Emerging Resilience in the Semiconductor Supply Chain – BCG
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Technology, Media, and Telecommunications
By , Iacob Koch-Weser, Christopher Richard, Joseph Fitzgerald, , , and
Semiconductors power today’s economy, from vehicles and mobile devices to data centers, medical equipment, clean technologies, and, of course, the upcoming AI revolution. In “Strengthening the Global Semiconductor Supply Chain in an Uncertain Era,” an April 2021 report by the Semiconductor Industry Association and BCG, we illustrated the value of the semiconductor supply chain for the global economy, while also identifying its vulnerabilities. A globally integrated supply chain has allowed semiconductor companies to realize efficiencies through scale and specialization, thereby creating roughly $1 trillion in efficiencies. However, geographic concentration in a small number of regions has also created challenges for supply chain resilience. Over the past few years, the COVID-19 pandemic, severe weather, natural disasters, geopolitical tensions, and other factors have elevated these concerns.
In our latest report, “Emerging Resilience in the Semiconductor Supply Chain,” we explore how the semiconductor industry is beginning to improve resilience through geographic diversification.
One major factor driving this resilience is a renaissance in industrial policy. Semiconductor-related policies, aimed at fostering innovation, economic and national security, and broader growth, have been announced and are being implemented by the US, EU, Mainland China, Taiwan, South Korea, Japan, and India, among other countries.
Semiconductor companies, in turn, are responding. We project $2.3 trillion in new investment in wafer fabrication between 2024–2032, compared with $720 billion in the 10 years prior. Moreover, these investments are being made in ways markedly different from recent history. The US is projected to capture 28% of these capital expenditures, as opposed to the pre-CHIPS Act pace of investment, in which the US would have captured just 9% of global capital expenditures.
In consequence, we will see meaningful shifts in the global distribution of chip-making capacity, in particular for the most advanced logic chips—those newer than 10 nanometers—where we predict wafer fabrication capacity to diversify markedly beyond Taiwan and South Korea to include the US, Europe, and Japan, with the US increasing its share from nearly zero in 2022 to 28% in 2032.
Beyond wafer fabrication, we also foresee improvements in resiliency in other supply chain segments. Foremost, in assembly, test, and packaging (ATP), we expect the capacity footprint to diversify from Mainland China and Taiwan to Southeast Asia, Latin America, and Eastern Europe, supported by programs such as the International Technology Security and Innovation (ITSI) Fund under the US CHIPS Act as well as industrial policies in each locale. In similar fashion, although materials production will remain concentrated in East Asia, we expect it to follow future fab capacity to the United States and Europe to take advantage of cost and R&D benefits. Finally, in chip design, companies are expanding the geographic scope of where they hire, locate, and train talent for R&D and engineering.
While recent progress is encouraging, the semiconductor supply chain will continue to face challenges. First, industry cyclicality could break the resolve of policymakers or industry participants to stay the course. Second, supply-demand imbalances, particularly in more mature chip process nodes and technologies, could emerge, leading to the second-guessing of recent investments. Third, workforce challenges could act as headwinds to development outside of historical (and highly concentrated) centers. And fourth, restrictions on or reconfigurations of trade flows, if taken too far, could undermine the scale required for ongoing investment and growth.
As we look to the future, it will be imperative for policymakers and industry participants to stay the course, building on recent positive momentum to increase resilience, without overcorrecting and putting at risk the more than $1 trillion of value created by the global nature of the semiconductor supply chain.
Senior Partner Emeritus
Associate Director, Global Trade & Investment
Boston
Managing Director & Partner
Denver
Managing Director & Partner
San Francisco – Bay Area
Associate
Dallas
Vice President, Global Policy, Semiconductor Industry Association
Director, Industry Statistics and Economic Policy, Semiconductor Industry Association
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