"These are signs of a maturing industry, and lower growth rates may be the theme over the intermediate future," said Lincoln Clark, KPMG Global Semiconductor Industry Leader. "While there are some industry forecasts with a more optimistic one year outlook, there's also caution that the industry may be approaching the end of a growth cycle, and that caution is reflected in the three year outlook by semiconductor executives in our survey. Pressure on the average sales price of semiconductors will continue to impact revenue and investment spending."
Semiconductor company business leaders said average sales price erosion is the top issue facing the industry over the next three years. Therefore, it follows that the number one strategic priority for semiconductor execs, according to the survey, is "diversifying into a new business area", with both "acquisition, merger or joint venture" and "talent development/management" second.
"The focus on diversification means that to successfully capitalize on future growth trends, companies must invest their R&D funds wisely and efficiently," said Clark. "Yet, this appears to be a challenge for some semiconductor companies."
Almost half (49 percent) of the semiconductor executives said their current R&D spending is not aligned efficiently with current core products and 40 percent said their R&D spending is not aligned efficiently with future growth opportunities.
Complementing M&A's selection as a top strategic priority is the fact that nearly 6 out of 10 respondents (57 percent) said that total M&A valuations will increase in 2017 compared to 2016. It is worth noting that the survey was conducted just ahead of some significant 4th quarter M&A announcements, which may have been in respondents' consideration for 2017. The survey found that revenue growth and intellectual property acquisition are still the top M&A drivers.
As semiconductor executives project lower revenue growth and seek to diversify, they are also are concerned about new competitors and disruptors, which are seen as having the biggest potential impact on their company's growth over the next three years.
Revenue growth drivers, apps, markets
In looking at growth drivers in 2017, sensors/MEMS jumped to the top of the list of the highest growth opportunity. Wireless communications and Internet of Things solidified their positions as the top two most important application markets for revenue over the next year. Automotive was a close third.
Semiconductor executives also placed the U.S. back in the number one position, ahead of China, as the most important geographic area for both revenue growth and headcount growth. China was ranked first last year.
KPMG Global Semiconductor Industry Outlook Survey
KPMG's study, conducted in September 2016, surveyed 153 semiconductor industry business leaders around the world, primarily senior level executives, including device, foundry and fabless manufacturers. Eighty-two percent of the companies represented in the survey have annual revenue of $1 billion or more.
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative ("KPMG International"). KPMG International's member firms have 174,000 professionals, including more than 9,000 partners, in 155 countries.
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SOURCE KPMG LLP