Recession… then Boom! McClean Defends his Optimism for the Industry
At the recently concluded SEMI ISS 2009 conference, Bill McClean, president of IC Insights, took a more optimistic look at the state of the industry in light of the current global economic situation. While many presentations at the conference focused on the poor state of the industry currently, providing little hope for fast recovery, McClean was quick to point out that over the past thirty years, every recession has been followed by a boom period of strong growth.
Things were not all rosy, and McLean acknowledged the dip in worldwide GDP, but he also pointed out that even though the economy would cycle down to about one percent growth, the number would not be stagnant this year. “Don’t think of 2009 in total, we need to think quarterly at this point,” said McClean. “As we can see, all of 2009 will be labeled a global recession but we’re probably going to see an increase in quarterly GDP throughout the year. It will probably bottom out sometime during the first quarter, maybe the second quarter, but it will then start to grow from that level.”
Taking a stab at the timing of the latest US recession, McClean criticized economists who contend that the current recession started in late 2007. As he points out, the economy started off relatively strong in the early part of 2008, and that the US was in no way in a recession at that point. “If you look at it on a quarterly basis, the US GDP grew almost three percent in the second quarter of 2008, so essentially, the recession started in the third quarter of 2008,” he explained. “In my book, it is probably about a year recession, maybe a little longer.”
Massive and Unprecedented Problems— and Stimulus
To support his belief that there will be a strong rebound, McClean looked at the global response to the declines, as countries propose massive financial stimulus packages equaling almost $2 trillion on a global basis. “The problems we are facing are massive and unprecedented, but if you look at the response, it is also massive and unprecedented,” he continued. “You have to look very hard to find a country NOT putting together an economic stimulus. We are looking at the lowest interest rates in the US in many years…and we are going to have one of the biggest refinancing booms in history, and that will mean money in peoples pockets since they won’t be putting it out in interest.”
Deviating a bit from the semiconductor industry, McClean also pointed out that oil prices are low. He observed that when oil prices get high, it negatively affects the worldwide economy. Adversely, he noted that the opposite was true when oil prices drop, and that the current decline in oil prices will set the stage for the eventual economic recovery. “We have record low interest rates, we’ve got massive stimulus, and we have got low oil prices right now,” said McClean. “We now have these three major factors in front of us to begin turning this thing around.”
As another side note, he observed that while auto sales are down forty percent currently (due to economic fears and the inability of consumers to easily secure financing), the credit markets should eventually unfreeze. Then consumers can more easily secure auto loans over the next couple of quarters. This, he hypothesized, could result in a solid 20 percent jump in auto sales from the current state of the industry.
Global Recessions Just Push Out Demand
Looking at the industry forecast for the next three years, McClean was in basic agreement with other industry analysts. He believes that 2009 will see industry declines in the double digits of about 17 percent, but he differed in his outlook for 2010, in which he expected to see double digit growth, and even greater growth in 2011.
“We’re [likely] going to have a terrible first half of 2009, but the second half of 2009 will be 15 percent better than the first half,” he explained. “After all, global recessions are times of pent-up demand, they do not destroy demand, they simply push it out.”
Listen and View ISS and SMC Presentations
To listen to McClean’s speech synchronized with his presentation slides (or other ISS or SMC presentations), please visit www.semi.org/issus. SEMI members and registered attendees of ISS and SMC may view the content free of charge, and non-members/attendees can access single sessions for under US$ 20 each.
Feb 3, 2009