The semiconductor industry is on the brink of a transformative era, driven by the rapid advancements in artificial intelligence (AI) and the complex geopolitical landscape. As we look ahead to 2025, the interplay between these factors will significantly influence the industry’s trajectory. Insights from KPMG’s 20th annual Global Semiconductor Outlook report, produced in collaboration with the Global Semiconductor Alliance (GSA), provide a comprehensive forecast for the coming year. The perspectives of 156 semiconductor executives were collected during the fourth quarter of 2024, offering a robust view of what to expect in 2025.
AI: The Catalyst for Growth
Artificial intelligence is set to be the primary driver of growth within the semiconductor industry. According to the report, 92% of semiconductor executives predict overall industry growth, with AI technology at the forefront. The increasing demand for AI applications is expected to boost the production of microprocessors, particularly GPUs, which are essential for AI functionalities. This surge in demand for AI is not confined to one sector but spans across various domains including cloud computing, data centers, wireless communication, and the automotive industry.
Mark Gibson, KPMG’s leader in technology media and telecommunications, emphasizes that companies effectively managing their supply chains and talent acquisition will be well-positioned to capitalize on the AI boom. The ability to adapt swiftly to the evolving AI landscape will be crucial in maintaining a competitive edge. Furthermore, the widespread adoption of AI is anticipated to drive demand for advanced semiconductors, propelling the industry to new heights and presenting exciting opportunities for growth.
The transformative potential of AI technology cannot be overstated as it revolutionizes multiple sectors, enhancing efficiencies and capabilities. Cloud computing and data centers, for example, have become pivotal as key revenue drivers, reflecting an increasing reliance on cloud services and data storage solutions. These applications are expected to further fuel the industry’s growth, underscoring the need for continuous innovation and development in semiconductor technologies. As AI continues to evolve, staying ahead of trends and advancements will be imperative for sustaining growth within the sector.
Geopolitical Influences and Challenges
While the outlook for the semiconductor industry is optimistic, significant geopolitical issues present substantial challenges. Territorialism, including tariffs and trade restrictions, poses a considerable threat to the industry’s growth prospects. These geopolitical tensions can disrupt supply chains, rendering it essential for companies to enhance their adaptability and resilience. Large companies, particularly those with over $1 billion in annual revenue, are especially concerned about the impact of such tensions on their operations and long-term strategies.
The potential for armed conflicts and the imposition of tariffs could hinder the semiconductor industry’s progress, compounding the complexities of an already challenging landscape. As a result, companies are increasingly focusing on geographic diversity and bolstering supply chain resilience to mitigate these risks. This emphasis on strategic planning and proactive responses is crucial in navigating the uncertain geopolitical climate and maintaining industry stability. Fostering robust and flexible strategies will enable companies to thrive despite the external pressures and uncertainties.
The report underscores the importance of adopting a strategic approach to navigate the complex geopolitical landscape effectively. Companies must remain vigilant and adaptive, addressing these challenges head-on to ensure sustained growth and stability. Enhancing geographical diversity and fortifying supply chain resilience will be key components in maintaining a competitive edge. By prioritizing these strategic elements, businesses can better position themselves to withstand geopolitical fluctuations and continue driving the semiconductor industry forward.
Talent Retention: A Critical Concern
The semiconductor industry is facing significant challenges in attracting and retaining skilled talent, which is imperative for driving innovation and maintaining industry momentum. With the industry’s rapid expansion and increasing technological complexities, the competition for talented professionals is fierce. According to the report, 39% of executives cite talent retention as a primary challenge over the next three years, emphasizing the urgency of addressing this concern. The emergence of new competitors, such as tech giants and automotive companies entering the semiconductor space, further exacerbates the talent shortage, intensifying the competition for top-tier talent.
To address this pressing issue, companies must invest in comprehensive talent development and retention strategies. This includes offering competitive compensation packages, fostering a positive work environment, and providing ample opportunities for professional growth. By prioritizing talent retention, companies can ensure they have a skilled and motivated workforce essential for driving sustained innovation and growth. The competitive labor market necessitates innovative approaches to attract and retain the brightest minds, ensuring a steady pipeline of talent to support the industry’s burgeoning demands.
The semiconductor sector’s ability to attract and retain skilled professionals will be pivotal in maintaining momentum in the face of evolving challenges. Companies must adopt a multifaceted approach to talent retention, involving strategic investments in employee development and fostering a culture of innovation. By nurturing talent and providing continuous learning opportunities, businesses will be better equipped to navigate the complexities of the industry. As the industry evolves, retaining top talent will be instrumental in achieving long-term success and ensuring the continued advancement of semiconductor technologies.
Shifting Revenue Drivers
The report reveals a significant shift in the primary revenue drivers for the semiconductor industry. For the first time, AI has surpassed automotive applications as the top revenue driver, underscoring its transformative impact on the sector. Executives believe that microprocessors, especially GPUs used for AI applications, present the leading product opportunity ahead of traditional components like memory and sensors/MEMs. This shift highlights the growing role of AI in shaping the future of semiconductor demand and development.
Cloud computing and data centers have also risen in importance, now ranking as the second key revenue driver. The increasing reliance on cloud services and data storage solutions is expected to further boost the industry’s growth. The expanding need for efficient, high-performance computing capabilities in cloud environments underscores the significance of advanced semiconductor technologies. Wireless communication applications remain major revenue drivers, reflecting ongoing advancements in 5G technology and the proliferation of connected devices.
The transition from automotive to AI as the primary revenue driver signifies a broader transformation in the semiconductor industry’s landscape. This shift presents both opportunities and challenges as companies adapt to the evolving demands of AI-driven applications. As enterprises focus on developing cutting-edge technologies to support AI functionalities, the potential for growth and innovation within the industry becomes increasingly tangible. This dynamic evolution necessitates strategic planning and continuous investment in research and development to capitalize on emerging trends and maintain a competitive edge.
Preparing for a Competitive Landscape
The semiconductor industry is preparing for intensified competition from non-traditional semiconductor entities, diversifying the competitive landscape. Tech giants and automotive companies entering the semiconductor space are seen as both a threat and an opportunity for disruption. This influx of new competitors underscores the need for companies to stay agile and forward-thinking to navigate the evolving market dynamics. Investing in innovation and strategic planning will be essential to maintaining a strong market position amidst the heightened competition.
Strategic investments in research and development (R&D) are critical for driving innovation and developing advanced semiconductor solutions. Companies prioritizing R&D spending will be better equipped to capitalize on emerging opportunities and stay ahead of technological advancements. Enhancing supply chain resilience and fostering strong partnerships will also be crucial components of a robust competitive strategy. By staying adaptable and proactive, companies can effectively manage the complexities of the competitive landscape and continue driving growth.
Staying ahead in this competitive environment requires a multi-faceted approach, encompassing innovation, strategic planning, and a focus on resilience. As the semiconductor industry continues to evolve, companies must remain vigilant in exploring new avenues for growth and development. This includes diversifying their product offerings, investing in cutting-edge technologies, and building strategic alliances to enhance their market presence. By adopting a comprehensive and forward-looking strategy, businesses can navigate the competitive landscape and maintain their market position while driving the industry forward.
Conclusion
The semiconductor industry stands on the edge of a transformative period, propelled by rapid advances in artificial intelligence (AI) and a complex geopolitical landscape. As we anticipate the year 2025, it’s crucial to recognize how these factors will shape the industry’s future. The interplay between AI innovations and global political dynamics will significantly affect the sector’s progress and direction.
Insights from KPMG’s 20th annual Global Semiconductor Outlook report, produced in collaboration with the Global Semiconductor Alliance (GSA), offer an in-depth forecast for the upcoming year. The report is based on the perspectives of 156 semiconductor executives, gathered during the fourth quarter of 2024. These insights provide a comprehensive view of what to expect as we move into 2025. The findings highlight the pivotal trends, challenges, and opportunities that will likely shape the industry’s trajectory, giving stakeholders a clearer understanding of the future landscape. The industry must adapt to these changes to thrive in the evolving technological and political environment.