Executive outlook on semiconductors buoyed by automotive and AI; Yet, concerns exist over talent and inventory

KPMG LLP and the Global Semiconductor Alliance (GSA) conducted the 19th annual global semiconductor industry survey in the fourth quarter of 2023. The survey captured insights from 172 semiconductor executives about their outlook for the industry in 2024 and beyond. More than half of the respondents were from companies with more than $1 billion in annual revenue.

The Semiconductor Industry Confidence Index score is 54 for the upcoming year (a value above 50 indicates a more positive outlook than negative). This is similar to last year (56), yet still lower than each of the previous five years. The primary drivers are the somewhat muted outlooks for workforce growth, research and development (R&D) spending, and capital expenditures. In fact, 51% of executives said their company already has, or in the next year plans to, postpone capital expenditures.

Leaders still optimistic about revenue growth

• More than 8 in 10 (83%) project their company’s revenue will grow over the coming year, which is in line with last year’s 81%. However, the rate-of-growth projections are slightly lower. This year, 4 in 10 leaders expect revenue growth of more than 10%. While still healthy, a full half of respondents (5 in 10) felt this way last year.
• Leaders expect lower customer demand to have the biggest impact on their company over the next year, more than inflation, interest rates, or government subsidies.
• Executives are significantly more enthusiastic than last year about industry revenue growth—85% forecast the industry’s revenue will grow in the coming year, compared to just 64% last year.

Automotive repeats as the most important revenue driver

• Automotive topped the survey for the first time last year as the most important application driving semiconductor company revenue, and again rated in the top spot this year due to the continuing computerization and electrification of vehicles.
• Wireless communications, ranked for several years in the survey as the most important revenue driver, slipped into second place last year and this year tied for third.
• Cloud/data centers and Internet of Things tied for third place last year and remained in this position this year, tied with wireless communications.

Artificial intelligence soars up the agenda

• After placing fourth in the prior two surveys, artificial intelligence (AI) jumped up and ranked as the second most important application driving semiconductor company revenue, displacing wireless communications.
• Correspondingly, microprocessors (including graphics processing units used for AI) ranked as the top product opportunity for industry growth over the next year. Microprocessors ranked second or third over the previous three surveys, depending on the year.
• Implementing generative AI (Gen AI) ranked among the top three strategic priorities for semiconductor companies over the next three years, trailing only talent development / retention and supply chain resiliency, and ahead of other notable priorities such as mergers and acquisitions; participating in government subsidies; cybersecurity; and environmental, social, and governance initiatives.
• The top three functions where semiconductor companies expect to implement Gen AI in the next two years are R&D, marketing, and manufacturing.

Talent pressures mounting

• With the demand for technical talent only expected to increase, talent risk extended its lead as the biggest issue facing the semiconductor industry over the next three years. It ranked as the top issue in the previous two surveys as well.
• Talent development and retention also remained atop the strategic priorities for industry leaders, once again ahead of supply chain resiliency.
• Leaders increasingly view competition for talent as the main impact of nontraditional semiconductor companies (e.g., tech giants, platform companies, automotive companies, etc.) continuing to expand their own silicon capabilities, putting further strain on the talent pool.
• In response to the mounting talent pressures, the top three actions semiconductor companies have taken to date are university partnerships, re-enforcing their employee value proposition, and offering remote/hybrid work positions.

Executives planning for an inventory surplus

• In last year’s survey, 24% of respondents believed there was already an excess of semiconductor inventory. That amount increased to 30% in this year’s survey, driven in part by the aforementioned lower customer demand. An additional 12% think the next inventory excess will occur in 2024.
• Reducing inventory levels was tied for the second most frequent action semiconductor companies have taken, or expect to take in the next year, in response to market forces and the economic environment. The postponing of capital expenditures, mentioned above, was number one.
• Excess production capacity ranked as the fourth highest industry issue over the next three years, up a spot from last year’s survey.
• Conversely, there is a faction of executives who believe emerging technologies like AI represent a continual growth engine. Almost one in five (19%) executives believe demand will keep increasing, and there will in fact not be an inventory excess in the next four years. This is double the amount from last year’s survey (9%).