Moore’s Law Chips Confidence

Only a fourth of semiconductor business leaders believe Moore's Law will continue for the foreseeable future in an otherwise upbeat survey conducted by KPMG.

As we approach the 50th anniversary of Moore’s Law in April, the semiconductor industry faces the question of whether it can continue to innovate at the pace Gordon Moore’s landmark paper predicted. Some don’t think so.

In fact, only a fourth of the business leaders surveyed for my firm’s annual semiconductor industry survey expect the benefits of Moore’s Law to continue for the foreseeable future. More than half said Moore’s Law will no longer apply at various nodes less than 22 nanometers, while 16 percent said it already has ended.

The uncertainty surrounding Moore’s Law offers one of a few points of caution in an otherwise confident outlook from semiconductor company leaders globally. Interestingly, their confidence level is at its highest level in five years, according to KPMG’s research.

Our survey found that a higher percentage of semiconductor leaders expect their company’s revenue to grow in 2015 compared to the prior year’s survey (81% vs. 77%). However, respondents predict a more moderate growth rate for this year, with most predicting growth of just 1-5%, which is consistent with analyst predictions.

However, not all respondents are in line with the moderate outlook – some (20%) are predicting that their companies will grow revenue at rates higher than 10%. Double-digit growth has been the case in certain sectors such as memory and among the best performing companies in the wireless, data communications and automotive space.

With three consecutive years of revenue growth, we believed the time was right this year to ask semiconductor business leaders about the stage and health of the current industry cycle. The responses provided three takeaways:

• Ninety-two percent still believe the semiconductor industry is cyclical.
• Three-fourths of respondents believe 2015 will continue the current expansion, which is consistent with the revenue growth predictions.
• Roughly equal numbers of respondents describe the expansion as in the early stage as say it is in the late stage.

Our survey also asked respondents which segments of the industry will be most attractive for growth. Not surprisingly, sensors rated as the most attractive technology segment. They are becoming more widespread in a number of high growth applications, as the emphasis on the Internet of Things at the recent Consumer Electronics Show in Las Vegas demonstrated.

Semiconductor business leaders rated microprocessors and other logic next most attractive, followed by optoelectronics. Memory also scored well, riding the wave of increased storage needs and favorable supply-and-demand dynamics.

Medical topped the list of attractive end markets with major areas of opportunity such as imaging, health monitoring, and medical devices. Networking and communications rated high as well, with the ongoing investment in data center and communications infrastructure. Also highly rated were the consumer, computing, automotive, and industrial markets.

Respondents said the biggest challenge the industry faces in the next three years is rising cost of R&D. This dovetails with some of the other challenges such as the high cost of capital equipment and achieving technology breakthroughs, such as those predicated on Moore’s Law.

Two-thirds of the semiconductor leaders expect an increase in the number of mergers and acquisitions in 2015. While this is a healthy percentage, it is lower than the prior year (73%). In addition, there was a jump in respondents who said the number of transactions would decrease this year.

Last year saw a number of large combinations initiated, so a pause in consolidation in 2015 would not be out of the ordinary. However, the ongoing quest for efficient operating scale, intellectual property assets, and revenue growth is likely to continue to drive mergers and acquisitions. If there is a truism in the semiconductor industry, it’s that there is never a pause in competition.

Packy Kelly is the global semiconductor practice leader at KPMG