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

AI know-how 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 World Semiconductor Outlook report from the U.S. audit, tax and advisory agency in addition to the World Semiconductor Alliance (GSA).

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

With guarantees of ongoing demand for chips because of AI, cloud, information facilities, wi-fi communication and automotive purposes, new information 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 price above 50 signifies a extra optimistic outlook than adverse), and showcasing bolstered confidence throughout the next components: Firm income development, profitability development, workforce development, analysis and improvement (R&D) spending, and capital expenditures. 

“AI underpins the {industry}’s near-term development and income expectations,” mentioned KPMG know-how media & telecommunications chief Mark Gibson, in an announcement. “The upward trajectory for the {industry} within the short-term is obvious, however the firms that may handle their provide chains and entice and retain expertise would be the ones well-positioned to maintain and profit from the AI increase.” 

Regardless of widespread optimism, executives nonetheless anticipate important challenges in 2025, together with geopolitical territorialism—corresponding to tariffs and commerce restrictions—and ongoing expertise points throughout 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 improvement and retention, can be essential as demand for chips continues to develop. Navigating this complicated panorama in 2025 would require adaptive methods. 

In regards to the survey

Within the fourth quarter of 2024, KPMG and the GSA performed the milestone twentieth annual world 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 enhance year-over-year (from 54 to 59). Curiously, the smaller firms, outlined because the organizations with lower than $100 million in annual income, have essentially the most optimistic outlook. 

Throughout the board, all semiconductor firms have optimistic Confidence Index scores, with smaller firms displaying essentially the most optimism for 2025, probably seeing alternatives for speedy income will increase as a result of their earlier phases of improvement. 

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 a couple of third predicting income development by no less than 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 general {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, corresponding to excessive bandwidth reminiscence, are the manufacturing know-how that’s projected to have the best influence on the {industry} over the subsequent three years. Different key income drivers anticipated in 2025 embody cloud/information 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, notably 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 challenge going through the {industry} over the subsequent three years. Nonetheless, territorialism was the clear-cut greatest challenge 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 might have an effect on the semiconductor ecosystem over the subsequent two years. Authorities subsidies and the nationalization of semiconductor know-how additionally rank close to the highest. 

In response, semiconductor leaders are growing geographic variety to enhance provide chain resiliency. Making the provision chain extra versatile and adaptable to geopolitical adjustments (tied with expertise improvement and retention) is the highest strategic precedence, after being named second in final yr’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 influence to the {industry} over the subsequent three years, the emergence of recent rivals has grow to be an virtually equally important concern amongst execs (35%), signaling a shift within the {industry}’s outlook.  

To check, final yr solely 19% of semiconductor execs cited the emergence of recent rivals as a priority.  

“Tech giants and established semiconductor gamers are beginning to battle for market share, with ongoing technical developments and optimization of chips for AI aiming to boost and supply alternate options for AI coaching and inferencing capabilities,” mentioned KPMG world semiconductor chief Lincoln Clark, in an announcement. “Because the {industry} turns into extra aggressive, important investments and cutting-edge methods can be important for firms to not solely survive however thrive on this quickly evolving panorama.” 

The total World Semiconductor Business Outlook report can be launched in early 2025.