Semiconductors: Unstoppable growth in a billion-dollar market – all-about-industries
Both, companies and nations are investing heavily in semiconductor technology to stabilize supply chains and meet demand through leaps in innovation, such as AI. An analysis of the market potential based on current figures.
Philipp Schlüter is a partner and semiconductor expert at the M&A consulting firm Pava Partners.
The international semiconductor industry came into the spotlight of the world public during the significant disruptions in the supply chains between 2021 and 2022. What industry insiders have long been aware of has now become openly apparent: The semiconductor market is complex and essential for global industry.
Analyses by IC Insights or Semiengineering.com show that in 2022 alone, more than 190 billion Euros were invested in the semiconductor market. Another 300 billion US dollars were announced by leading semiconductor companies for the coming years. For comparison: This sum is roughly equivalent to the investment that the global auto industry wants to make in research and development by 2028, in particular because of the megatrends of electrification and autonomous driving.
The development is also getting support from politics. The supply chain problems during the pandemic and beyond have shown that semiconductor chips are critical infrastructure. With the concrete shortage situation, politics in Europe and the USA have decided to promote production more strongly locally again.
Thus, billions in tax money are flowing into the establishment of FABs. Most recently, the 10 billion euro funding for the construction of an Intel fab in Magdeburg made headlines. The global top 10 of semiconductor foundries (figure 1) show how far behind Europe is in chip production. There, Europe only runs under “Other”. Unsurprisingly, Taiwanese semiconductor production is the undisputed leader. The graphic from the current Semicon Report illustrates Taiwan’s immense lead.
The fact that industrial policy is now being made and more funding is flowing into semiconductor production is an important sign for Europe and Germany in particular. The Saxony and Saxony-Anhalt region has succeeded in the last 30 years in building an attractive location for international players through the strategic establishment of production sites, knowledge at universities and research centers.
An investment that is paying off, as confirmed by the international settlements in the region. However, the industry association ZVEI has criticized that the German funding is flowing too selectively and does not sufficiently support the entire semiconductor ecosystem. So far, the association criticizes, important sub-sectors such as printed circuit boards and electronics manufacturing (EMS – Electronic Manufacturing Services), which enable the further processing of chips in the first place, have been left out of the award of funding.
The “Semicon Landscape” in figure 2 shows that the entire ecosystem from material to software includes more than 300 companies in new industries with various subgroups. Especially in mechanical engineering, relevant suppliers come from Europe, as well as in the development and production of chips for sensors and power electronics.
Data storage, wireless communication, and automotive electronics, with a share of more than 70 percent of industry growth, are the biggest drivers of the semiconductor industry (image 3).
The electrification of the automotive industry and advances in autonomous driving in particular are driving growth, as is the expansion of the Internet of Things in the industrial and consumer environment. The future topic of Artificial Intelligence, especially Generative Artificial Intelligence (GenAI), which has achieved huge leaps in innovation in a very short time, is increasing the demand for intelligent chips to an unprecedented extent.
According to current analyses, the demand for logic chips for GenAI applications will increase by up to 3.6 million additional wafers (image 4). Meeting this requires a corresponding increase in production capacities, which is why up to eight new FABs will be needed by 2030.
The graphic in Figure 4 also clearly shows that in the field of storage technology, millions of NAND and DRAM chips are required. This demand primarily comes from the increasing requirements for computing power and the increasing rack density in specialized data centers as a result of the increasing number of complex GenAI applications. Manufacturers are already investing to massively ramp up production.
By 2025, 79 new fabs are currently planned to meet the increasing demand. All the major OEMs—from Globalfoundries to Intel and Micron, to Samsung, TSMC and Texas Instruments—are planning to build highly efficient and powerful new factories.
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There are currently 486 FABs worldwide; 289 of these produce 200-mm wafers and 197 produce 300-mm wafers. There is a high demand for new 300-mm factories, especially for industries that require new processors, larger memory, and billions of transistors. Therefore, of the new FABs, 54 factories will produce 300-mm wafers, while 25 will produce 200-mm chips, specifically for silicon carbide-based semiconductors.
The expansion of new chip factories requires time, so existing facilities are retroactively optimized and a higher degree of automation is introduced. Just this year, the SCIO Automation Group, an international platform for automation, acquired the German FAB automator Fabmatics.
Fabmatics, based in Dresden/Germany, is a specialist in automating existing semiconductor FABs. Through a fully integrated and modular system based on standardized components, the company optimizes material flow through optimized handling, transport, and storage processes. Process optimizations like these contribute to expanding existing production capacities and meeting current demand.
The figures show a clear trend: the demand for chips will continue in the medium term. They are the basis for the most important technologies of our time; and as a result, state funding is being invested in semiconductor production on a large scale. In recent years, supply chain issues have demonstrated how fragile the global ecosystem can be.
Nearshoring production to the USA and Europe will somewhat reduce this risk, yet building a complete, complex ecosystem in one region remains a challenge. For every job in a FAB, five jobs are created at suppliers.
In the medium term, the focus for OEMs will be on meeting demand at all. Therefore, they are investing in both constructing new factories and optimising existing plants to increase capacities in the short term.
The rapid development of AI data centers is not yet taken into account in most studies and plans. There is no sign that the relevance of the key “semiconductor” technology is diminishing. At first glance, the AI chip market appears to be dominated by the USA and China. We hope that Europe will still play out its historical strength in terms of Industrial IoT. Research in quantum computing is also leading in Europe. May the applications also be brought to market by European companies. (kr)
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