Following the tragic events in the US IC Insights received numerous calls regarding its opinion on both the near-term and long-term future of the IC industry. Here follows its expectations for the future of the electronics and IC industries which begin with assumptions of macro economic conditions:
Near-term world GDP: There is little doubt that the tragic events have harmed the economies of many countries. Before the attack, 2001 worldwide GDP was likely to show about 2,4% growth, right on the edge of a worldwide recession. It now appears that the 2001 worldwide GDP growth rate will drop to 1,8-2,0%, fully within the range of a worldwide recession.
Long-term world GDP: IC Insights believes that the worldwide economy may show strong growth in 2002, especially in the second half of the year. While the exact timing of a strong worldwide economic rebound is unclear, IC Insights believes that there is a good chance it will begin in mid-2002. Worldwide GDP could be expanding at a 4,0% or greater growth rate in the second half of 2002. The US Federal Reserve slashed interest rates by a half-point on 17 September (its eighth cut in 2001) and may cut interest rates further. The European Union, UK, and Japan also cut interest rates during the week of 17 September. IC Insights believes that this coordinated financial stimulus put forth by so many economically important regions will lay the foundation for an economic rebound in 2002. One result of the tragedy has been the denouncement by almost every country in the world of the terrorist attacks. Thus, about 99% of the world's countries have agreed on an issue. This alone could be an historical first. The long-term positive of so many politically diverse countries finding some 'common ground' may be an increase in cross-border trade and business.
Near-term electronic system sales: Prior to the attack, IC Insights forecast that 2001 worldwide electronic system sales would decline 4%. It now expects worldwide system sales to decline 6% in 2001. While there has been a surge in cellphone sales in the US since the attack, it believes that short-term sales increases in selected electronic system segments will not be enough to offset the overall economic weakness expected in the fourth quarter.
Long-term electronic system sales: The future will depend heavily upon electronic systems. This was true before last week's attack and it may be even more true now. There is likely to be a surge in electronic 'security' systems such as smartcard identification, government/military surveillance equipment, fingerprint recognition, etc. There may also be a large increase in computer usage and information data storage from intelligence gathering operations. Teleconferencing may finally become more prevalent than it has been in the past. Cellphones may now be considered as much a personal safety device as a telecoms system, expanding its adoption rate throughout society. In total, the world will become increasingly dependent upon electronic systems.
Near-term IC sales: As mentioned in its September McClean Report Update, the worldwide IC market in 3Q01 is expected to decline by about 15% from 2Q01. Although the uncertainty of the worldwide economy is extremely high entering 4Q01, IC Insights has assumed the IC market in 4Q01 will be flat with 3Q01. Using these assumptions, the annual worldwide IC market would register a 34% decline in 2001, to about $117 bn.
Long-term IC sales: As mentioned previously, IC Insights expects a significant rebound in worldwide economic growth and electronic system sales to begin in mid-2002. This in turn should fuel a surge in IC sales. IC Insights believes that sequential IC market growth in both 3Q02 and 4Q02 could be 10% or greater. It should be remembered that there will be no significant IC inventory overhang hindering growth next year. The range for 2002 IC industry growth is expected to be 10-20%. Presently, IC Insights' forecast for a 14% increase in the 2002 IC market is still in place.
Summary
Governments worldwide are focused on implementing policies that will eventually spur economic growth in their regions. Such policies typically have a significant lag-time before results are evident. Moreover, there is no precise formula outlining how much economic stimulus is enough. Thus, IC Insights believes that the foundation is currently being laid that will create an environment in which worldwide economic growth is likely to significantly exceed current expectations within the next 12 months. While many electronic system purchases may be delayed in 4Q01, the important point to be made is that they will be delayed, not abandoned. Many companies and consumers worldwide will begin to upgrade and purchase new electronic systems at some point during 2002. Historically, 'pent-up' demand has always been a good precursor to strong cyclical upturns. IC Insights believes that the future is very bright for electronic system sales and the IC market. Worldwide GDP growth, electronic system sales, and the IC market are each very cyclical in nature - the events of September have not changed this.
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