Insight

Semiconductor companies: Managing through market disruption and beyond

Responding to COVID-19 driven market transformation

Scott Jones

Scott Jones

Partner, Deal Advisory & National Semiconductor Leader, KPMG US

+1 408-367-7002

COVID-19 has caused a rapid, unprecedented impact to the semiconductor industry driven by a dramatic shift in consumption. This has created business continuity uncertainty. As semiconductor companies look to stabilize and re-emerge, they should use a three phased approach focused on: Resilience, Recovery and the New Reality.

  1. Semiconductor companies are typically better positioned compared to others from a liquidity perspective, but revenue declines are expected and may impact investment levels in key areas. Semiconductor companies with low Cash/OpEx could experience a cash crunch in <45 days of a major revenue or cash flow contraction
  2. Even semiconductor companies not experiencing immediate disruption must look ahead, as disruption to their customers and their partner ecosystems will have ripple effects across many end markets
  3. According to the KPMG Global Semiconductor Leadership Survey, a majority of executives expect a ~10% revenue decline for 2020. ~90% of leaders believe revenue will recover within 2 quarters after economy reopens
  4. Recovery is expected be uneven across end markets and geographies: Automotive and Consumer may face the biggest headwinds with Data Processing as one of the lone bright spots in the short term
  5. To compensate, semiconductor companies need to take immediate actions, such as enabling remote work force, mitigating supply chain risks, optimizing working capital, and reducing capex and discretionary spend

What are the core stages and activities of response planning?

Response planning such as remote workforce enablement, supply chain diversification, working capital optimization, capital expense reduction, discretionary spend reduction should address 3 distinct stages, that may overlap.

Resilience

Resilience: Rapid mobilization and stress testing

  • Safeguard employees/assets
  • Assess impact to revenue/payments
  • Protect customers and manage churn
  • Control use of cash
  • Stress test the business

Recovery

Recovery: Improve performance under new conditions

  • Adapt go-to-market to customer/partner needs & conditions
  • Take steps to reduce cost as appropriate
  • Manage working capital and debt
  • Re-prioritize capital investments
  • Evolve risk and compliance controls

New reality

New reality: Capture value from pervasive changes

  • Shift talent/capital towards growth
  • Adapt offers to new sources of demand
  • Innovate new capabilities and solutions
  • Enter adjacent markets to capture additional value
  • Take advantage of M&A opportunities