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Semiconductor industry business leaders see less momentum today for a sustained industry recovery in 2014 than a year ago, according to this year's Global Semiconductor Industry Survey from KPMG LLP, the U.S. audit, tax and advisory firm.
KPMG surveyed 193 semiconductor industry business leaders in companies based around the world, half of them in companies based in Asia Pacific, to create the 2013 KPMG Semiconductor Industry Confidence Index, which remains flat at 57. This reflects a continued positive view of the sector's revenue and profitability growth, but also suggests the momentum executives forecast a year ago has waned. In the 2012 survey, the index increased from 46 to 57, indicating expectations of strong industry growth.
"Muted optimism best describes the semiconductor outlook for 2014, and lower levels of anticipated revenue growth reflect more short-term uncertainty than a year ago," says Gary Matuszak, global chair of KPMG's Technology, Media and Telecommunications practice. "We see reductions at the upper ends of growth predictions yet higher percentages of respondents predicting modest improvements. This reflects both the industry's penetration into broader applications and broader geographic markets, resulting in less volatility combined with a slowing growth rate for mobile devices."
KPMG 2013 Semiconductor Survey Highlights
About three-quarters of the semiconductor executives, similar to last year, say their company's revenue growth will increase in the next year. However, those expecting revenue to increase more than 10 percent dropped by a third.
On the other hand, business leaders are more optimistic about annual industry profitability. Seventy-eight percent say industry profitability will increase over the next year, compared to 71 percent in 2012. The semiconductor executives anticipating 6 percent to 10 percent hike in industry profitability jumped by almost 50 percent.
At the same time, optimism continues regarding the industry's longer-term prospects. Business leaders point to a broadening applications market for semiconductor industry revenue growth over the next three years, signaling reduced dependence on the three historically most important applications -- wireless handsets/communications, consumer electronics and computing.
"The broadening of applications markets can lead to more diverse revenue sources and lower likelihood of feast or famine cycles," says Ron Steger, KPMG Global Semiconductor Practice leader. "As computing declines in relative importance for the semiconductor industry, the companies that had the foresight to identify and invest in emerging application markets such as automotive and medical, as well as devices that enable the emerging internet of things, will be well-positioned to enjoy competitive advantages"
Most important application markets over next three years
In 2011, only three of eight application markets were rated as most important revenue drivers by more than half of the respondents. In the 2013 survey, these applications markets were identified as most important by at least 55 percent of the respondents:
- Mobile technology -- 69 percent; Consumer -- 66 percent; Computing -- 63 percent;
- Alternative/Renewable Energy -- 63 percent; Industrial -- 62 percent;
- Automotive -- 60 percent; Medical -- 55 percent; Wireline
- Communications -- 55 percent.
Geographic markets for revenue and employment growth
Semiconductor executives also expect broadening in geographic markets and reduced dependence on the U.S. and Europe for customer and revenue growth, with China increasing in importance as an end market for semiconductor revenue growth three years from today. While 56 percent say the U.S. is the most important end market, 55 percent, (up from 46 percent in 2012), say China.
Asked about the industry's expectations for employment growth, executives forecast moderate workforce expansion in 2014. Semiconductor survey respondents continue to cite China (59 percent) and U.S. (48 percent) as the top markets for headcount growth, with more citing India (31 percent) and Korea (24 percent) than in prior surveys.
Additional key findings from the semiconductor survey:
- Seventy-three percent, compared to two-thirds last year, anticipate an increase in the number of merger and acquisition deals in the industry in 2014.
- More than three-fourths expect semiconductor-related R&D spending to increase in the next fiscal year, similar to last year.
- In the medical technology area, about half say medical imaging/scanning will create the greatest revenue opportunity three years from today.
- Of several auto-related areas, roughly one-quarter say body electronics (remote control, HVAC, etc.) will provide the most semiconductor revenue in three years.