According to a report by KPMG and the Global Semiconductor Alliance trade group, the semiconductor industry is bracing for 6.5 percent growth to reach $439 billion in 2020, despite the global impact of the epidemic and the economic downturn.
KPMG surveyed 156 executives from semiconductor companies around the world. Seventy-nine percent of industry executives expect semiconductor profits to increase in 2021. Eighty-five percent of executives expect revenue to continue to grow in 2021, and 73 percent plan to increase capital spending. Seventy-one percent of respondents said they plan to spend more on research and development.
According to the KPMG Global Economic Outlook, the semiconductor industry will continue to grow thanks to mainstream growth in the Internet of Things, 5G wireless networks and the automotive industry.
Among semiconductor executives surveyed, 68% identified growth initiatives as their top strategic priority over the next three years. As for industry concerns, 53 per cent of executives said territorial disputes between countries could have an impact, while 37 per cent cited supply chain disruptions. Forty-four percent of executives said making supply chains more flexible and adaptable to geopolitical changes and other disruptions was one of their top three strategic priorities.
Future growth
Sixty-three percent said they would increase their headcount in the next year. Thirty percent said talent risk was a problem for the industry. Developing and managing talent was named one of the top three strategic priorities (53%), up 13 percentage points from last year.
‘The penetration of technology across society and across all sectors is accelerating as we experience profound shifts in home work, education and entertainment,’ Lincoln Clark, KPMG’s partner in charge of global semiconductors, said in a statement. That has fueled a surge in demand for chip products, and semiconductor companies have been quick to react to the change.
Respondents highlighted the greatest growth potential for sensors/micro-electromechanical systems (MEMS), analog/RF/mixed signals and microprocessors (including GPUs), microcontrollers (MCUs) and storage protection units (MPUs).
Supply chain risk
Semiconductor companies are not the only ones worried about supply chains. The outbreak has triggered a comprehensive reassessment of the resilience of supply chains, from companies to governments, to ensure they are prepared for future crises. U.S. President Joe Biden recently announced a supply chain review after expressing particular concern about the semiconductor supply chain as the outbreak caused a series of shortages in key industries.
KPMG urged companies to re-examine their supply chains in light of political and pandemic concerns. Many carmakers face semiconductor shortages and some are even being forced to shut down production lines. Historically, automakers have relied on just-in-time inventory, and with demand growing faster than expected due to early shutdowns caused by COVID-19 in the second half of 2020, they have not been able to acquire the required semiconductor content in sufficient quantities quickly enough.
For companies, it is important to balance the benefits of “just-in-time” and “heavy asset inventory”. The geographical diversity of supply chains is an important consideration, as supply chains are more flexible and those that can adapt to geopolitical changes are increasingly successful.
The report also recommends that chipmakers and their customers re-evaluate whether they need to redesign or introduce micro-supply chains for critical components, rather than adopt a one-size-fits-all supply chain procurement model.
Many companies have outsourced the manufacturing/assembly of their products or critical components to third-party suppliers, many of which are located in low-cost manufacturing countries. Inventory stored at the supplier’s location or in transit may, by arrangement, become an “accounting inventory” on the books. Verifying the completeness, existence, and accuracy of this list can pose audit challenges. Alternatively, businesses that opt for heavier disposals of spot assets to meet just-in-time delivery requirements may face a greater risk of overstocking or obsolescence.
Potential tariff risk
Companies also face a greater risk of tariffs. KPMG said it was essential to reduce the costs and risks associated with rising trade and tariffs throughout the supply chain. In the Middle East semiconductor industry, for example, some manufacturers have made significant supply chain changes, including sourcing chip content from different regions to optimize operations in the current high tariff environment.
In addition, technology and trade policies, particularly in the US and China, are likely to add to cost pressures and supply chain complexity. Governments are increasingly protective of local intellectual property, especially when it comes to sensitive technologies such as 5G. Export controls and sanctions are increasingly being used as a tool to limit foreign access to advanced hardware, software and technical data. KPMG said that these controls created significant compliance and operational challenges, and that effective management was key to maintaining its market advantage.
The epidemic has accelerated the digital transformation of many industries, but slowed progress in others. At the same time, it has forced many manufacturers and suppliers to update their systems and operational models to accommodate remote workers, increasing efficiency and cost-effectiveness.
KPMG said companies should be fully aware of the practices of their suppliers, producers, suppliers and partners throughout the supply chain to ensure they meet various compliance requirements.
