LONDON Senior executives in the semiconductor industry expect only moderate revenue growth for the sector for this year and 'volatile' profitability for the next five years, according to survey by consultancy group KPMG.
The report, conducted in collaboration with the Semiconductor Industry Association (SIA), also reveals the executives expect competition in emerging markets, manufacturing and product innovation to lead to increased mergers and acquisitions, while uncertainty will cause capital expenditure and R&D spending to increase at muted levels compared to previous years.
The survey of 94 executives at the top 100 global semiconductor companies, including device, foundry and fabless manufacturers, indicated that all but one of those who responded anticipates revenue growth in the next fiscal year, with 52 percent estimating growth of above 10 percent.
The growth projections appear to be more moderate this year compared to last year, when 60 percent of respondents indicated they thought growth would exceed 10 percent.
However, the execs are far less optimistic about profitability. When asked to project profitability over the next five years, 33 percent said profits would be flat, 26 percent said volatile and unpredictable, 15 percent said profits would decline and 27 percent said profits would rise.
Surprisingly, 53 percent suggested this year or next would generate the best profits of the next five, while 49 percent indicated that 2006 or 2007 would emerge as the worst years for profitability. The survey also indicates that fabless companies would be the most profitable over the next five years.
Commenting on the survey, Crispin O'Brien, KPMG's head of technology in the UK said: "Industry executives will have to continue to make capital and R&D investments to stay competitive, but the size of these investments will be tempered by the uncertain outlook and likely industry consolidation. Ultimately growth through M&A will probably lead to greater profitability in the long run, than new products or continued cost-cutting."
The respondents suggested China, the U.S. and Europe would grow fastest in the next few years, and application markets such as consumer products, wireless handsets and computing would be extremely important over the next three years.
Three-quarters of the executives reckon R&D spending would increase during the next fiscal year down from the 85 percent response to the same question in KPMG's 2006 survey. Only 49 percent of 2007 respondents anticipate an increase in spending of six percent or more compared to 62 percent projecting a increase of six percent or more last year.
The story is a similar one for capital expenditure. Just 57 percent of respondents expect spending to increase next year a sharp decline from 72 percent in 2006. Again, only 36 percent of 2007 respondents expect CapEx spending to increase by six percent or more, compared to 53 percent of respondent last year.
On mergers and acquisitions, 60 percent of executives anticipate activity to increase over the next five years, with 52 percent saying that product positioning and increased competitiveness will be the driving force behind the consolidation.
Interestingly, 72 percent of respondents believe that 11-30 percent of M&A activity over the next three years will involve private equity funding.