Will Semiconductors Become a Trillion Dollar Industry?
Published on : Friday 15-09-2023
Industrial Automation explores the promising prospects of the semiconductor industry and the factors driving its ascent toward a trillion-dollar valuation.
The semiconductor industry is centered on the development, design, and manufacture of semiconductor devices, which are essential components of electronic devices. It has long been a pillar of technological development, supplying the modern world with electricity through its pervasive use in electronics and other technologies. Now, the debate is around whether semiconductors will become a trillion-dollar industry. What are the factors contributing to making semiconductors a trillion-dollar industry?
If you are looking to find answers to such questions, this comprehensive report is for you. Through this report, we will look at every aspect of semiconductors, making the semiconductor decade possible.
The growth possibilities
The semiconductor industry has the potential to reach a trillion-dollar valuation and is growing steadily thanks to a number of essential factors. The semiconductor market has exploded, with sales expected to increase by more than 20% to about US$600 billion in 2021 as the impact of digital technology on people's lives and businesses has accelerated. A McKinsey analysis based on various macroeconomic assumptions predicts that the industry's total annual growth could range from 6 to 8 percent per year up until 2030.
Ups and downs of the industry
According to a Deloitte report, global macroeconomic and geopolitical factors are increasingly influencing the semiconductor industry. Market capitalisation has decreased significantly as a result of rising interest rates, high inflation, decreased consumer confidence, and stock market declines driven by technology. The analysis shows that the combined market value of the top 10 global chip companies fell by 34% from US$2.9 trillion in November 2021 to US$1.9 trillion in November 2022.
However, there might be room for industry growth and expansion. The industry may have the opportunity to shift its attention from merely trying to catch up during a shortage. Several reports suggest that 2023 may be the year when the semiconductor industry makes a difference.
Some of the strategies to take the semiconductor industry to the next level may include bringing manufacturing closer to home with both entirely new fabs and the expansion of existing facilities; managing the diversification risks and challenges that come with localisation; digital transformation to digitise many parts of the process; coping with and balancing the semiconductor talent equation; and establishing and accelerating a path toward achieving environmental, social, and governance (ESG) goals, particularly around sustainability.
The path to a trillion-dollar industry
The major growth of the semiconductor industry (70%) is predicted to be driven by three industries – automotive, computation and data storage, and wireless. The automotive industry is likely to grow the fastest. The MarketAndMarkets report predicts that the global automotive semiconductor market is set to reach US$70 billion by 2027 from US$42.9 billion in 2022, growing at a CAGR of 10.1% during the projected period.
Since modern automobiles are essentially equipped with computer technology, the automotive industry was accounted for 8% of global semiconductor demand in 2021. This demand is expected to increase by 13 to 15% by the end of the decade.
There are several leading players in the automotive semiconductor market that have developed strategies to drive industry growth. These strategies include product development and launches, mergers and acquisitions, joint ventures, and research and development. Some of the leading players in the automotive semiconductor market are as follows:
• STMicroelectronics N.V.
• Analog Devices, Inc.
• Texas Instruments, Inc.
• Micron Technology
• Infineon Technologies AG
• NXP Semiconductors N.V.
• Renesas Electronics Corp.
• On Semiconductor Corp.
• Robert Bosch GmbH
• ROHM Co., Ltd.
Challenges that caused disruption during Covid
Due to hastily canceled orders and just-in-time strategies, the beginning of the lockdown led by the COVID-19 pandemic in 2020 resulted in an abrupt decline in manufacturing. The pandemic and the ensuing semiconductor shortage have had a detrimental effect on automobiles and electronics. However, consumers' increased use of laptops and computers, 5G phones, gaming consoles, and other IT equipment led to a surge in demand for silicon chips as a result of the work-from-home mode during the pandemic.
By Q3 2020, semiconductor demand had increased significantly, resulting in a V-shaped recovery for personal computers, mobile devices, cars, and wireless communications.
While COVID-19 has altered consumer spending habits by increasing demand for consumer electronics, the automotive industry's shift to electric vehicles (EVs) is also raising chip demand. Future demand for semiconductor chips will certainly increase significantly owing to the growing emphasis on the production of electric vehicles.
During Q2 2021, smartphone OEMs and component suppliers reported that they were only getting 80% of the volume of essential components they had requested. Conversely, some only had 70% of the necessary components by Q3 of 2021. The chip shortage has even had an impact on the two biggest smartphone producers, Samsung and Apple.
Following increased demand for semiconductors in fall 2020, foundry companies increased production, and the lead time (time from order to delivery) for 8-inch wafers increased to 3-4 months in spring 2021, up from 1-2 months prior to the pandemic. In the spring of 2021, average lead times for semiconductor chips increased to 15 weeks. The average lead time for semiconductors in fall 2021 is estimated to be 21.9 weeks. As lead times worsen, the semiconductor supply chain will be squeezed for a long time.
The semiconductor industry is subject to volatility; overproduction and shortages are not uncommon. The pandemic, however, made the issue worse as workers were stranded at home due to the lockdown. On the other hand, demand for data centers increased as more people started using technologies for video calling, streaming, and gaming.
Factors driving semiconductor market growth
The global semiconductor industry remained resilient and is poised to grow even further despite the global pandemic and subsequent economic downturn. We have mentioned below some of the top factors driving the growth of the semiconductor market.
Connected Devices: The demand for advanced semiconductors has increased as more devices, including smartphones, wearables, and smart home appliances, need computing power and connectivity. The semiconductor industry will experience significant growth as the IoT permeates international industries.
Emerging Technologies: Demand for high-performance semiconductors is being driven by AI, machine learning, and 5G. For complex calculations, AI applications require powerful CPUs and specialised chips, whereas 5G networks require high-speed, high-bandwidth chips.
Digital Transformation: The Covid-19 pandemic has intensified the digital transformation of multinational corporations. As businesses and consumers became more connected thanks to technology, remote work demanded sophisticated semiconductor innovations. The demand for semiconductors has also increased as a result of telemedicine, online collaboration, and e-commerce.
Government Initiatives: Investments in infrastructure, smart cities, and renewable energy all call for better semiconductor technology. Through these initiatives, semiconductor companies will improve connectivity, sustainability, and energy efficiency. Government funding, tax breaks, and supportive legislation will also benefit the industry.
Automotive Demand: The demand for chips has risen owing to increased interest in EVs, ADAS, and autonomous driving. While EVs require power electronics and battery management, ADAS uses sensors, computers, and communication. Demand for semiconductors will increase as businesses embrace electrification and autonomy.
Industrial Applications: In industrial applications, semiconductors are required for technologies like automation, robotics, and IoT. Demand for semiconductors for supply chain optimisation, smart production, and predictive maintenance has increased as a result of Industry 4.0.
The development of technology is significantly facilitated by the semiconductor industry. The importance of semiconductors in today's digital world is highlighted by the fact that they power everything from smartphones and laptops to smart appliances and automobiles.
Tech trends fueling semiconductor growth
The semiconductor industry's capacity for constant innovation is at the core of its expansion. The amount of computing power and energy efficiency has increased exponentially as a result of decreasing transistor sizes, better materials, and innovative manufacturing processes. The ability to create more sophisticated and functional semiconductor components is made possible by this technological ability, which lays the groundwork for further development.
The rising demand for semiconductor devices across a variety of industries is being driven by a number of overarching trends:
Internet of Things (IoT): In order to support the growth of connected devices, semiconductor technology must provide efficient processing, data storage, and transmission capabilities.
5G Revolution: The development of 5G networks requires sophisticated semiconductors that can handle high data rates and low latency, which increases demand for cutting-edge chip solutions.
Artificial Intelligence (AI) and Machine Learning (ML): AI and ML applications require powerful processors and memory solutions, creating a sizable market for specialised semiconductor parts.
Autonomous Systems: From autonomous vehicles to drones, autonomous systems demand complex sensor arrays and processing power, opening up new markets for semiconductor innovation.
Renewable Energy: In line with the global push for sustainable solutions, semiconductors are essential components of renewable energy technologies like solar cells, wind turbines, and energy storage systems.
Consumer Electronics: The growing reliance of consumers on smartphones, smart home appliances, and wearable technology sustains a constant demand for semiconductor innovation.
Challenges in the semiconductor industry
Apart from the Covid-19 pandemic, there are various other challenges the semiconductor industry faces. Some of the top challenges are as follows:
• Semiconductor Shortage
• Supply Chain Disruptions and Geopolitical Factors
• Intellectual Property and Patent Wars
• Environmental Sustainability
• Rising R&D Costs
• Economic Volatility
Service provider opportunities in semiconductor
For service providers, the semiconductor industry presents numerous opportunities to participate in various aspects of the value chain. By expanding beyond conventional sectors, semiconductor companies can potentially attract a wider range of clients, including manufacturers of connected devices, industrial machinery, and both large and small consumer and business appliances.
“Almost two-thirds of semiconductor leaders are predicting that revenue will increase, not contract. That’s a positive indicator for the upcoming year given the current economics and the fact that the industry is almost at the point of having excess inventory,” says Mark Gibson, Global Sector Head of Technology, Media & Telecommunications at KPMG International.
Given that growth is anticipated to continue over the long term, industry leaders must strategically concentrate on R&D, factories, and sourcing while also using the lessons learned from the modeling to identify new areas of opportunity.
Conclusion
The semiconductor industry's growth to a trillion-dollar valuation is evidence of its crucial influence on the development of the modern world. We at Industrial Automation believe that the industry can overcome obstacles and realise its extraordinary growth potential by utilising technological advancements, capitalising on market trends, and adopting strategic imperatives.
The journey to a trillion-dollar valuation is more than just a monetary achievement; it is a testament to the industry's ongoing committment to innovation and advancement, paving the way for a transformative future.
References
1. https://www.mckinsey.com/industries/semiconductors/our-insights/the-semiconductor-decade-a-trillion-dollar-industry
2. https://www2.deloitte.com/us/en/pages/technology-media-and-telecommunications/articles/semiconductor-industry-outlook.html
3. https://www.researchdive.com/8547/automotive-semiconductor-market#:~:text=Some%20of%20the%20leading%20automotive,and%20ROHM%20Co.%2C%20Ltd.&text=STMicroelectronics%20N.V.
4. https://telecom.economictimes.indiatimes.com/news/devices/what-are-going-to-be-new-revenue-drivers-for-semiconductor-companies/100888426
5. https://www.air-worldwide.com/blog/posts/2021/12/pandemic-supply-chain-issues-semiconductors/
6. https://www.artisanpartners.com/content/dam/documents/insights/vxus/Insights-The-Semiconductors-Decade-vXUS.pdf
