This report is part one of KPMG’s 15th annual Global Semiconductor Industry Outlook, focusing on financial and operational opportunities for 2020, especially in the areas of R&D efficiency and tariff mitigation. The research in the report is drawn from a web-based survey of 195 senior executives from global semiconductor companies, conducted in the fourth quarter of 2019 by KPMG and the Global Semiconductor Alliance (GSA).
The current trade environment presents significant challenges for the global semiconductor industry. Tariffs, increased protectionism, and managing abrupt new trade costs is top of mind for semiconductor leaders. According to the study, 67% of senior executives at semiconductor companies say they plan to pass some or all of the tariff cost onto customers.
Yet tariffs are not just a financial issue. They are also introducing significant complexity into numerous processes throughout the supply chain, from inventory planning to logistics to customs clearance and compliance. To mitigate tariff risk, 58% of senior executives say they are considering some kind of operational response. Top actions include sourcing new vendors from new geographies not impacted by tariffs and establishing incremental manufacturing and assembly locations away from markets subject to tariffs.
KPMG’s survey also found that R&D is an area where semiconductor leaders expect to make big investments in 2020. Nearly three-quarters (73%) of respondents say their companies plan to bump up R&D spending in the next fiscal year, with 27% expecting it will increase by more than 10%. But is increased R&D spending generating expected returns? Maybe not for everyone. R&D efficiency still has much room to improve. According our survey, 9% of R&D spending is not efficiently aligned with market opportunities. Another 32% is also potentially suspect—tied to questionable products and programs that may never make it to market.
As expenditures add up, the risk of wasted R&D dollars only grows larger. Semiconductor companies need to spend more efficiently on R&D. This is a billion dollar opportunity.