Analysis of the Peaks and Troughs of the Semiconductor Market
Semiconductors have been critical to various sectors over the years. The applications include tech industries, electronics sub-systems, semiconductor devices, equipment & materials, and EDA&IP, among others. However, the market peaked in 2022, in an attempt to ease out the global chip shortage. The growing investments in R&D had additionally contributed to the trend, with the US semiconductor companies investing roughly one-fifth of annual revenue in R&D — amounting to a record $50.2 billion in 2021. However, the second half of the year witnessed a slowdown in the semiconductor sales. The trend was expected to continue in 2023. Even so, the pattern is consistent with the semiconductor industry's predictable cycle, providing a positive outlook for experts. The semiconductor device market is anticipated to grow at a CAGR of 6.4% by 2033.
The forecasts are backed by the rising applications of semiconductors in computing, the Internet, mobile, social media, energy and mobility, spaceXverse, and meta robotics. Market growth is anticipated with a change in structure. Mobile and computing are expected to retreat, while the semiconductor market in the servers and automotive and industrial segments will rise to the forefront in the coming years.
The US secured a dominant share in 2022. Rising government support in the region has been a major contributor to the dominion. For instance, the bipartisan legislation enacted the CHIPS and Science Act, to strengthen the production and innovation in the region. The CHIPS Act facilitates $52 billion in chip manufacturing incentives and research investments. It additionally awarded investment tax credits for semiconductor manufacturing and semiconductor equipment manufacturing. Other chip R&D programs of the US government include the National Semiconductor Technology Center (NSTC), National Advanced Packaging Manufacturing Program (NAPMP), Manufacturing USA Institutes (3 in number), and NIST Metrology R&D.
However, the growth in the semiconductor industry is constrained by the rising tension between the US and China, which is anticipated to have repercussions on the global supply chain, as China is the largest semiconductor market globally.
Chip's design is critical to the overall efficiency of the semiconductor supply chain. Thus, the US is essentially focusing on chip design to maintain its position. In 2021, there were 187,000 semiconductor design engineers globally of which 94,000 were employed with the semiconductor companies headquartered in the US. In the year, the US had around 47%* of fabless companies, 51%* of integrated device manufacturers, and considerable numbers of original equipment manufacturers.
(Note: * means % of design-related value add)
Source: Semiconductor Industry Association
In addition to the US, several other countries including China, South Korea, Taiwan, the European Union, Japan, and India, are significantly contributing towards multi-billion-dollar chip design investments. This includes the enactment of design investment tax credits as high as 50%. Attributing to the consistent efforts, the US market share of global sales revenue is projected to decline, while China’s share is expected to shoot up by 2030.
The Asia-Pacific (APAC) semiconductor market hit $287.7 billion in 2023, projecting the highest growth globally. Although the countries in the region such as India have primarily been the importer of semiconductors, meeting around 85% of its chips requirement from global markets. At present, the region is well set up to provide raw materials and manufactured parts, thus maintaining a strong position in chip production.
The semiconductor ecosystem in India is in the initial stages forming only 3% of the overall market. However, it is expected to grow owing to the rising chip demand across sectors including electronics, automotive, telecommunications, and AI. Furthermore, the growing digital economy and a population of over 1.4 billion are contributing to the market growth. The Indian market for semiconductors was valued at $34.3 billion in 2023 and is expected to cross $100.2 billion by 2032. This is attributed to government initiatives and programs such as the Semiconductor Mission, the PLI program, and the development of Special Economic Zones to encourage investment, create manufacturing capacity, and build an enabling ecosystem for industry growth.
In November 2022, Japan proposed an additional $8 billion in funding for a joint research hub with the US, to advance semiconductor manufacturing lines and semiconductor materials. In October 2022, Taiwan announced tax incentives for the semiconductor industry. Furthermore, in September 2022, the Mexican federal government began to draft a new incentive package to attract semiconductor investment. The incentives are focused on the assembly, testing, and packaging of semiconductor products.
The European region is additionally focusing on the development of the semiconductor industry. In February 2022, the European Commission began formal consideration of the EU Chips Act. The act will offer funding of $43 billion to support Europe’s semiconductor sector. The initiative will focus on the development of EU’s front-end manufacturing, and novel investments in R&D.
The demand for chips is rising in the automotive, data storage, and wireless connectivity industries. The automotive industry contributes 20% of chip demand. Moreover, the wireless communication industry is anticipated to drive 25% growth by 2030.
Source: Semiconductor Industry Association
Encapsulating, the semiconductor industry operates in cyclical patterns, however, the long-term trajectory of the market is always positive. The vitality of chips in advanced technologies such as AI, IoT, and 6G, across sectors is anticipated to propel the market growth by 2032. The heavy dependence on medicine, medical devices, automotive, electric grid, and climate solutions, is promising market growth in the future. Thus, it could be substantiated that chips are critical to future advancements.