Semiconductors: Unstoppable growth in a billion-dollar market

Both companies and governments are investing heavily in semiconductor technology to stabilise supply chains and meet demand through innovation drivers such as AI. An analysis of the market potential based on current figures.

By Philipp Schlüter, Partner M&A, Pava Partners Germany

The international semiconductor industry has been at the centre of global attention during the significant supply chain disruptions between 2021 and 2022. What industry insiders have already been aware of for quite a while has now come to light: the semiconductor market is both complex and essential to the global industry.

According to analysis by IC Insights and Semiengineering.com, more than €190 billion has been invested in the semiconductor market in 2022 alone. A further USD 300 billion has been announced by leading semiconductor companies for the coming years.

By way of comparison, this is roughly equivalent to the amount the global automotive industry plans to invest in research and development by 2028, driven in particular by the megatrends of electrification and autonomous driving.

Taiwan is the undisputed leader in semiconductor production
Government policy is also providing a boost. The supply chain problems during the pandemic and beyond have highlighted the fact that semiconductor chips are critical infrastructure. With the current shortage, politicians in Europe and the US have decided to boost local production again.

As a result, billions of taxpayers’ money are being pumped into establishing FABs. How badly subsidies are needed in the EU shows its positioning in the market. The world’s top 10 semiconductor foundries show how far behind Europe is in chip production (Figure 1). Europe is only listed under ‘others’. Unsurprisingly, Taiwan’s semiconductor production is the undisputed leader. The chart from the latest Semicon Report illustrates Taiwan’s immense lead.

The fact that industrial policy is now being implemented, and more subsidies are being channelled into semiconductor production, is an important sign for Europe and Germany in particular. Over the past 30 years, the region of Saxony and Saxony-Anhalt has succeeded in establishing the region as an attractive location for international players through the strategic development of production sites and expertise at universities and research centres.

An investment that has paid off, as confirmed by the international companies that have already settled in the region. However, the industry association ZVEI has criticised the fact that German funding is too selective and does not sufficiently support the entire semiconductor ecosystem.

So far, the association has criticised the fact that important sub-sectors such as printed circuit boards and electronic manufacturing services (EMS), which make the further processing of chips possible in the first place, have been excluded from the allocation of funding.

Figure 1. Data based on Q1 2023 revenue in USD.

The ‘Semicon Landscape’ in Figure 2 shows that the entire ecosystem, from materials to software, comprises more than 300 companies in new industrial sectors with various subgroups. European suppliers are particularly strong in mechanical engineering, as well as in the design and manufacture of chips for sensors and power electronics.

Artificial intelligence drives demand for chips
However, a look at the main drivers of growth in the semiconductor industry shows that the market is set for strong growth in the future. Data storage, wireless communications and automotive electronics are the biggest growth drivers in the semiconductor industry, accounting for more than 70 percent of the sector’s growth (Figure 3). In particular, the electrification of the automotive industry and advances in autonomous driving are driving growth, as is the expansion of the Internet of Things in industrial and consumer environments. The future topic of artificial intelligence, in particular Generative Artificial Intelligence (GenAI), which has achieved enormous leaps in innovation in a very short period of 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 to up to 3.6 million additional wafers (Fig. 4). Meeting this demand will require a corresponding increase in production capacity, requiring up to eight new FABs by 2030.

The graph in Figure 4 also clearly shows that NAND and DRAM chips in the tens of millions will be needed in the memory technology sector. This demand is primarily driven by the increasing requirements for computing power and the increasing rack density in specialised data centres as a result of the growing number of complex GenAI applications. Manufacturers are already investing to massively increase production.

Figure 2.Pava’s semicon landscape.

New construction and optimisation: Meeting demand
79 new FABs are currently planned by 2025 to meet growing demand. All major OEMs - from Globalfoundries, Intel and Micron to Samsung, TSMC and Texas Instruments - are planning to build highly efficient and powerful new factories.
There are currently 486 FABs worldwide, of which 289 produce 200mm wafers and 197 produce 300mm wafers. There is a strong demand for new 300mm fabs, especially from industries that require new processors, larger memories and billions of transistors. Therefore, 54 of the new FABs will produce 300mm wafers, while 25 will produce 200mm chips, specifically for silicon carbide-based semiconductors. The expansion of the new chip factories takes time, so the existing facilities are being optimised and a higher degree of automation is being introduced. Legacy Fabs optimise material flow through optimised handling, transport and storage processes. Process improvements such as these help to expand existing production capacity and meet current demand.

Figure 3. Global growth of semicon market, in bn EUR.


The semiconductor market: Growth market and outlook for Europe
The figures show a clear trend: the demand for chips will continue in the medium term. They underpin the most important technologies of our time, and government subsidies for semiconductor production are correspondingly high. In recent years, supply chain problems have shown how fragile the global ecosystem can be. Nearshoring to the US and Europe will mitigate this risk somewhat, but building a complete, complex ecosystem in a region remains a challenge. For every job at a FAB, five jobs are created at suppliers.

In the medium term, OEMs need to be able to meet demand at all. They are therefore focusing on both building new factories and optimising existing ones to increase capacity in the short term.

Figure 4. order to fulfil additional wafer demand until 2030.

The rapid development of data centres for AI has not yet been taken into account in most studies and plans. The importance of the key technology of semiconductors is not likely to diminish. The market for AI chips seems to be dominated by the US and China for the time being. Time will show, if Europe will be able to play to its historical strengths in Industrial IoT. Europe is also at the forefront of quantum computing research, productizations are driven by US companies, though for the time being.



Philipp Schlüter is a partner and semiconductor expert at Pava Partners, one of Europe’s leading M&A Advisory firms, where he advises companies in the semiconductor industry on sales, strategic acquisitions, financing and succession.