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.