MOUNTAIN VIEW, USA: Despite the uneven overall global economic recovery, semiconductor executives see their industry breaking the historical boom-and-bust performance trend with solid increases expected in 2011 in sales, and most importantly, workforce growth, according to a global survey conducted by KPMG LLP, the US audit, tax and advisory firm.
However, 53 percent of respondents anticipate the semiconductor cycle will peak within the next 12 months, reinforcing the inherent cyclicality of the industry.
Historically, the semiconductor's industry's largest boom years are followed by sharp declines in the next year, yet, according to KPMG's survey of 118 senior semiconductor executives, the industry appears confident that continued product demand in 2011 will break that pattern, even as it follows a 2010 year that many analysts are forecasting as the third highest ever in the semiconductor industry.
In fact, according to the KPMG survey, conducted in collaboration with the Semiconductor Industry Association, 78 percent of semiconductor executives expect that revenue will grow by more than 5 percent next year, a sign of resiliency, as 87 percent of 2009 respondents projected similar revenue increases.
In looking at the jobs picture, 29 percent of the respondents predict workforce growth of greater than 5 percent, compared to 23 percent in 2009 and 17 percent in 2008 - reflecting increased confidence in the resilient semiconductor industry.
"Our findings show an industry that expects moderate growth next year, which is extraordinary in the context of an uneven global economic recovery," said Gary Matuszak, KPMG Global Chair for the Information, Communication and Entertainment practice. "The continuing demand for electronic products ranging from tablets to smartphones, and an increased demand for technology integration in automobiles will buoy semiconductor manufacturers as the economy fluctuates. "
The results of the survey translated to strength in KPMG's companion Semiconductor Industry Business Confidence Index, a measure derived from specific survey responses on revenue, capital spending, workforce change and R&D spending.
This year, the Index registered 60, nearly matching last year's 61, which was also the pre-recession level three years ago. The Index dropped to 36 in 2008. An Index of 50 represents a neutral perception about the industry's prospects, and above 50 represents a positive perception, while below 50 represents a negative perception.
"The executives' confidence also appears to be fueled by recovering economies in a couple of key regions," said Ron Steger, Partner in Charge, KPMG Global Semiconductor Practice. "China still is viewed as most important for semiconductor product growth, but more executives also foresee the US and European economies recovering and having important roles in industry growth."
Reflecting the fundamental strength of the semiconductor industry, 39 percent of the industry executives expect their company's semiconductor revenue to increase by 10 percent or more in the next fiscal year, compared to 54 percent last year.
Survey respondents also identified the top drivers of current revenue growth for 2011:
* Sixty-eight percent believe that current revenue growth will be driven by wireless handsets and other wireless communications devices,
* Sixty-five percent tabbed consumer products,
* Fifty-five percent identified computing.
Also, more executives believe industrial products (43 percent vs. 39 percent in 2009) and automotive products (38 percent vs. 30 percent) will be important revenue drivers over the next year.
The expected profitability growth for 2011 reflects continued confidence in industry fundamentals, but a less bullish view than last year's survey. Thirty-seven percent of respondents anticipate profitability growth in excess of 5 percent for 2011, and a year ago 76 percent expected that level of growth for 2010.
Future geographic growth
Although China is still considered to be the most important geographic area for semiconductor revenue growth three years from today (70 percent of respondents gave the highest rating of 8-10), KPMG's survey found that its significance has diminished slightly - dropped from 78 percent last year and 79 percent in 2008.
Conversely, both the US and Europe appear poised to play a larger role in industry growth over the next three years, as 47 percent of executives gave the U.S. an 8-10 rating compared with a 42 percent in last year's survey, and Europe increased to 30 percent in the this year's survey from 25 percent a year ago.
In this year's findings, more executives (83 percent) expect semiconductor R&D spending to increase in the next calendar year, with 47 percent saying it will be greater than 5 percent, compared to 72 percent and 45 percent, respectively, last year.
The KPMG semiconductor industry survey results show that 53 percent of respondents anticipate the semiconductor cycle will peak within the next 12 months, which is somewhat contradictory to the responses received in the areas of revenue and profitability growth.
Sixty-two percent indicate a high or extremely high level of interest from customers for energy efficient and/or energy renewable products compared to 65 percent last year.
KPMG's study, conducted in collaboration with the Semiconductor Industry Association in September and October, surveyed 118 senior level executives in the semiconductor industry including device, foundry and fabless manufacturers.