Geopolitics and AI will have an effect on the chip {industry} in 2025 | KPMG

AI expertise is making semiconductor leaders extra optimistic about 2025, however headwinds may come from geopolitical and expertise retention considerations.

These are among the predictions in KPMG‘s twentieth annual International Semiconductor Outlook report from the U.S. audit, tax and advisory agency in addition to the International Semiconductor Alliance (GSA).

About 92% of the semiconductor executives interviewed for the survey forecasted total {industry} development in 2025.

With guarantees of ongoing demand for chips because of AI, cloud, knowledge facilities, wi-fi communication and automotive functions, new knowledge from KPMG and GSA reveals important optimism for 2025 amongst semiconductor executives.

The KPMG Semiconductor Business Confidence Index rose to 59, up from 54 in 2023, indicating elevated optimism (a worth above 50 signifies a extra optimistic outlook than damaging), and showcasing bolstered confidence throughout the next components: Firm income development, profitability development, workforce development, analysis and growth (R&D) spending, and capital expenditures. 

“AI underpins the industry’s near-term growth and revenue expectations,” stated KPMG expertise media & telecommunications chief Mark Gibson, in an announcement. “The upward trajectory for the industry in the short-term is clear, but the companies that can manage their supply chains and attract and retain talent will be the ones well-positioned to sustain and benefit from the AI boom.” 

Regardless of widespread optimism, executives nonetheless anticipate important challenges in 2025, together with geopolitical territorialism—comparable to tariffs and commerce restrictions—and ongoing expertise points inside the {industry}. (President elect Donald Trump is vowing to impose tariffs on his first day in workplace on January 20).

Strengthening provide chain resilience and suppleness, together with enhancing expertise growth and retention, might be essential as demand for chips continues to develop. Navigating this advanced panorama in 2025 would require adaptive methods. 

Concerning the survey

Within the fourth quarter of 2024, KPMG and the GSA performed the milestone twentieth annual international semiconductor {industry} survey, capturing insights from 156 semiconductor executives about their outlook for the {industry} in 2025 and past. Greater than half of the respondents have been from firms with $1 billion or extra in annual income. 

Semiconductor executives have optimistic outlooks for 2025 throughout all components, with a five-point Confidence Index improve year-over-year (from 54 to 59). Curiously, the smaller firms, outlined because the organizations with lower than $100 million in annual income, have probably the most optimistic outlook. 

Throughout the board, all semiconductor firms have optimistic Confidence Index scores, with smaller firms displaying probably the most optimism for 2025, doubtlessly seeing alternatives for fast income will increase attributable to their earlier phases of growth. 

Amongst these collaborating within the survey, there have been 58 massive firms ($1 billion or extra in annual income); 54 mid-size firms ($100 million to $999 million in annual income); and 68 small firms (lower than $100 million in annual income).

Semiconductor executives are very optimistic about their firm and the general {industry} income development, with multiple third predicting income development by at the very least 10%.  

The overwhelming majority (86%) anticipate their firm’s income will develop in 2025, with virtually half (46%) anticipating development to exceed 10%. And 92% forecast total {industry} income development, and one-third (36%) predict {industry} income development of greater than 10%. 

For the primary time within the historical past of the outlook, AI is an important semiconductor income driver, 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 {industry} development, forward of reminiscence and sensors/MEMs. 

AI enablers, comparable to excessive bandwidth reminiscence, are the manufacturing expertise that’s projected to have the best impression on the {industry} over the subsequent three years. Different key income drivers anticipated in 2025 embody cloud/knowledge facilities (rose to 2^nd place), wi-fi communications (remained in 3^rd place), and automotive (dropped to 4^th place, beforehand the highest income driver). 

Geopolitical considerations, significantly territorial tensions and commerce restrictions like tariffs, are an important points shaping the {industry}’s provide chains. Expertise danger stays a persistent concern as chip demand surges. 

Territorialism (together with tariffs and commerce restrictions) tied with expertise danger as the largest subject dealing with the {industry} over the subsequent three years. Nevertheless, territorialism was the clear-cut greatest subject amongst massive firms with $1 billion or extra in annual income. 

Semiconductor executives surveyed view armed conflicts and tariffs as the 2 most regarding geopolitical issues that would have an effect on the semiconductor ecosystem over the subsequent two years. Authorities subsidies and the nationalization of semiconductor expertise additionally rank close to the highest. 

In response, semiconductor leaders are rising geographic variety to enhance provide chain resiliency. Making the availability chain extra versatile and adaptable to geopolitical modifications (tied with expertise growth and retention) is the highest strategic precedence, after being named second in final 12 months’s survey.  

Executives are additionally on excessive alert for disruption as non-traditional semiconductor firms (tech giants, platform firms, and automotive firms) carve out their very own place within the {industry}.  

Whereas most executives (39%) nonetheless view competitors for expertise as the first impression to the {industry} over the subsequent three years, the emergence of latest opponents has turn into an virtually equally important concern amongst execs (35%), signaling a shift within the {industry}’s outlook.  

To check, final 12 months solely 19% of semiconductor execs cited the emergence of latest opponents as a priority.  

“Tech giants and established semiconductor players are starting to battle for market share, with ongoing technical developments and optimization of chips for AI aiming to enhance and provide alternatives for AI training and inferencing capabilities,” stated KPMG international semiconductor chief Lincoln Clark, in an announcement. “As the industry becomes more competitive, significant investments and cutting-edge strategies will be essential for companies to not only survive but thrive in this rapidly evolving landscape.” 

The complete International Semiconductor Business Outlook report might be launched in early 2025.

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