The semiconductor industry operates on a global scale, encompassing everything from design and manufacturing to end-user applications. With this in mind, the leading semiconductor-producing countries are China, Japan, Taiwan, South Korea and the United States.
Semiconductors are integral not only to data centers, laptops and smartphones but also in automobiles, lighting systems, nuclear missile guidance and electrical grids.
Recent years have witnessed unprecedented disruptions along the semiconductor supply chain, impacting the tech sector. This intricate supply chain, stretching from R&D through manufacturing to the utilization of microchips that power electronic devices, has historically been volatile due to geopolitical and global economic factors, often oscillating between surpluses and shortages.
It is worth knowing what is the status of this sector at present as these semiconductor chips are vital components across various industries such as ICT and automotive.
Where US, China and Europe Stand
The outbreak of the COVID-19 pandemic and subsequent border closures in 2020 and 2021 triggered chip shortages and paralyzed significant portions of the tech industry. This crisis prompted forceful actions from governments, with the United States and China taking robust measures to safeguard their respective supply chains.
In a parallel effort, Europe's Chips Act is geared toward unlocking a substantial $49 billion worth of investments from both public and private entities. The European Union's goal is to capture 20% of the global chip manufacturing market by 2030, necessitating a quadrupling of its current production output.
The US has implemented a series of measures aimed at curbing collaboration between American and Chinese firms. In response, China has imposed export controls on critical raw materials for chip production such as silicon, germanium and gallium.
Expanding on this, the Biden administration has imposed restrictions on semiconductor exports to China by domestic companies. Additionally, the US Department of Commerce now wields control over semiconductors manufactured with American technology, even if produced overseas. Collaborative efforts, such as the "Chip 4 Alliance," have emerged between the US, South Korea, Japan and Taiwan. The US has also offered subsidies to incentivize domestic semiconductor investments while curbing semiconductor chip and facility exports to China.
China, in turn, has taken countermeasures to protect its semiconductor industry, including restricting the export of rare earth refining, processing and utilization technologies. As the world's largest producer of rare earth metals, China holds a significant advantage in the semiconductor sector.
Other Global Players Respond
The Netherlands, a pivotal player in the industry, has announced plans to enforce export controls as a means to limit China's influence, prompted by pressure from the US. Similarly, Germany thwarted the sale of two chip companies to China last year due to national security concerns.
Taiwan, housing major chip manufacturers, contributes over half of the global chip production. In most Asian economies, dependencies primarily revolve around the ICT and electronics sector.
Conversely, in the United States and many European economies, dependencies extend significantly to transportation equipment, machinery and other manufacturing domains.
A few select economies, such as Canada and Hong Kong (China), see the telecommunications industry as a major dependency.
Exploring the Semiconductor Value Chain
The production of semiconductors is a highly intricate process. Prior to being incorporated into electronic devices, semiconductors undergo a series of production stages that can span up to six months. Additionally, a specialized ecosystem encompassing materials, equipment, software design tools and essential intellectual property suppliers contributes to the comprehensive production procedure.
The fundamental semiconductor value chain is underpinned by crucial upstream elements, which involve foundational research to enhance chip design and performance, specialized software, raw materials and capital equipment. The downstream stages involve chip assembly onto printed circuit boards and their integration into advanced technological products.
Although Taiwan and South Korea are primary semiconductor producers, their production capacity heavily relies on the availability of raw materials, equipment and other inputs, predominantly sourced from the United States, Europe, and Japan. The Netherlands occupies a significant role in furnishing equipment for wafer and semiconductor manufacturing.
Upon the completion of semiconductor fabrication, a substantial portion is transported to China, where they are integrated into electronic goods for both consumers and industries. Subsequently, China re-exports these electronics to various global regions.
Semiconductor Supply Chain Risks
A concerted global effort encompassing Europe, the Americas and Asia is imperative to eliminate vulnerabilities within the entirety of the supply chain.
Broadening the scope beyond fabrication and fortifying downstream processes could yield substantial and positive effects on worldwide stability and the safeguarding of the global supply chain.
As outlined in the 2023 Report on Semiconductor Supply Chain Risks, semiconductor enterprises are grappling with an array of supply chain risks, reflecting the intricate nature of the production process and apprehensions regarding the availability of pivotal components and raw materials.
In response to potential semiconductor shortages, it is crucial to establish comprehensive responsibilities and measures to counteract potential shortfalls across the organizational framework. This approach ensures that teams and business units are well-informed about their roles and the necessary actions to take in the event of a disruption in supply.
Effective planning entails preparing for diverse scenarios, encompassing immediate contingencies such as shifts in demand, allocation adjustments and macroeconomic fluctuations, as well as longer-term strategic blueprints involving inventory management strategies, alterations in product positioning and cultivation of robust supplier relationships.
AI's Influence on the Semiconductor Industry
Despite recent disruptions in the supply chain and the prevailing uncertainties in politics and economics, the semiconductor sector is exhibiting commendable performance in the year 2023.
This achievement can be largely attributed to the escalating demand for specialized chips crucial to emerging technologies like artificial intelligence (AI), self-driving and electric vehicles, IoT and 5G connectivity.
AI is demonstrating its utility in the realm of designing the very computer chips that empower AI systems.
Prominent tech enterprises are making substantial investments to explore how AI breakthroughs could streamline the intricate process of semiconductor design. In fact, certain startups and researchers have commenced exploring how the next generation of generative AI could further revolutionize the chip design process, albeit this concept remains nascent at its current stage.
In a recent development, researchers at Google's AI-oriented arm, DeepMind, revealed their employment of AI to accelerate chip design. This involves crafting circuits resembling neural networks and optimizing for speed, energy efficiency and size through reinforcement learning—reshaping systems by rewarding desired outcomes.
Notably, Deloitte has foreseen that leading global semiconductor companies will allocate $300 million towards AI tools for chip design in 2023, with this figure expected to witness a 20% annual growth through 2026.
