Chip outlook: Auto sector the 'leading revenue driver for 2023,’ analyst says

KPMG Global and U.S. Head of Tech Media and Telecommunications Mark Gibson joins Yahoo Finance Live to discuss the demand for chips following the looming chip shortage, revenue within the space, auto sales, a potential recession, and the semiconductor industry going into 2023.

Video transcript

BRIAN SOZZI: All right, Micron added to the general sense of economic doom and gloom with a disappointing earnings report this week, weighing on the likes of rivals like NVIDIA and AMD. What about the sector itself? KPMG has released its latest outlook for the industry, and the report says that for the first time in its 18-year history, it sees autos as the most important driver of revenue, surpassing $250 billion by 2040.

Joining us to discuss is Mark Gibson, KPMG's global and US head of technology media and telecom. Good to see you here this morning. What is the outlook-- I could appreciate the outlook longer term 2040 is very bullish. But just take us through the outlook for next year. What might that look like, especially if we get a recession?

MARK GIBSON: Yeah, thanks for having me on. It's very clear to us that automotive is in the fast lane for the semiconductor sector. The sector's been through a lot in the last few years. And the executives that responded to our survey remain very bullish about where this sector is going. There is huge demand for these little tiny chips that drive so much of the innovation and the economy. In our world right now, I think the automotive sector was really no surprise to us. We've been talking about it for a number of years, as it's emerged as the leading revenue driver for 2023 for the semiconductor sector.

And you think about these new cars that have really become just computers on wheels. And over 1,000 semiconductors in an average used-- in an average new car these days. So, interesting reports coming out of this. And I think the sector remains really positive going into 2023.

JULIE HYMAN: At the same time, oof, if you're relying on the car business for growth in 2023, uh, I don't know how the prospects of that are looking in terms of auto sales, right? In terms of going into a potential recession, it's hard to see that auto demand is going to be blockbuster in 2023.

MARK GIBSON: Yeah, I certainly think it's helped with the chip shortage that we've been talking about for the last couple of years as the demand softened a bit. It's given the semi industry a chance to catch up a bit. There's also tremendous opportunities across a lot of other electronics. You think about the wireless industry, which has been the number one revenue driver for semis for many, many years in our surveys, many of us hoping to get the new smartphone or the watch under our tree this year.

So it's certainly beyond just the auto industry. But when you think about where cars are going, the conversion from the combustible engine to the computing machine that they've become today, I think it is a really, really positive place for semis to be looking, as they go not just into the next year but certainly into the decades ahead.

BRIAN SOZZI: Within your forecast, Mark, how big a role do driverless cars play in it?

MARK GIBSON: Yeah, they play a role. I mean, you think about a couple of things there, where those cars are going. The driverless cars will probably get double or more the number of chips that they take to run as well. So it's not just the EV trend that we see. It's the autonomous trend.

And it's also for the big tech companies, a chance to get into this sector. You think about not just the car manufacturers, but the sensors and the cameras and the battery innovation that's required to get into this sector, both EVs, autonomous vehicles, and the like. So lots of opportunities, all of them heavily reliant on the semiconductor industry.

JULIE HYMAN: While the Automotive Group might be the source of growth for many of these semiconductor companies, it's still not the biggest, right, by far. It's still just sort of a small and growing area for most of them. So when you look at the bread and butter, you mentioned, of course, mobile phones, you've got PC growth that has been sort of waning. I mean, where do you see where we are in the inventory cycle overall, given that most of the commentary over the past three months from the chipmakers has been there's a glut, and it's not going to be worked down any time in the very near term.

MARK GIBSON: Yeah, it's really interesting to see how that supply chain and the chip shortage, where are we with the shortage of surplus, how that's evolved in our survey over the last couple of years. As I said before, a couple of years ago, it was all about the chip shortage. Now we have almost 2/3 of the executives in the semiconductor industry that responded to us saying they think in 2023, that shortage will have basically worked its way through and have gone away.

It's obviously dependent on the types of chips we're talking about. There is a lot of demand. As this world goes more and more digital, we have more and more things reliant on the semiconductors. So I agree with you. It's not all about the auto. It's not all about the electronics today. But I do think we've stabilized a bit. And I think that's a really positive thing for the sector.

BRIAN SOZZI: All right, we'll leave it there. Mark Gibson, KPMG's global and US head of technology, media, and telecom, good to see you. Happy holidays.

MARK GIBSON: Happy holidays to you. Thanks for having me on.