The end of globalized & diversified Semiconductor manufacturing?
Posted on 20th June 2022 at 12:45
Global Semiconductor Revenues to reach13.7%, to approximately $661 billion over the 2021 figure of $581 billion, but subject to the vulnerability of Supply Chains remains a challenge to be monitored.
Despite the obvious challenges faced by the global economies, Semiconductor growth was 13.7% year over year in 2021 and demand continues to rise and strengthen. Leading growth applications were 5G phones, game consoles, wireless access points, datacentres, and wearables. Despite the growth in sales, the actual implementation of the Semis into finished goods was as straight forward.
Lower production of key components exacerbated by the simple lack of output capacity and challenges in securing relevant delivery modes to synch between demand and output. To make matter worse these shortages drove up average selling prices (ASPs) as demand grew across most device applications over this period.
Samsung took the top semiconductor spot from Intel as memory sales grew considerably faster in 2021, reaching $75.8 billion compared to $57.7 billion in 2020 in semiconductor company revenues, a 31.1% year-over-year increase. The top 5 companies also included SK Hynix, Qualcomm, and Micron. In 2021, the top 10 companies held 58% of the total semiconductor market while the top 20 companies held 76% of the market, up from 57% and 75% respectively in 2020, showing the continued growth of the market share leaders.
However, the continued strength in supply will be met by the frustrating supply chain shortages and long lead times which have the potential in creating over supply as stock piling of Semiconductors in anticipation of a release in the pressures holding back conventional production lines – further driving up costs, will take place with the then likely drop of in demand potentially at the time when re-shorting and investment in new facilities picks up steam.
However, in 2022, network infrastructure, automotive manufacturing trends, namely EV will help maintain this momentum
The shortages have raised attention not only about the processes and challenges of making microchips, but also about the geopolitical concentration of manufacturing by a few companies. Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract manufacturer for semiconductors, constitutes nearly 90 per cent of the market for advanced microchips in 2020. The obstacles in ensuring stable supplies and manufacturing semiconductors are possibly going to get even harder, more expensive, more technical, and potentially also more political.
The supply chain shortage has brought about discussions and political decisions that semiconductor supply chains must be diversified to decrease the over-reliance on manufacturing in Taiwan and East Asia. The lack of semiconductor fabrication plants in the US and Europe can be thought about both in a national security context and in terms of economic competitiveness – here Europe and the US are facing similar challenges. The key question is whether building greater self-sufficiency increases long-term security rather than simply increasing costs.
Read with the above, an additional development is the view that the lack of semiconductor fabrication plants in the US and Europe can be thought about both in a national security context and in terms of economic competitiveness.
Some of the recent policy responses have been due to the Biden administration focus on re-shoring and diversifying the manufacturing base.
Since this being launched as a semi – formal policy on diversification some of the large manufacturers Intel, Samsung and TSMC have all announced construction of new fabrication plants across the United States. In December 2021, the new German Federal Minister for Economic Affairs and Climate Action Robert Habeck announced 32 new microelectronics projects to bring the production of semiconductors back to Germany and Europe.
This follows the EU announcement of a ‘European Chips Act’ to bring back semiconductor manufacturing capabilities to Europe, considered key for technological sovereignty. The aim is to double Europe’s share of global microchips production from currently 9 per cent to 20 per cent and boost investments by €20-30 billion by 2030.
The ‘reshoring’ of semiconductor chip production from Taiwan to the United States and Europe could potentially change the industry and the geopolitics surrounding it. Yet, the aim to achieve autonomy in microchip production could prove to be unachievable – the global semiconductors value chains are too intertwined and too reliant on producers in East Asia and further politization of the issue could prove counterproductive. Also, with the growing demand from across many sectors of the economy, only focusing on boosting domestic supply capacity will likely not create long-term resilience.
Developments in this will be well worth monitoring over the next 5 years as any de- novo investment on Fabs and or manufacturing facilities are not projects that turn around in say in a couple of years but more 10’s of years.
What however cannot be ignored however is fact that Semiconductor shortages ultimately have driven demand and ASP’s. The real challenge is how to counter what can only become a more pressing issue further worsening the growing global economic crisis underpinned by rampant inflation.
Lister Hughes LTD
Tagged as: Technology
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