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That means that chips for cars will move into the fast lane and surpass demand for chips for wireless communications as the most important driver of revenue over the next year for the first time, the 18th annual KPMG Global Semiconductor Outlook found.
The survey captured insights from 151 semiconductor executives about their outlook for the industry in 2023 and beyond. More than half of the respondents are from companies with more than $1 billion in annual revenue.
And since shortages are hard to overcome despite a weak economy, the chip executives are more positive about their future. The Semiconductor Industry Confidence Index score is 56 for the upcoming year. A value above 50 indicates a more positive outlook than a negative one.
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This is lower than each of the previous four years but is understandable given the economic uncertainty and geopolitical events that have arisen in the past year.
“Geopolitical concerns, supply chain shocks, post-pandemic shifts in consumer behavior, a consistent talent shortage – there has been no lack of hurdles for the semiconductor industry to navigate over the past few years,” said Mark Gibson, KPMG global and U.S. leader for technology, media and communications, in a statement. “Despite these challenges, the automotive sector’s burgeoning needs for more chips have kept the industry cautiously optimistic about future growth.”
Leaders are optimistic about revenue growth
Eighty-one percent of execs project their company’s revenue will grow over the coming year, and half expect growth of more than 10%. While these are lower than last year’s survey (95% and 68% respectively), it is still encouraging given the current economic environment and perceptions regarding industry inventory levels discussed below, the report said.
Leaders are slightly less bullish on industry revenue growth. Sixty-four percent forecast the industry’s revenue will grow in the coming year, with 19% predicting growth of more than 10%. These are also significantly lower than last year’s survey (97% and 49% respectively).
The Russia-Ukraine war may be a contributor to the lower industry revenue growth projection. Forty-one percent are concerned the war will materially impact industry revenue growth in 2023. When KPMG and the GSA conducted a pulse survey in May 2022, only 25% had this concern.
Automotive takes the pole position
In correlating research, KPMG predicts automotive semiconductor revenue will reach $200 billion annually by the mid-2030s and surpass $250 billion by 2040.
Wireless communications, long seen as the industry’s most important revenue driver, slipped into second place in the 2023 outlook.
The internet of things, cloud computing, and artificial intelligence rank third, fourth, and fifth in terms of importance.
In its first year on the survey, the metaverse was ranked last (out of 10) in importance for driving semiconductor company revenue over the next year. It will be interesting to see how this view changes in the coming years as metaverse technology evolves and adoption increases.
The end of the semiconductor shortage is in sight
Sixty-five percent of the executives surveyed think the semiconductor supply shortage will ease in 2023 and 15% believe that supply and demand are already in balance for most products. Only 20% think the shortage will last into 2024 or later.
As the semiconductor industry is cyclical, the survey also asked respondents when they think the next excess supply of semiconductor inventory will occur. Twenty-four percent believe there is already an excess and 31% think it will occur in 2023. Another 36% feel the surplus will happen between 2024 and 2026, while 9% believe demand will keep increasing and there will not be an inventory excess in the next four years. With such wide variation in predictions, I’m thinking that the art of forecasting still isn’t that good.
Leaders also do not see the Russia-Ukraine war materially impacting the semiconductor supply chain in 2023. Less than one-third (twenty-nine percent) are concerned with this, which is down from 39% in the pulse survey conducted by KPMG and the GSA in May 2022.
Talent remains a crucial priority
Talent risk is seen as the biggest issue facing the semiconductor industry over the next three years. Underscoring the ongoing need for specialists in this growing, cutting-edge industry, 71% of respondents anticipate increasing their global workforce in 2023. This is lower than last year (87%), but still a healthy expectation in the current economic climate.
The survey also shows that talent development and retention remain the top strategic priority for industry leaders, with 67% naming it a “top 3” strategic priority. While lower than the 77% mark in last year’s survey, it still clearly outpaces supply chain flexibility (53%) and digital transformation (32%) this year.
Though still important for any business, only 15% of semiconductor executives rank mitigating cybersecurity risk as a “top three” strategic priority and just 10% say the same about formalizing ESG reporting, despite looming mandatory reporting requirements.
The nationalization of semiconductor technology is the biggest geopolitical concern
Among geopolitical matters, the impact of the nationalization of semiconductor technology is the biggest concern on the minds of executives, as this has implications for supply chains, talent acquisition, and access to government subsidies (e.g., the enacted Chips and Science Act in the U.S. and the proposed European Chips Act).
The nationalization of semiconductor technology is also tied as the second biggest issue facing the industry over the next 3 years (tied with global inflation). Other top geopolitical concerns include the prominence of Taiwan in the supply chain, tariffs and trade deals, and the long-term impacts of the Russia-Ukraine war.
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