There’s no unraveling the relationship between the global economy and the demand for semiconductors. Global powerhouses are responding to current demand in a way that will have significant implications for the future of the semiconductor market.
As one of the most traded products worldwide, semiconductors are the building blocks for all things electronic, from handheld electronics to SUVs. Because of this, nearly every industry has been impacted by the recent semiconductor shortage. This has led us to the current state: an ever-shifting and evolving market.
shifts in supply shortage
While there have been mixed predictions for just how long the semiconductor shortage will last (as recently as December, Deloitte was predicting that the shortage would last through 2023), many chip analysts now believe that the end is near. This shift in the market is attributable to a variety of factors, including an increase in capital spending and the expansion of semiconductor fabricators.
As a result of both the Russia-Ukraine conflict and COVID-19, we’ve seen just how reliant our global supply chain is on a small number of manufacturers, many of whom are located in geopolitically volatile regions. This overreliance has been made clear by the chokepoints faced in the industry so far. Driven in part by these geopolitical forces, several global regions are all striving for expansion of their own semiconductor fabricators to strengthen their holds on the market. We will take a look at some of this progress in the market’s most prescient regions, including: China, the United States, Taiwan and, more recently, India.
china
Currently, there is a collective attempt to limit the expansion of semiconductor fabrications in China; however, it is difficult to say how long it will take before such attempts are reflected in the market. This is because the Chinese government is especially supportive of semiconductor companies, as they see the trade as vital to their economy.
In order to encourage Chinese innovation in the market, the government has provided subsidies, favorable procurement policies and other preferential policies to provide Chinese firms with a significant cost advantage. One such example can be observed in the $4.85bn below-market loans that China’s four state-based semiconductor companies received between 2014 and 2018. This advantage is further emphasized in the 2020 report by the Boston Consulting Group, who found the cost to build and operate a semiconductor fab in China was 50% lower than the cost in the United States.
Despite efforts to counter its growth, Chinese expansion of semiconductor fabricators continues to flourish. In 2021, orders for chip-making equipment from overseas rose 58%. This established China as the largest market for these products for the second year in a row.
united states
In July, Congress passed the Chips and Science Act to invest billions in the expansion of semiconductor fabricators and scientific research. This bill contained a $52 billion allocation to boost chip manufacturing in the United States, which has been deemed a matter of necessity for the United States’ economy. Between this recent legislation and news of potential cooperation with Taiwan, the United States is working to uphold its footing as a global leader in technology.
taiwan
Which brings us to the Taiwanese market. Earlier this month, Speaker Nancy Pelosi Met with Mark Liu, chairman of the Taiwan Semiconductor Manufacturing Co. (TSMC)–the world’s largest chipmaker. Pelosi shared in a statement that her delegation, “conveyed how our CHIPS and Science Act will go a long way to strengthen both our economies as well as express our support for a 21st Century trade framework.” TSMC is expected to receive some of the funding from the Chips and Science Act for their manufacturing facilities in Arizona. Due to this, as well as its strong abilities in OEM wafer manufacturing and their complete industry supply chain, Taiwan has the unique capacity to distinguish itself from competitors in the semiconductor industry.
india
Due to favorable government initiatives, India has the potential to become a powerful semiconductor hub. While China is experiencing large supply chain disruptions, India is poised to potentially become a strong market alternative, according to leading data and analytics companies. The country is currently developing a Chips to Startup program with the goal of creating a future talent pool of highly trained engineers. The Indian government has also recently announced a nearly $10 billion plan to incentivize and attract chipmakers to the country by 2027. And although this will compete against similar investments by the European Union and the United States, there is no question that India is poised to become a key player in the expansion of semiconductor fabricators.
A complex and interrelated relationship exists between the semiconductor supply chain and demand for electronics. Leaders across the world have recognized the importance of shoring up domestic semiconductor supply and spurred the current global expansion of semiconductor fabricators. It remains to be seen how this explosive growth will impact the current shortage market – in both the short- and long-term.
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