State of the Semiconductor Industry from 30K Feet.

Industry Growth & Government Funding

The industry will grow 10% in 2022 to over $600 billion (USD) globally. Of the 29 fabs starting construction in 2021 and 2022 China and Taiwan will lead the way in the new fab construction starting with eight each, followed by the Americas with six, Europe and the Middle East with three, and Japan and Korea with two each. This is a breakdown of some of the spending and growth expected by region:?

US: ?The US currently accounts for 12% of global chip manufacturing, down from 37% in 1990. To regain chip manufacturing capacity, the US government has passed and funded The CHIPS and Science Act which unlocks nearly $250 billion in funding and tax incentives for the US semiconductor sector. Federal funding combined with state and local incentives has been successful in securing investment from top global manufacturers to build new fabs and expand capacity in the US. Just to list a few investments:? Intel, TSMC, Samsung, Micron, and Texas Instruments have announced a combined $650 billion in planned spending.?

EU: The EU Chips Act will provide 43 billion euros ($49 billion USD) of investment into the semiconductor industry with many tax incentives. Specifically, the EU wants to boost its market share of chip production to 20% by 2030, from the 9% that it currently holds. Intel alone has announced the first phase of a plan to spend up to €80 billion in manufacturing and research facilities in Germany, Ireland, Italy, Poland, Spain, and France.

ASIA: In the next decade, the South Korean government will work in collaboration with local companies to invest $450 billion (USD) into the establishment of the world's largest semiconductor industry supply chain. Japan plans to attract more advanced technology investment from abroad. Japan has also set up a fund of almost $1.5 billion USD and plans to substantially expand support policies. The second phase of the China National Fund was also approved in 2018, which means $30 billion (USD) from the second phase of this fund will be invested in the semiconductor industry over the next few years. Companies in Taiwan plan to invest over $107 billion (USD) in semiconductors by 2025. Last but not least the newest player in the industry, India, is planning to invest $30 billion (USD) in the tech sector/semiconductor supply chain as Silicon Nationalism becomes the new global trend.??

Top Challenges?

1. Labor and Talent: Labor and talent shortages worldwide will be a bigger problem than expected. In the US alone there are 90,000 semiconductor jobs that need to be filled by 2025. Today wages and inflation are affecting the ongoing talent war as companies struggle to fill positions as compensation has not risen materially to compete with other industries and the cost of living especially in cities like Austin and Phoenix continues to go up. The US government is working hard to fund & develop the National Semiconductor Technology Center which will provide funding to educational institutions that will help build up & educate the future semiconductor industry workforce.?
2. Chip Shortages: Chip shortages will continue into 2024, according to Intel CEO Pat Gelsinger. Efforts started in 2021 to expand capacity for legacy nodes – namely, a 10-15% increase in 200mm and 300mm wafer capacity – will not yield results until 2023. Investment in leading-edge fabs in Arizona, Texas, and Ohio will take 3-4 years to build and cost $20bn each. In short, expanding capacity and building new fabs is a long process so we should continue to expect to see supply shortages in the interim.??
3. OEM Supply Chain Disruptions: Original Equipment Manufacturers in the semiconductor industry have experienced the worst supply chain shortages in history. Supply chain issues are causing delays for almost all new equipment currently on order. One solution that many OEMs are implementing is to bring home domestically a lot of the component manufacturing. By reducing the long international shipping times and having more of the components made in the US, they can greatly reduce long supply chain lead times. The other solution is to qualify more domestic suppliers and reduce the qualifications and lead times needed to become a certified supplier to OEMs.?

Top Opportunities?

1. Government Investment - The influx in investment from governments across the world to bolster their domestic semiconductor ecosystems will likely attract additional private capital investment in the industry and create fruitful partnerships between governments, the private sector, and academic/research institutions.?
2. Global Alliances - While the trend of Silicon Nationalism has fueled a chips arms race of sorts, it has also reminded the industry that global interdependence is required to support the industry.?
3. New Technologies and Innovation - The innovation of new technology will continue to drive the industry. New technologies such as the Internet of Things, will have incredible growth in the future with over a trillion devices by 2035. These devices will have continuous developments in software, and the hardware will be made on new FPGA technology so that new software uploads can update old hardware functionality allowing IoT devices to evolve as new technologies are created.??

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