IPC’s Shawn Dubravac: COVID-19 Outbreak Accelerates Industry Shifts Already Under Way



On May 19, Barry Matties spoke with Shawn Dubravac, chief economist for IPC. While discussing other topics, Matties asked for Dubravac’s perspective on shifts in the market, who observed that the recessionary trend might be behind us; the markets are already showing recovery. Still, it could take a year or so to fully recover.

Dubravac continued, discussing the value of companies adjusting to new market opportunities by incorporating investments in new equipment, processes, and automation, as well as upgrading infrastructure. He also mentions insights from Matt Kelly, chief technologist for IPC.

The market opportunities in 5G infrastructure will be key for our industry well into the 2030 timeframe, Dubravac pointed out. Even as he sees 5G as key, Dubravac also shared his thoughts on where (and why) 5G deployment may change in response to COVID-19.

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Audio Transcript:

Barry Matties: Welcome. Today, I’m talking to Shawn DuBravac, chief economist for IPC. Shawn, do you have any advice from the financial side? I know there are a lot of shifts in the market. Automotive may be down. And with medical, you saw a big boom with all the ventilators, but I would expect with a surplus of ventilators, we’re going to start seeing some of that medical business decline. What do you see in the market space from your point of view?

Shawn DuBravac: You could make the argument that the recession is over, essentially. April was probably the worst month we’ve, arguably, ever seen in the country, and May will be less bad. That doesn’t make it good, but that makes it less bad. We’re going to have a series of months now that are hopefully sequentially less bad than the prior month. It will take some time before, at the macro level, it will take well over a year for the economy to regain the levels that were in place at the beginning of this calendar year 2020. But each month becomes a little less bad than the prior month, and that’s probably true with all of the existing markets as well.

Automotive was decimated in March and April. May’s not looking great, but it’s looking less bad than March and April were. You’ll have residual weakness and a lot of these categories for the next 24 months before things kind of regain the prior levels that existed in January and February of 2020. Companies will have to make adjustments to offset declines in some of those categories—notably, automotive, aerospace, and some of those other categories. As they do, it probably opens up the opportunity—and this goes to Matt Kelly’s point [chief technologist for IPC]—to upgrade some of their infrastructure and the technology that they’re using.

The long-term benefits from some of those investments will be felt for many years, and arguably decades to come, as companies are adjusting to new market opportunities and adjusting away from market decline, they’ll inevitably make investments that will pay dividends moving forward. Matt [Kelly] could probably speak to what some of those investments look like, but as they reposition themselves to take advantage of other market opportunities and move away from markets that have been weakened significantly and will continue to be weak, they’ll have opportunities to upgrade certain things along the way.

Matties: We know that in China, for example, a lot of resources going into 5G right now. And that’s going to be a huge driver in that economy. And we saw this in 2008 when we had the crash, and they invested heavily in 3G. While the rest of the world was struggling, they were thriving. When you look at markets that we should be paying attention to, is the 5G communications market one that you see, or what’s your thought there?

DuBravac: Definitely. 5G is going to be a massive market opportunity moving forward. These transitions between cellular networks, if you will, and iterations of cellular network are decade long investments and deployments. 5G is going to be a narrative well into 2030. At some point along that trajectory, we’ll start talking about 6G, but we’ll still be deploying 5G in many parts of the world.

One of the thoughts that I’ve been having is that if you look at a lot of the capital that we have deployed in the world, it creates economic activity as a function of some amount of congestion. Think about stadiums. They’re a very big capital investment, and they only make sense if you can have some amount of congestion. You want the stadium full essentially. And we’re in an environment right now, and this environment maybe lasts another 18 months where we’re trying to move away from congestion.

That’s causing us to kind of rethink a lot of things. It’s rethinking the services and capital investment. Obviously, there’s capital investment outside of manufacturing, per se. But when you think about transportation networks; it’s all built upon the economics work when there’s a lot of congestion. Airlines are economically viable when they’re full, and when they’re not full, the economics don’t work out so well. Buses, subway systems, and all of those built upon a fair amount of congestion, and the economics are not so good when you don’t have congestion. This is just something that I’ve been pontificating on lately, but something around 5G makes a lot of sense in a lot of markets—one of them being stadiums—and that’s probably what led me to that thought.

I think you’ll probably see some 5G investment come off of some of those types of environments. You might not be putting 5G investment into stadiums in 2020 and 2021 like you were planning to in January and February. But when it comes to industrial, healthcare, and some other applications, you’re 100% going to see 5G investments ramp up. And one of the things that 5G brings to the healthcare environment is the ability to monitor a lot of equipment that’s distributed across the facility and to share information without having to physically go to where that machine is.

Everything about that type of scenario is something that is very attractive right now. You have got a limited number of human capital in these environments, and you don’t necessarily want them traveling all over the physical facility. You’d much rather move that information and let people monitor things remotely. 5G in healthcare makes a lot of sense. And arguably, what the pandemic has done is not changed things as much as accelerated things that were already in place. If you think about some of the things that were already taking place, they have become accelerated.

Matties: Once again, you’ve been listening to Shawn DuBravac, chief economist for IPC.

 

 

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