December 19, 2007 – Semiconductor executives see moderate growth in sales in the next year, but have mixed outlooks on profits for the next several years, likely due to concerns about required investments in both design and process technologies, according to a survey conducted by KPMG LLP and the SIA.

The global survey of 94 C-level executives at the top 100 global semiconductor companies, including device, foundry and fabless manufacturers, found that nearly all (99%) expect sales growth to be positive in 2008, and a little more than half (52%) are anticipating >10% revenue growth, though that’s fewer than those who projected double-digit gains a year ago (60%). Key revenue drivers will be (geographically) China, the US, and Europe, and nearly two-thirds of respondents anticipate :10% growth in top applications such as consumer products, wireless handsets, and computing.

But apparently those higher sales are not expected to translate into better profitability. Only 27% of respondents said profits would rise over the next five years; 33% said profits would be flat, 15% see a decline, and 26% think profitability will be “volatile and unpredictable.” Half of respondents (53%), though, said that 2008-2009 would be the best profit years over the next five.

“Semiconductor execs are grappling with profitability outlooks while dealing with the dynamics of increased competition, pricing pressures, and manufacturing challenges,” said Gary Matuszak, leader of KPMG’s global information, communications, and entertainment practice, in a statement. “The focus right now is on maintaining a growth path, which points to continued spending, although at muted levels, and potential consolidation in the industry.”

Other findings from the survey:

– Less enthusiasm for R&D, capex spending. 75% of execs indicated they expect R&D spending to increase in the next fiscal year, down from 85% in last year’s survey, and less than half (49%) anticipate a >e;6% increase, vs. 62% a year ago. Meanwhile, 57% think capex spending will increase next year, “a sharp decline” from 72% of respondents a year ago, and barely a third (36%) foresee a >e;6% rise.

– M&A, PE funding on the rise. Spurred by demands for growth amid increased competition, 60% of execs polled expect M&A activity to increase over the next five years. Product positioning and increased competitiveness were cited by 52% as the driving forces. Illustrating the heightened presence of private equity injected into the semiconductor industry over recent months, nearly three-quarters (72%) of the execs think a significant level of involvement in this M&A activity (11%-30%) will involve PE.