- Thierry Spanjaard
Semiconductor: long term plans vs. short term conjuncture
The Covid crisis has brought to the front an already known fact: as Europe and North America had engaged for years in a deindustrialization process, the semiconductor industry is based mostly in Asia. When supply chains were halted in 2020 and 2021, industries discovered they had no alternatives to their usual Asian semiconductor suppliers. TSMC (Taiwan Semiconductor Manufacturing Company) is the undisputed leader in volume, followed by Samsung Electronics, Global Foundries, UMC and SMIC, together representing at least 90% of the worldwide production of semiconductors.
Supply chain optimization leads to an increased sensitivity to conjectural changes: when the demand shrinks, overcapacity crisis comes fast and when the demand increases, we face terrible shortages.
At the same time, the US – China rivalry worsens, and is evolving towards a new Cold War, if not worse. Taiwan is under threat, potentially unsetlling the whole continent. These has led many powers to set up plans to regain control of their semiconductor supply.
All governments are reacting, in encouraging and subsidizing private initiatives. In Europe, the European Chips Act aims at "bolstering Europe’s competitiveness and resilience in semiconductor technologies and applications." Its long-term goal is that Europe would reach a 10% share in the global microchips market. This goal is to be supported by over EUR 43 billion in investment, divided in EUR 11 billion from the Chips for Europe Initiative (funded by the EU and member states) and EUR 32 billion coming from public-private partnerships. At the same time in the US, the CHIPS and Science Act will provide roughly US$ 280 billion (EUR 255 billion) in new funding to boost domestic research and manufacturing of semiconductors in the United States. The reinforcement of local capacities will lead to a totally different world from the one we know now: "geopolitics have drastically changed the situation facing semiconductor makers and globalization and free trade are almost dead, and unlikely to come back," said Morris Chang, founder of Taiwan Semiconductor Manufacturing Co. (TSMC).
These government programs lead to numerous industrial announcements:
STMicroelectronics and GlobalFoundries have signed a memorandum of understanding to build a 300-mm semiconductor manufacturing facility in Crolles, France, a project worth totally EUR 7.4 billion,
Intel will invest EUR 80 billion in the EU over the next decade, starting with two chip fabs in Magdeburg, Germany, an EUR 33 billion investment,
Infineon Technologies has broken ground for a new plant in Dresden, an investment of EUR 5 billion,
Infineon Technologies inaugurated a EUR 1.6 billion chip factory for power electronics on 300-mm wafers in Villach, Austria,
TSMC is leading a venture including NXP and Infineon that will invest EUR 10 billion in a 28nm wafer fab in Dresden.
And in America:
TSMC will expand chip production in the US, reaching a US$ 40 billion (EUR 36.5 billion) investment and build a second factory using its advanced 3nm process technology.
TSMC in a partnership with Sony and Denso is building an US$ 8.6 billion (EUR 7.8 billion) wafer fab in Kumamoto Prefecture, attracting JPY 476 billion (EUR 3.2 billion) in government subsidies,
South Korea’s government plans to offer tax-based incentives to semiconductor suppliers and other technology players investing in the country.
There has never been such a level of investment in the semiconductor industry. But we all know that setting up semiconductor plants takes time. In the most ambitious plans, first deliveries from these projects can be expected in 2026, while 2030 is the goal announced for most of them.
At the same time, short term perspectives are not so rosy:
Gartner established that revenue from the global semiconductor market grew a modest 1.1% in 2022,
Gartner anticipates that global semiconductor revenue is bound to decline by 11.2% in 2023, from US$ 618 billion (EUR 563 billion) down to US$ 596 billion (EUR 543 billion),
Already, in Q1/2023, worldwide sales of semiconductors totaled US$ 119.5 billion (EUR 109 billion) during Q1/ 2023, a decrease of 8.7% compared to Q4/2022 and 21.3% less than Q1/2022, according to the Semiconductor Industry Association (SIA).
One may question who is finally making decisions? Is it industry analysts, strategy departments, CEOs or just governments through subsidies? The future of the semiconductor industry depends on answers to this question.