The future appears brighter:
According to KPMG’s Semiconductor Outlook 2023, sixty-five percent of the executives surveyed think the semiconductor supply shortage will ease in 2023, and 15 percent believe that supply and demand are already in balance for most products. Only 20 percent think the shortage will last into 2024 or later.
Semiconductors everywhere: In many ways, every industry is a technology industry, and semiconductors are taking the center stage. The semiconductor industry is driving innovation and efficiency in the digitized and connected world. Many indispensable technologies will continue to fuel growth next year, including wireless and 5G, the Internet of Things, Artificial Intelligence, and data centers.
The automotive industry tops the chart: Over the years, the automotive industry has delivered countless innovations using different types of technologies. Never before have cars used so much electronics. The speed of digitalisation of automobiles surpasses most industries. With cars now essentially becoming computers on wheels, for the first time, automotive is seen as the most important sector driving semiconductor revenue growth in the next year, followed by wireless communications. Wireless communications, long seen as the industry’s most important revenue driver, slip into second place in the 2023 outlook. Internet of Things, cloud computing, and artificial intelligence rank third, fourth, and fifth in terms of importance. In correlating research, KPMG predicts automotive semiconductor revenue will reach $200 billion annually by the mid-2030s and surpass $250 billion by 2040.
Metaverse is on the horizon but not here yet: In its first year on the survey, metaverse was ranked last (out of 10) in importance 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.
What does it mean for India: As the global supply chain of semiconductors continues to remain stressed, India has a wonderful opportunity to accelerate its journey of self-dependence (AtmaNirbharta) and build a strong position for designing, developing and manufacturing semiconductors in India. While building such an industry will not be easy, the timing seems just right and the government policies are highly supportive of building such facilities in India both by domestic and global players.1.Demand remains strong: Almost 55% of the overall $1.2 trillion global semiconductor and electronics parts manufacturing industry is attributed to the growth in computer & peripheral equipment as well as network & communications equipment manufacturing, where India’s demand as a consumer market is going to peak in the current decade. As per a report by the Indian Electronic and Semiconductors Association (IESA), the semiconductor market was valued at $27.2 billion in 2021 and is expected to grow at a healthy CAGR of 16% from 2019 to 2026 to reach $64 billion in 2026. The outlook for growth of the automotive industry in India, which is fast becoming the major consumer of semiconductors remains very strong – driving further demand.
2.PLI scheme: The Rs 76,000 crore incentive scheme announced by the government in December 2021 was further tweaked to provide 50 percent of the overall project cost to companies setting up operations locally across silicon and compound fabs for 28nm to 65nm capacity, display fabs, design and R&D.
3.Ease of doing business: in April 2022, when India hosted the Semicon India Conference, India had already abolished more than 25,000 compliances with a push towards auto-renewal of licenses under a transparent taxation, digitalized and seamless regulatory environment.
4.Track record – only a few years ago, the majority of mobile phones sold in India were imported. But with government support and industry partnership, nearly all the phones sold in India are domestically manufactured/assembled. Even though designing and manufacturing semiconductors is several times more complex and capital-intensive, the past track record provides a reasonable basis for making investments.
Turning the opportunity into reality: The past few decades in India were strongly driven by the software and services industries. While the growth potential in those industries will continue to accelerate, India has the opportunity to take a strong position in semiconductor design and manufacturing. There is a need for the government, industry, academia, startups and investors to come together for developing a skilled workforce and building the necessary infrastructure. The government should also work to reduce the dependence on imports and increase the share of domestic production in the market. Additionally, the industry needs to focus on research and development along with IP protection to improve technology and manufacturing processes and form partnerships with global companies to access their expertise and resources. Supportive and stable national taxation policies coupled with competitive state policies can also aid the long-term nurturing of the sector.
I remain hopeful of the prospects India holds. The government policies and actions have been progressive, fast and decisive. As highlighted by the respected Minister of State for Electronics & Information Technology and Skill Development & Entrepreneurship, Rajeev Chandrasekhar, and Minister for Railways, Communications, Electronics and Information Technology, Ashwini Vaishnaw, India’s techade will not only help evolve a number of startups and aid in IP creation in the semiconductor space but also mutually help in driving benefits from the PLI scheme within IT hardware and allied industries.
About the survey: KPMG and the Global Semiconductor Alliance (GSA) conducted the 18th annual global semiconductor industry survey in the fourth quarter of 2022. The survey captures insights from 151 semiconductor executives about their outlook for the industry in 2023 and beyond.
The writer is Head- Technology, Media and Telecommunication, KPMG in India.