency in semiconductors and the enormous government subsidies, helping to reach this goal. Today, China represents 50% of global semiconductor consumption, most of it to export again, as components in electronic systems or sub-assemblies. While China’s productivity will be back to about 80% of previous levels by the end of April, the country will remain highly dependent on exports. The recovery of purchasing power in China’s export markets and individuals’ willingness to buy, e.g. new smartphones, after (barely) surviving a recession, will therefor impact China’s economy for years.

How Will the U.S. Travel the Road to Recovery?

Jones expects demand for ICs from data centers to remain strong – unless this country falls into an even worse recession. He expects U.S. inflation to pick up and constrain consumers’ purchasing power – a threat to China, as mentioned above. Jones expects that the rapidly increasing unemployment rate in U.S. will develop into a major problem longer-term. He also warned that the recent supply-chain dislocations will cause shortages for some time. The bright spot: The U.S. has demonstrated in many situations its great ability to innovate. New ideas for products and services will help accelerate the U.S. recovery from Covid-19.

My Take on Recovery from Covid-19

After living almost 40 years in the U.S., the Covid-19 crisis is clearly the number one on my “list of major troubles”. Number two is the dot.com crash in 2000, number three the 2007-‘09 financial crisis and number four the 1987 market crash. I am sure you also notice that this country seems to “need” a major reset about every 10 years. The U.S.’ remarkable ability to bounce back quickly has reduced long-term impacts of these previous recessions fairly well. I hope I am wrong, but I am not that optimistic this time – because:

1. Until we have a vaccine to fight this virus (projected to be available in 12 to 18 months) the U.S. will remain vulnerable to re-importing this virus from countries with less sophisticated healthcare systems.
2. When I hear people asking: “When do we get back to normal?” I tend to get upset – because we shouldn’t be getting back to business as usual, unless Americans like a “little shakeup” every 10 years – which I doubt. We need to change how we work together worldwide and make our economy more recession-proof. How?
3. By listening to smart and experienced people and acting on their advice. Example: In a TED talk Bill Gates gave in 2015 he warned about our vulnerability to a virus attack that could trigger a recession and projected that it may cost us $ 3 Trillion to recover from it. Ongoing and planned preparation efforts for such an event were stopped in recent years in many countries because of budget cuts. Now it will cost of much more than $ 3 Trillion to recover. Please listen to Gates’ warning in 2015 here and, if your time allows, to a very recent discussion with Gates here!

Thanks for reading this blog, listening to Bill Gates and thanks in advance for heeding scientists’ warnings and advice about the dangers of epidemics, climate change… in the future….Herb