Global Semiconductor Industry Dynamics: Current Trends and Challenges
TABLE OF CONTENTS
- Summary
- Rising Demand for AI and Custom Chips
- Impact of the CHIPS and Sciences Act
- Korea's Role in Global Standards and Digital Transformation
- Recent Trends and Investment in Semiconductor Industry
- Global Investment Surge in Semiconductor Development
- Resilience and Stability in the Semiconductor Supply Chain
1. Summary
The report titled 'Global Semiconductor Industry Dynamics: Current Trends and Challenges' examines the evolving landscape of the semiconductor industry, with particular focus on AI computing power, the strategic impact of the CHIPS Act, and significant investments by global economies. It details the innovations by tech giants like Google, Amazon, Microsoft, and Meta in developing custom ASIC chips, and highlights the global expansion efforts of TSMC. The report further explores the geopolitical and economic tensions influencing the semiconductor market, notably those between the US and China, and their impact on companies like Samsung and SK Hynix. Additionally, it discusses initiatives by countries like Korea in setting digital standards and the surge in global investments, including those from the US, EU, China, India, and Saudi Arabia. The report identifies key industry challenges, such as supply chain resilience and workforce shortages, and reviews the rapid sales growth and sustainability innovations in the sector.
2. Rising Demand for AI and Custom Chips
2-1. Tech giants developing custom ASIC chips
As the demand for AI computing power surges, tech giants such as Google, Amazon, Microsoft, and Meta are racing to develop their own custom ASIC chips. These companies are actively investing in the development of technologies to compete with key players like Nvidia.
2-2. TSMC’s global expansion and role in AI
TSMC is significantly expanding its global footprint, including breaking ground in Dresden, Germany. This expansion is seen as crucial for smoothing production processes across Europe and bolstering TSMC's role in providing essential chips for AI applications amidst geopolitical tensions.
2-3. Transformation of First International Computer
First International Computer, once Taiwan's second-biggest IT company, has undergone a significant transformation. Today, it has established itself as a global leader by providing computers for the marine leisure industry, highlighting its adaptability to market changes.
2-4. Taiwan’s ethical standards in electronics supply chain
Rob Lederer, CEO of the Responsible Business Alliance, emphasized the critical role of ethical standards in the global electronics supply chain. He noted the challenges faced in combating forced labor and promoting human rights, underscoring Taiwan's crucial position in fostering sustainability in the electronics industry.
2-5. Impact of ChatGPT on the chatbot market
The emergence of ChatGPT has significantly influenced the chatbot market. In response to ChatGPT and similar AI developments by competitors, there is an increased demand for generative AI solutions that leverage traditional Chinese data from Taiwan, rather than relying on solutions from China.
3. Impact of the CHIPS and Sciences Act
3-1. CHIPS Act limitations and US-China tensions
As the one-year anniversary of the CHIPS and Sciences Act passes, South Korean semiconductor giants Samsung Electronics and SK Hynix face a major dilemma amid escalating US-China geopolitical tensions. The CHIPS Act promotes US security and competitiveness against China but also places the South Korean semiconductor industry in a vulnerable position. It prohibits semiconductor manufacturers from expanding or upgrading advanced chip capacity in China for a duration of 10 years. Although the US has provided exceptions for non-Chinese firms operating in China, these limitations impede long-term manufacturing effectiveness, pushing South Korean chip manufacturers to seek alternative production locations outside of China.
3-2. Effects on Samsung and SK Hynix
Samsung and SK Hynix stand to lose significantly due to the CHIPS Act. Samsung has invested $25 billion into expanding its semiconductor facility in Xi’an, while SK Hynix is set to finalize a $9 billion acquisition of NAND facilities in Dalian by 2025. The US policies that aim to slow down Chinese semiconductor manufacturing capabilities directly impact South Korean firms due to their substantial investments in China—approximately 40% of Samsung’s NAND chips and about half of SK Hynix’s DRAM chips are manufactured in China.
3-3. Investment in domestic chip clusters
In response to these challenges, Samsung has announced a significant investment plan involving 300 trillion won to develop a chip cluster with five advanced manufacturing plants in Yongin, targeted for completion by 2042. Similarly, SK Hynix has committed to investing 120 trillion won towards establishing a semiconductor cluster in the same region. These investments align with South Korea's 'K-Chips Act' enacted in March, which enhances corporate tax breaks for facility investments, raising the rate from 8% to 15%, providing firms potentially up to a 25% reduction in taxes on investments.
3-4. South Korea’s talent gap and market diversification
Despite these ambitious investment plans, South Korea faces significant challenges, particularly in workforce development. In 2020, only 650 new graduates in semiconductor-related fields entered an industry requiring 1,600 positions. Furthermore, the Korea Semiconductor Industry Association indicates a projected shortage of at least 30,000 workers over the next decade. Additionally, South Korea's semiconductor industry is heavily reliant on memory chips, holding a 56.9% share of the global memory chip market but underperforming in other semiconductor sectors, comprising less than 3% of the global market share in those areas. This reliance creates vulnerability to supply chain disruptions and economic fluctuations.
4. Korea's Role in Global Standards and Digital Transformation
4-1. Development of homegrown digital standards
Korea has emerged as a crucial player in establishing homegrown digital standards. With a robust economy and leading technology companies, Korea is actively participating in international standard setting while also developing its own standards tailored for local markets. Policymakers and industry leaders are increasingly focused on enhancing the country’s technological innovation and competitiveness on a global scale.
4-2. Framework for evaluating digital policies
A structured framework has been implemented in Korea to evaluate various digital policies effectively. This framework encompasses critical areas such as data protection, cybersecurity, and digital identity. By systematically assessing these policies, Korea aims to improve its digital governance and enhance its capabilities in the global digital landscape.
4-3. Involvement of private sector
The private sector in Korea is becoming more involved in the standardization processes, moving beyond traditional reliance on government initiatives. This shift reflects a growing recognition of the importance of corporate participation in shaping international standards. Korean companies are now playing a pivotal role in advocating for standards that not only protect domestic interests but also allow them to compete effectively in international markets.
4-4. Push for international standards
Korea is actively pushing for the adoption of international standards that align with its technological advancements and economic interests. This advocacy aims to ensure that Korean innovations are recognized globally and that the country is not only a participant but also a leader in setting these standards. The trend indicates Korea’s intent on not just localizing standards but influencing global frameworks.
5. Recent Trends and Investment in Semiconductor Industry
5-1. Year-on-year sales growth
According to the SIA News, the global semiconductor industry experienced a year-on-year sales increase of 15.8% in April 2024. This trend of double-digit sales growth was observed consistently over each month of 2024, and sales were projected to grow by 16.0% in the overall market for that year.
5-2. Funding facilitated by the CHIPS Act
Post the enactment of the CHIPS and Science Act, significant funding has been allocated to the semiconductor sector. Over eight companies received a total of more than $29.34 billion primarily to support the construction of semiconductor factories in the United States, part of a larger package totaling $280 billion to enhance the US innovation ecosystem.
5-3. Japan's legislation for chip manufacturing
Japan is exploring legislative measures to bolster the domestic advanced semiconductor manufacturing sector. This initiative is part of the long-term economic policy plan currently under development, which aims to finalize key policy priorities by mid-2024.
5-4. Sustainability innovations in chip production
Innovative approaches to sustainability in semiconductor production are evident, such as EFC's Neon Gas Recycling System. This introduces a method to recycle spent neon gas from laser processes in semiconductor fabrication, addressing environmental concerns associated with neon's limited availability and high-energy demand during production.
5-5. US venture capital decline in China
There has been a notable decline in US venture capital funding in China, reaching levels not seen since 2013. This decrease is attributed to geopolitical tensions, US investment restrictions on technology sectors, and measures taken for reshoring, leading investors to be more cautious regarding investments in China's semiconductor field.
6. Global Investment Surge in Semiconductor Development
6-1. US and EU investment in semiconductor development
The United States and European Union have committed nearly US$81 billion in funding towards next-generation semiconductor production. This initiative is part of a globalization competition for chip supremacy, particularly against China. The US government outlined funding of US$39 billion under the 2022 Chips and Science Act, aimed at stimulating domestic semiconductor production. Additionally, the European Union is working on its US$46.3 billion plan to increase local manufacturing capabilities, targeting a total of more than US$108 billion in investments.
6-2. China's investment and export restrictions
China is expected to invest over US$142 billion in its semiconductor sector, facilitated by the government's Big Fund which aims to promote state investments in domestic companies. However, China faces export restrictions imposed by the US, which aim to prevent access to advanced semiconductor technologies. These restrictions have created challenges for Chinese firms, such as Semiconductor Manufacturing International Corp (SMIC) and Huawei Technologies Co., which are now striving to enhance their domestic capabilities amid these geopolitical tensions.
6-3. India and Saudi Arabia's market entry
India has approved a US$10 billion government fund aimed at establishing its semiconductor manufacturing capabilities, with a notable bid from Tata Group to construct a significant chipmaking facility. In Saudi Arabia, the Public Investment Fund is planning a sizable investment aimed at diversifying the kingdom's economy by entering the semiconductor market.
6-4. Potential risk of chip oversupply
The significant influx of government investment into semiconductor manufacturing raises concerns about potential oversupply in the market. Analysts caution that excessive manufacturing capacity driven largely by government initiatives could lead to a scenario where production outstrips demand, although the gradual timeline for new facilities to become operational may mitigate this risk.
7. Resilience and Stability in the Semiconductor Supply Chain
7-1. Government and private sector initiatives
Governments and companies throughout the semiconductor supply chain are actively adopting initiatives to enhance resilience. The U.S. CHIPS Act, enacted in August 2022, allocated $39 billion in grant incentives and offers a 25 percent investment tax credit for semiconductor manufacturing. Similarly, the European Union has introduced the European Chips Act, and Mainland China has launched the third phase of its Integrated Circuit (IC) Industry Investment Fund. Incentive programs have also expanded in Taiwan, South Korea, Japan, India, and other countries, reinforcing commitments to bolster semiconductor manufacturing capacities and resilience.
7-2. BCG and SIA findings on global integration and risks
A report by the Boston Consulting Group (BCG) and the Semiconductor Industry Association (SIA) highlights the current dynamics of global integration in the semiconductor supply chain. The report outlines that while global integration has delivered significant value, it has also introduced concentration risks, leading to vulnerabilities. It emphasizes the necessity for continuous public and private investments to mitigate these risks while enhancing the overall resilience of the supply chain.
7-3. Projected $2.3 trillion in investments by 2032
The semiconductor industry is forecasted to see a staggering investment of $2.3 trillion by 2032. This capital influx is catalyzed by various government-led initiatives, including the CHIPS Act, and aims to diversify the semiconductor supply chain. The anticipated investments will play a crucial role in building a more robust and geo-diverse supply chain, contributing to both enhanced resilience and a balanced distribution of manufacturing capabilities across regions.
7-4. Regional responses and domestic capacity boosting
Different regions have unveiled various strategies aimed at increasing domestic semiconductor capabilities. The U.S. aims for self-sufficiency through the CHIPS Act, targeting the establishment of 26 new fabrication plants (fabs) since 2020. In contrast, China aims for 70 percent self-sufficiency by 2025 through substantial funding and strategic plans. Meanwhile, the EU has set a goal to capture 20 percent of the global market share by 2030 through comprehensive incentives and support strategies.
7-5. Importance of talent pipelines
Fostering a strong talent pipeline is critical to sustaining the semiconductor industry. The BCG-SIA report identifies the development of talent at all levels as vital, advocating for initiatives that partner educational institutions with industry requirements. This targeted approach to workforce development is necessary to address the existing talent shortages and to support the long-term resilience of the semiconductor supply chain.