KPMG: Chip nationalization remains the top concern in the semiconductor industry

• The nationalization of semiconductor technology is a top geopolitical concern, as highlighted in KPMG’s 2023 Global Semiconductor Industry Outlook report.
• Nearly half of the surveyed semiconductor executives intend to increase the geographic diversity of their supply chain.
• Other top geopolitical concerns include the prominence of Taiwan in the supply chain, tariffs and trade deals, and the long-term impacts of the Russia-Ukraine war.

Since the pandemic, the global semiconductor industry has experienced a political-economic trend known as ‘chip nationalism.’ Governments worldwide are increasingly attempting to completely onshore semiconductor supply chains or build a semiconductor supply chain of politically allied countries. However, the quest for self-sufficiency comes with risks of its own.

According to the 2023 KPMG Global Semiconductor Industry Outlook survey, semiconductor executives view the nationalization of semiconductor technology as the most significant geopolitical concern due to its implications for supply chains, talent acquisition, and access to government subsidies.

The survey, conducted by KPMG LLP and the Global Semiconductor Alliance (GSA), captures insights from 151 semiconductor executives about their outlook for the industry in 2023 and beyond. Over the next three years, 67% of those surveyed said that talent risk is their top strategic priority. “Countries moving toward ‘tech sovereignty’ is one of the most significant challenges in the global semiconductor industry in 2023,” KPMG said in the report.

The ‘tech sovereignty’ political trend has been spreading across the semiconductor space, with major global powers enacting legislation to bring chip manufacturing back home instead of relying on foreign supply chains. However, KPMG reckons that the incentives for various countries to onshore production of semiconductor-based products – including the CHIPS and Science Act in the US, the Made in China 2025 initiative, and the proposed European Chips Act – have widespread implications.

“Among geopolitical matters, semiconductor executives rank the nationalization of semiconductor technology and intellectual property as a top concern, tied with the prominence of Taiwan in the supply chain. The same concern also ranks second among all industry issues over the next three years, tied with global inflation and government responses and behind only talent risk,” the report reads.

Based on the report findings, other top geopolitical concerns include tariffs and trade deals, the long-term impacts of the Russia-Ukraine war, and government subsidies to localize investment in semiconductors. To mitigate the threat, almost half of the industry leaders surveyed plan to increase the geographical diversity of their supply chain in the next 12 months.

The semiconductor industry is in recovery mode

The report findings also reflect industry leaders’ optimism, with 52% surveyed thinking that the chip supply shortage will ease by mid-2023. More than six in 10 executives believe that the semiconductor shortage will end this year. Additionally, 24% of semiconductor executives believe that there is already an inventory excess and that the chip supply shortage is over.

Although 41% of those surveyed are concerned that the Russian-Ukraine war will impact revenue growth in 2023, 81% of industry leaders are projecting that their company’s revenue will grow over the coming year. “Softening demand in today’s tight global economic climate is rebalancing products in the semiconductor industry. According to our research, many people in the know are saying the chip supply shortage is already over,” KPMG Global Semiconductor Practice Partner Chris Gentle said.

The automotive sector is the most critical revenue driver

KPMG also highlighted that for the first time, survey respondents rate the automotive sector as the most important for driving semiconductor company revenue over the next year. Ironically, wireless communications, long seen as the industry’s most important revenue driver, slip into second place in the 2023 outlook.

On the other hand, metaverse, in its first year on the survey, was ranked last (out of 10) necessary for driving semiconductor company revenue over the next year. It will be interesting to see how this view changes in the coming years as metaverse technology evolves and adoption increases.

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