Cautious optimism is the prevailing mind-set across semiconductor industry business leaders when asked about their views on the coming year's industry forecast. This is according to the latest survey conducted by KPMG LLP, an audit, tax and advisory firm based in the U.S.

KPMG surveyed 155 semiconductor industry business leaders in companies based around the world to create this year's KPMG Semiconductor Industry Confidence Index, which edged higher to 59, compared to 57 a year ago. A value above 50 is considered an optimistic outlook on the business environment for the next 12 months. The index is based on survey responses to questions on revenue, profitability, workforce, capital spending and R&D investment.

Diverging views in industry expansion forecast

Respondents are split on what expansion stage the industry will see next year, or whether it will expand at all. Thirty-seven per cent believed the industry cycle will be in a late expansion stage in 2015, 36 per cent said early expansion stage, 19 per cent believed the industry will move from expansion to contraction, and eight per cent said the industry is no longer cyclical. Interestingly, more U.S. respondents (43 per cent) said late expansion stage, while more Asia Pacific respondents (38 per cent) said early expansion stage.

"Last year's predictions for accelerated growth have largely been fulfilled, but consistently lower revenue guidance for 4Q14 emerged as we were conducting this survey, and that has affected results" said Gary Matuszak, global chair of KPMG's technology, media and telecommunications practice. "The lower guidance has clearly held down a more meaningful increase in the 2014 confidence index and lowered growth expectations for 2015."

Semiconductor company leaders' outlook for industry profitability and company revenue growth over the next year and next three years was similar across the board. Greater than 80 per cent of the business leaders expect an increase, up from less than 80 per cent a year ago, though lower growth rates are predicted in both cases. Less semiconductor executives than a year ago anticipated 6-10 per cent growth, while more of them saw a one to five per cent increase.

"The semiconductor industry faces a myriad of challenges, including accurately forecasting demand, investing in the right new market opportunities, managing the higher development costs of more integrated solutions and navigating increased competition in China," said Packy Kelly, KPMG global semiconductor practice leader. "How semiconductor companies address these challenges will help determine whether 2015 is another record year."

Sensors seen to lead semicon growth for 2015

The majority of survey respondents (61 per cent) predict sensors will provide the strongest sector growth opportunity for the industry in 2015. Sensors are a key to automotive technology applications, touch screens, wearables and the Internet of Things.

"Competition in the industry has never been more intense as the bar is raised constantly for new product introductions and the time to market for each new design is consistently compressed," said Kelly.

Among end markets, medical (66 per cent) and networking and communications (62 per cent) will provide the strongest growth opportunity in 2015, according to semiconductor executives.

Semiconductor company business leaders said cloud, big data and the wireless/mobile application markets are seen as their company's most important semiconductor revenue drivers over the next year. However, over the next three years, several emerging application markets will be most important, led by robotics, big data and automotive sensors, with cloud, medical imaging, biometrics/security and wearables also attractive.

Increasing R&D costs are the biggest issue facing the semiconductor industry during the next three years, said 43 per cent of the respondents. Another 37 per cent cited achieving technology breakthroughs such as those resulting from Moore's Law, as the biggest issue, and about one-third (32 per cent) pointed to the high cost for plant and equipment.

Uncertainty surround's Moore's Law

Asked about Moore's Law, which marks its 50th anniversary next year, 26 per cent of the semiconductor company business leaders expected the benefits of Moore's Law to continue for the foreseeable future and 16 per cent said it has already ended. Fifty-eight per cent said Moore's Law will no longer apply at various nodes less than 22nm. Moore's Law, named after Intel co-founder Gordon Moore, states that the number of transistors, or processing power, that can be placed on an IC doubles nearly every two years.

At the same time, survey respondents continued to believe in the value of 450mm wafers, though this year's results indicated higher uncertainty about when the shift will occur. Over four in 10 said that 450mm wafer production will have a greater impact on the industry than production at a sub 20nm technology node. In a shift from 2013, 54 per cent said transition to 450mm wafers will occur between 2015 and 2018, though more likely in 2017-2018 (39 per cent). In last year's survey, 63 per cent believed the transition would occur by 2018.

Semiconductor executives said that the U.S., China and India will continue to be the most important markets for their company's revenue in 2015 and three years from today.

Six out of 10 indicated the U.S. was the most important end market for revenue in 2015, 55 per cent said China, and 43 per cent said India for 2015. The survey findings were similar for these countries when considering top revenue markets three years from today.

Executives also forecast moderate expansion in their company's global workforce. They continued to cite the U.S. (70 per cent), China (64 per cent) and India (42 per cent) as the top three markets for headcount growth in 2015.

Greater spending capital expected for chip industry

According to the semiconductor survey, 83 per cent said their company's semiconductor-related capital spending will increase for the next year, with 22 per cent expecting an increase greater than 10 per cent. Last year, just 12 per cent said spending would increase by more than 10 per cent. Also, a significant number (82 per cent) expected their company's semiconductor-related capital spending to increase three years from today. More respondents than last year expected an 11 per cent or greater increase in capital spending (26 per cent compared to 18 per cent).

In addition, more than eight out of 10 expected their company's semiconductor-related R&D spending to increase in the next year. However, compared to last year, fewer respondents predicted 6-10 per cent growth and more expected one to five per cent growth. Two-thirds, down from 73 per cent last year, anticipated an increase in the number of merger and acquisition deals in the industry next year.

By: DocMemory
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