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Semiconductor executives foresee the automotive trade changing into the No. 1 driver for chip demand, in response to a survey by KPMG and the Global Semiconductor Alliance.

That implies that chips for automobiles will transfer into the quick lane and surpass demand for chips for wi-fi communications as an important driver of income over the subsequent 12 months for the primary time, the 18th annual KPMG World Semiconductor Outlook discovered.

The survey captured insights from 151 semiconductor executives about their outlook for the trade in 2023 and past. Greater than half of the respondents are from corporations with greater than $1 billion in annual income.

And since shortages are laborious to beat regardless of a weak economic system, the chip executives are extra optimistic about their future. The Semiconductor Business Confidence Index rating is 56 for the upcoming 12 months. A price above 50 signifies a extra optimistic outlook than a destructive one.

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That is decrease than every of the earlier 4 years however is comprehensible given the financial uncertainty and geopolitical occasions which have arisen prior to now 12 months.

“Geopolitical issues, provide chain shocks, post-pandemic shifts in client conduct, a constant expertise scarcity – there was no lack of hurdles for the semiconductor trade to navigate over the previous few years,” stated Mark Gibson, KPMG international and U.S. chief for know-how, media and communications, in a press release. “Regardless of these challenges, the automotive sector’s burgeoning wants for extra chips have stored the trade cautiously optimistic about future development.”

Leaders are optimistic about income development

Eighty-one % of execs venture their firm’s income will develop over the approaching 12 months, and half anticipate development of greater than 10%. Whereas these are decrease than final 12 months’s survey (95% and 68% respectively), it’s nonetheless encouraging given the present financial surroundings and perceptions relating to trade stock ranges mentioned beneath, the report stated.

Leaders are barely much less bullish on trade income development. Sixty-four % forecast the trade’s income will develop within the coming 12 months, with 19% predicting development of greater than 10%. These are additionally considerably decrease than final 12 months’s survey (97% and 49% respectively).

The Russia-Ukraine conflict could also be a contributor to the decrease trade income development projection. Forty-one % are involved the conflict will materially influence trade income development in 2023. When KPMG and the GSA performed a pulse survey in Might 2022, solely 25% had this concern.

Automotive takes the pole place

Automotive chips for the win.

In correlating analysis, KPMG predicts automotive semiconductor income will attain $200 billion yearly by the mid-2030s and surpass $250 billion by 2040.

Wi-fi communications, lengthy seen because the trade’s most vital income driver, slipped into second place within the 2023 outlook.

The web of issues, cloud computing, and synthetic intelligence rank third, fourth, and fifth by way of significance.

In its first 12 months on the survey, the metaverse was ranked final (out of 10) in significance for driving semiconductor firm income over the subsequent 12 months. It is going to be attention-grabbing to see how this view adjustments within the coming years as metaverse know-how evolves and adoption will increase.

The top of the semiconductor scarcity is in sight

The semiconductor trade scarcity could also be easing.

Sixty-five % of the executives surveyed assume the semiconductor provide scarcity will ease in 2023 and 15% imagine that offer and demand are already in steadiness for many merchandise. Solely 20% assume the scarcity will final into 2024 or later.

Because the semiconductor trade is cyclical, the survey additionally requested respondents after they assume the subsequent extra provide of semiconductor stock will happen. Twenty-four % imagine there’s already an extra and 31% assume it can happen in 2023. One other 36% really feel the excess will occur between 2024 and 2026, whereas 9% imagine demand will maintain rising and there won’t be a listing extra within the subsequent 4 years. With such huge variation in predictions, I’m considering that the artwork of forecasting nonetheless isn’t that good.

Leaders additionally don’t see the Russia-Ukraine conflict materially impacting the semiconductor provide chain in 2023. Lower than one-third (twenty-nine %) are involved with this, which is down from 39% within the pulse survey performed by KPMG and the GSA in Might 2022.

Expertise stays an important precedence

Expertise threat is seen as the largest situation dealing with the semiconductor trade over the subsequent three years. Underscoring the continued want for specialists on this rising, cutting-edge trade, 71% of respondents anticipate rising their international workforce in 2023. That is decrease than final 12 months (87%), however nonetheless a wholesome expectation within the present financial local weather.

The survey additionally reveals that expertise growth and retention stay the highest strategic precedence for trade leaders, with 67% naming it a “high 3” strategic precedence. Whereas decrease than the 77% mark in final 12 months’s survey, it nonetheless clearly outpaces provide chain flexibility (53%) and digital transformation (32%) this 12 months.

Although nonetheless vital for any enterprise, solely 15% of semiconductor executives rank mitigating cybersecurity threat as a “high three” strategic precedence and simply 10% say the identical about formalizing ESG reporting, regardless of looming necessary reporting necessities.

The nationalization of semiconductor know-how is the largest geopolitical concern

Amongst geopolitical issues, the influence of the nationalization of semiconductor know-how is the largest concern on the minds of executives, as this has implications for provide chains, expertise acquisition, and entry to authorities subsidies (e.g., the enacted Chips and Science Act within the U.S. and the proposed European Chips Act).

The nationalization of semiconductor know-how can be tied because the second largest situation dealing with the trade over the subsequent 3 years (tied with international inflation). Different high geopolitical issues embody the prominence of Taiwan within the provide chain, tariffs and commerce offers, and the long-term impacts of the Russia-Ukraine conflict.

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