Geopolitics and AI will have an effect on the chip business in 2025 | KPMG

AI expertise is making semiconductor business executives extra optimistic about 2025, however headwinds may come from geopolitical and expertise retention points.

These are among the predictions of KPMGThe twentieth annual World Semiconductor Outlook report from the American Audit, Tax and Advisory Society and the World Semiconductor Alliance (GSA).

About 92% of semiconductor business executives surveyed within the survey count on total business development in 2025.

With the promise of continued demand for chips pushed by AI, cloud, knowledge facilities, wi-fi communication and automotive functions, new knowledge from KPMG and GSA reveals important optimism for 2025 amongst executives of the semiconductor sector.

KPMG’s Semiconductor Trade Confidence Index rose to 59, up from 54 in 2023, indicating elevated optimism (a studying above 50 signifies a extra optimistic outlook than damaging) and demonstrates confidence strengthened within the following elements: development of firm turnover, development of profitability, workforce. development, analysis and improvement (R&D) expenditures and capital expenditures.

“AI underpins the business’s near-term development and income expectations,” Mark Gibson, KPMG’s expertise media and telecommunications chief, mentioned in a press release. “The business’s upward trajectory within the close to time period is evident, however corporations that may handle their provide chains and appeal to and retain expertise would be the ones well-positioned to help and profit from the AI ​​growth . »

Regardless of widespread optimism, executives nonetheless anticipate important challenges in 2025, together with geopolitical territorialism (resembling tariffs and commerce restrictions) and ongoing expertise points throughout the sector. (President-elect Donald Trump pledges to impose tariffs on his first day in workplace, January 20).

Constructing provide chain resilience and adaptability, in addition to bettering expertise improvement and retention, shall be essential as demand for chips continues to develop. Navigating this advanced panorama in 2025 would require adaptive methods.

Concerning the survey

In This autumn 2024, KPMG and GSA carried out the twentieth annual international semiconductor business survey, amassing insights from 156 semiconductor business executives on their outlook for the business in 2025 and past . Greater than half of these surveyed got here from corporations with annual income of $1 billion or extra.

Semiconductor business executives have a optimistic outlook for 2025 throughout all elements, with the sentiment index rising 5 factors year-over-year (from 54 to 59). Apparently, small companies, outlined as organizations with lower than $100 million in annual income, have probably the most optimistic outlook.

General, all semiconductor corporations present optimistic scores on the Confidence Index, with smaller corporations displaying probably the most optimism for 2025, probably seeing alternatives to quickly improve their revenues because of their early levels of improvement.

Amongst survey contributors, there have been 58 giant corporations ($1 billion or extra in annual income); 54 medium-sized corporations ($100 million to $999 million in annual income); and 68 small companies (lower than $100 million in annual income).

Semiconductor business executives are very optimistic about their enterprise and the business’s total income development, with greater than a 3rd forecasting income development of a minimum of 10%.

The overwhelming majority (86%) count on their firm’s income to extend in 2025, and nearly half (46%) count on development above 10%. And 92% count on total business income development, with a 3rd (36%) forecasting business income development above 10%.

For the primary time in outlook historical past, AI is the first income driver for semiconductors, displacing automotive, which held the highest spot for the previous two years.

Consequently, microprocessors, together with graphics processing items (GPUs) used for AI, are seen because the main product alternative for business development, forward of reminiscence and sensors/MEMs.

AI instruments, resembling high-bandwidth reminiscence, are the manufacturing expertise anticipated to have the best affect on the business over the following three years. Different key income drivers anticipated in 2025 embody cloud/knowledge facilities (which elevated to 2^sd place), wi-fi communications (remained in 3^rd place), and the car (dropped to 4^th place, beforehand the principle income driver).

Geopolitical issues, notably territorial tensions and commerce restrictions resembling tariffs, are crucial points shaping the sector’s provide chains. Expertise threat stays a lingering concern as demand for chips will increase.

Territorialism (together with tariffs and commerce restrictions) coupled with expertise threat is the most important subject going through the sector over the following three years. Nonetheless, territorialism was clearly crucial downside amongst giant corporations with annual gross sales of $1 billion or extra.

Semiconductor business executives surveyed take into account armed battle and tariffs to be the 2 most regarding geopolitical points prone to have an effect on the semiconductor ecosystem over the following two years. Authorities subsidies and nationalization of semiconductor expertise additionally high the checklist.

In response, semiconductor business leaders are rising geographic range to enhance provide chain resilience. Making the availability chain extra versatile and adaptable to geopolitical adjustments (linked to expertise improvement and retention) is the highest strategic precedence, having been ranked second in final yr’s survey.

Executives are additionally on alert for disruption as non-traditional semiconductor corporations — tech giants, platform corporations and automakers — carve out their very own house within the business.

Whereas most executives (39%) nonetheless see competitors for expertise as the most important affect on the business over the following three years, the emergence of latest opponents has change into nearly an equally essential concern amongst executives ( 35%), signaling a change within the sector of exercise. views.

For comparability, final yr solely 19% of semiconductor business executives cited the emergence of latest opponents as a priority.

“Tech giants and established semiconductor gamers are starting to struggle for market share, with continued technical developments and optimization of chips for AI geared toward bettering and offering options to coaching capabilities and AI inference,” Lincoln Clark, KPMG’s international semiconductor chief, mentioned in a press release. . “Because the business turns into extra aggressive, important investments and cutting-edge methods shall be important for companies to not solely survive however thrive on this quickly altering panorama. »

The complete report on the worldwide semiconductor business outlook shall be launched in early 2025.

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