Growth in the semiconductor market could be slowing, tax and advisory firm KPMG warned last week.

Moderate revenue growth will slow in 2008, with volatile profitability likely to create casualties. KPMG expects competition in emerging markets, manufacturing and product innovation to lead to increased merger and acquisition activity.

Meanwhile, the suffocating atmosphere of fear will cause capital expenditure and investment in research and development to be muted this year, at a time when it is needed most.

KPMG’s views followed a survey conducted with the Semiconductor Industry Association of 94 C-level executives at the top 100 global semiconductor companies.

Only one executive expected growth to stop, according to the survey results, with the other 99 per cent expecting growth in 2008. However opinion was evenly divided (48 to 52 per cent) on whether growth would exceed 10 per cent.

Crispin O’Brien, KPMG’s UK-based head of technology, put the findings in context. “The outlook of chip makers is a good barometer of conditions in electronics. Considering that much of the growth is in Asia, where mobile phones are being sold in their millions, that does not reflect massive optimism. We are not saying there’s a recession, only gathering storm clouds,” he said.

O’Brien said that with margins being squeezed, the industry could expect to see chip manufacturers club together in order to survive.

China, the US and Europe were the top three geographic growth markets, and application markets such as consumer products, wireless handsets and computing would be extremely important over the next three years. But most chip makers (64 per cent) expect their top application markets to yield growth over 10 per cent this year.

Gary Matuszak, leader of KPMG’s Information, Communications, and Entertainment practice, said: “Growth requires significant spending and investment. These companies need to place an emphasis on R&D in an effort to identify broader application markets for semiconductors. ”