Chip shortage on track to ease—but risks remain
New industry survey finds hints of optimism from semiconductor executives despite continued supply chain threats and geopolitical upheaval.
Semiconductors are everywhere these days. From cars to refrigerators to the ID tag on Rover’s dog collar, these smart chips are now basic staples in today’s Internet of Things world.
Well, semiconductors are supposed to be everywhere. But an unprecedented collision of macro risks—supply chain disruptions, inflation, the Russia-Ukraine war, China-Taiwan tensions—has created a challenging environment for chip suppliers, along with some headline-grabbing news about critical shortages of this vital, “the-world-runs-on-it” commodity.
To get an updated snapshot of the industry, we recently surveyed 28 C-level executives from the world’s largest semiconductor companies for the latest KPMG Semiconductor industry pulse report, a follow-up to our earlier 2022 industry outlook. Amid all of 2022’s changes, just how much has changed for the chip industry?
Despite the significant headwinds, our latest survey found industry leaders relatively optimistic, all challenges considered. Yes, there are significant concerns, and few expect the ongoing uncertainties to just suddenly melt away, especially in the current economic climate. But, for the most part, they remain confident about growth prospects in the next two year.
The vast majority (83 percent) of respondents anticipate the chip shortage will ease by the end of 2023.
Source: Insights from KPMG’s 2022 semiconductor industry pulse report.
Cautious optimism
Perhaps the biggest insight from our survey is that a large majority (83 percent) of industry leaders expressed confidence that the chip shortage will ease by the end of 2023. That’s potential good news for the many other industries and supply chains that rely on semiconductor chips to get their own products to market. On a related note, half of the leaders we surveyed remain positive about revenue growth in 2023, with just one in four expressing concerns.
Amid that cautious optimism, however, leaders are still focused on monitoring three overarching areas that heavily influence semiconductor production: geopolitics, supply chain, and talent.
In many ways, geopolitics and supply chain issues are inevitably interconnected. For example, Taiwan’s prominence in the supply chain amid its tenuous relationship with China was a top issue in our report, with 50 percent expressing at least some level of concern. And while the semiconductor industry’s supply chain has become more agile on new sourcing options since the pandemic, 39 percent of those surveyed remained concerned about the Russia-Ukraine war’s impact on chip supplies in 2023. Both Russia and Ukraine are major suppliers of some of the critical raw materials that go into semiconductor chips.
Another lingering issue is the Securities and Exchange Commission’s (SEC) evolving new proposal on climate rules and reporting. Perhaps not surprisingly, amid all of the more immediate geopolitical and economic stressors, just 18 percent of executives in the survey expressed concern on potential new regulation.
To stay abreast of the risks and try to plan for any disruptions, our report also spotlights some essential areas of focus for company leaders:
1
Identify uncertainty:
Keep track of the risk factors with the potential to create the most uncertainty for your business, such as military, cyber, or economic conflict.
2
Stay prepared:
Create an action plan for multiple risk scenarios and consider alternate strategies to combat obstacles.
3
Assess impact:
Consider modeling multiple scenarios and their potential impact across your business—for example, how a sudden supply chain shortfall in one area can affect other areas of your business.
4
Compete for talent:
Bring on workers who have specialized skills while also focusing on improving the employee experience to increase talent retention.
5
Monitor regulations:
Be aware of the SEC climate proposal’s requirements and how they may affect your operations.
A real-world growth example
One place these semiconductor opportunities and risks are rapidly playing out is in the fast-growing automotive chip arena, which continues to speed ahead despite the shifting business, technology, and financial landscape.
As tech innovation increases in the automobile industry, cars now seem more like computers on wheels. And those “computers” need semiconductors, which means demand throughout the industry continues to expand. In fact, the executives we talked to for our related automotive semiconductors report expect this sector now to be the second-highest growth driver for chips, trailing only the wireless communications sector—the long-standing, smart-phone, chip-hungry leader.
But as demand rises, the global chip shortage is hitting the automotive semiconductor manufacturers especially hard. So how can manufacturers adapt and respond? We’ve outlined a four-pronged approach:
1
Radical transformation:
Companies should focus on not only addressing immediate problems, like shortages, but also on developing a holistic design philosophy to rethink semiconductor selection and ensure future success.
2
Talent, talent, talent:
Hire experts who are well-versed in semiconductor software and can manage the supply. But be warned, tech companies are also competing for skilled workers, so it’s essential to aggressively battle for and retain talent.
3
Org 2.0:
Implementing organizational changes, such as splitting off electric vehicle divisions, can increase efficiency, but requires careful planning.
4
Data-driven partnerships:
Understand what data needs to be collected and how to use it beyond car operation to promote future growth and transformation.
By creating effective business tactics to manage the extended supply chain, automotive chip manufacturers can improve their bottom line and offer new value to customers.
Planning for uncertainty
Despite these signs of growth and optimism, semiconductor industry leaders remain laser-focused on the abundant risks to keeping their chip supplies moving—whether for that luxury smart car or even just Rover’s dog tag.
War, tensions with China, economic pressures, and the fierce battle for talent are a busy to-do list for semiconductor executives today. And at the same time, planning for the SEC’s looming new climate and energy requirements can’t sit on the back burner for much longer.
Amid all of those challenges, the industry leaders we surveyed were staying vigilant, even as supply pressures show signs of easing and demand only continues to increase.
After all, in an innovation-powered world—thanks to all those smart chips—it’s vital for companies to be prepared for anything that might cross their path.
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