Semi revenues to drop 6% in 2020, IDC says

Down, down, down. Semi sales could drop 6% in 2020, while there's talk of recession or worse. A government report foresees an 18-month-long pandemic. (Pixabay)

Research firm IDC said Wednesday there is an 80% chance of a significant contraction in semiconductor revenues in 2020 due to the impact of coronavirus.

The most likely size of the decline will be 6% in global semiconductor revenues with a 54% probability, IDC said, resulting in a loss of $26 billion. Total semi sales in 2019 were $412 billion, according to the Semiconductor Industry Association, which was a 12% decline in sales over 2018.

RELATED: Coronavirus aid for airlines, but what about tech?

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The most dire scenario IDC identified calls for an even larger 12% or greater revenue decline in 2020 with up to a year of global disruption on the economy and technology demand and on broader technology initiatives.

The company said there’s only a one-in-five chance of a fast strong bounce back from COVID-19.

Under the 6% decline scenario, IDC said the supply chain will start to recover, and quarantines and travel bans will ease over the summer. 

The Johns Hopkins University coronavirus tracker indicated 8,732 deaths and 83,313 cases globally as of 5 p.m. eastern time Wednesday.

IDC's forecast of a 6% decline might be optimistic, given the emergence of a 100-page U.S. government plan to combat the virus, warning that the pandemic will last 18 months or longer and could come in multiple waves. The response plan was obtained by The New York Times (PDF).

Semiconductor revenues are just one measure of the virus’ impact on the global economy. Some economists have tried to assess the overall impact on World GDP. The World Bank in 2008 said there would be a 5% drop in global GDP with a severe pandemic like the 1918 Spanish Flu, according to Dan Hutcheson at VLSI Research. A moderate drop would be a 2% decline, similar to the impact of the Asian Flu in 1957-8.

Some investors worry that wild swings in the stock markets and liquidity problems could lead to a recession, while others have argued the U.S. has already entered a recession. Without a $1 trillion or greater injection of cash into the U.S. economy, including $1,000 payments to U.S. citizens, Treasury Secretary Steven Mnuchin told senators on Tuesday that the U.S. could incur an unemployment rate of 20% in a year. In the Great Depression, unemployment reached 25%.

RELATED: Senate mulls help for Gig workers in $1 trillion coronavirus aid package

Markets closed sharply down on Wednesday, with the Nasdaq dropping 4.7%. The Philadelphia Semiconductor Index of 30 semi stocks fell nearly 10% to $1,286.84.

Some details on President Trump’s virus aid initiative emerged Wednesday, but the total numbers are a moving target and could change, the president said in a mid-day briefing that was televised.

According to what was discussed at the White House briefing, the scenario being considered by the Senate calls for checks to be sent by the IRS to most Americans valued at perhaps $1,000 or more that could come in two installments on April 6 and May 18. The payments would be tiered, based on the size of a family. Each payment would cost the government $250 billion, for a total of $500 billion.

The $1 trillion aid plan would also include $50 billion in assistance to airlines and $150 billion to other business sectors. Small business loans would also be a part of the plan.

President Trump also announced on Wednesday that he is invoking the Defense Powers Act, which may be used to require companies to work on needed materials used by hospitals and care workers to treat patients of coronavirus. Many hospitals are worried they won’t have enough masks, intensive care unit beds or ventilators if there is a surge in cases.

Electronics maker Sharp said in late February that it would start making surgical masks at a plant in Japan to help meet the demand.  

RELATED: Mask shortages prompt Sharp to make them at display plant

President Trump also said that two U.S. Navy hospital ships will be activated to provide needed assistance. The Mercy will be docked near New York City and the Comfort at a west coast location.

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