The tech industry has been in upheaval for the past few quarters, and the uncertainties don’t seem to be getting any more certain in the near term.
United States and European governments are spending over US$100 billion to grow local semiconductor production,1 but macroeconomic factors and a shift from shortage to oversupply are near-term challenges.2 The same global and macroeconomic uncertainties may harry the tech industry as a whole, with the potential to put manufacturing and growth at risk.
Companies can, however, take some steps to reassess their strategies and focus on core capabilities as they work toward recovery.
To explore these considerations in detail, Deloitte’s industry leaders recently discussed their perspectives and outlooks for the semiconductor and technology industries in 2023. Each outlook focuses on important trends and sets out questions for decision-makers to consider when planning for the short and longer terms.
Factors such as the higher cost and uncertainty of capital, inventory drawdowns from customers and the supply chain, and a decline in earnings are leading many chip companies—and technology players in general—to cut costs, reduce employee headcount, and push out capital expenditures.3
This downturn, however, could give the semiconductor industry an opportunity to take a pause and consider five areas that can help fuel growth and efficiency going forward:
At the macro level, technology companies may face similar challenges to semiconductor manufacturers and experience enormous pressure to reduce costs and improve profitability. The pandemic may have fueled short-term growth and a massive hiring boom, but now organizations may consider rightsizing strategically so as not to put future growth and innovation at risk. Geopolitical uncertainty and rapidly shifting regulations are two other factors that could create challenges for tech companies this year.
One trend that seems to represent a path forward for technology is transformation of other industries, such as health care, manufacturing, and retail. Technologies such as 5G, AI, edge computing, new devices, and digital processes could have the potential to transform business models and operations across a wide range of fields.
Deloitte’s outlooks encourage leaders in the tech and semiconductor industries to consider important questions such as:
Economic headwinds may be gathering for business in general and for the tech and semiconductor industries specifically. But there are many regulatory incentives that may spur innovation and growth in 2023 and beyond.4 Organizations should consider critical factors, such as how and where products are manufactured, what operational and infrastructure components could be modernized, and where inorganic growth may be most conducive to long-term success.
Jennifer Meng and Jimmy Goodrich, “Global Governments Ramp Up Pace of Chip Investments,” Semiconductor Industry Association, June 2021.
View in ArticleKaren Weisz et al., “The global semiconductor talent shortage: How to solve semiconductor workforce challenges,” Deloitte, 2022.
View in ArticleS&P 500 tech sector stocks lost nearly 32% of their value from January 1 through September 30, 2022. See: Jan Varsava, “Visualizing S&P 500 performance in 2022, by sector,” Visual Capitalist, November 1, 2022; Gunjan Banerji and Hannah Miao, “Rate squeeze punishes once-triumphant tech stocks,” Wall Street Journal, October 30, 2022.
View in ArticleBruce J. Kessler, “State tax credits and incentives in the CHIPS Act and IRA,” Deloitte, 2022.
View in ArticleThanks to Susanne Hupfer, Prashant Raman, Duncan Stewart, Karthik Ramachandran, Jeff Loucks, Jaime Austin, Gautham Dutt Avaru, Shubham Oza, Prodyut Ranjan Borah, Rithu Thomas, Andy Bayiates, and Blythe Hurley for their help in producing this article.
Cover image by: Jaime Austin.
