Global Geopolitical Uncertainties, Deepening Macro Situations can be an Impediment to the Growth of Chip Industry

Published  January 12, 2024   0
Akshara Bassi, Counterpoint Research

With the onset of COVID-19 pandemic, one of the major hindrances faced by the chip industry is the supply chain imbalance. Apart from the pandemic, a huge amount of trade scuffles coupled with geopolitical tussle are proving to be extremely dangerous for this industry. Some experts and analysts have stated that by the end of 2024, production shortage will be completely normalized, while many still doubt it. The demand has surged across various sectors, but insufficient supply of raw materials and limited manufacturing units have been the root cause of disruptions and untimely production. In this regard, we spoke to Akshara Bassi, Senior Research Analyst, Counterpoint Research about how the semiconductor industry is making progress, the current global challenges and the solutions required to boost the industry. 

Q. As per some media and survey reports, the semiconductor sales market will recover in 2024 with an annual growth rate of 20%, but the same is highly expected to decline by 12 percent by 2023. Do you agree with this statement? Where does the chip sales market currently stand?

Semi sales in 2023 were highly impacted by a tightened macroenvironment and cuts by consumers due to inflation on discretionary spending. This slowed down the overall demand of electronic products globally in 2023. Most enterprises cut back on their IT budgets which impacted the sales. The demand in 2023 came majorly from AI infrastructure deployments that were concentrated among big-tech companies and cloud providers. In 2024, we see the market and enterprises gradually increasing their IT infrastructure spends and consumer spending to increase on electronics as consumers look to upgrade/refresh and purchase newer devices. Additionally, we see AI becoming proliferated at edge devices which will lead to newer devices with more semiconductor content to support AI applications.

Q.  Throughout the world, the governments are unleashing various schemes and initiatives to boost the industry and in high hope that it would return to normalcy by the end of 2024. Are there any current impediments that have the high probability to prevent the growth of the industry? What are the challenges?

Global geopolitical uncertainties and deepening macro situations can be an impediment to the growth of industry. These situations would force companies to evaluate their product launches, manufacturing and supply chain scenarios impacting the supply and demand of products and ultimately the pricing. Another challenge that might impact the reshoring of manufacturing efforts is the availability of skilled human resources. As the companies are widening their footprint, especially manufacturing, skilled human resources in niche areas are very limited.

Manufacturing Chips

Q. Speaking of the perspective of India, do you think the nation is on the correct track to grow its semiconductor manufacturing industry? Would you like to convey any specific message to the government and the policy-makers?

We have come a long way in 2 decades with almost 100% of smartphones being manufactured in India as of now. The new PLI scheme expands to IT devices and the government and state-government’s push for manufacturing in India is the right step as it focuses on building and expanding the ecosystem that can support a variety of electronic products across their value chain. It means the evolution of a country from an import centered entity to export based entity when it comes to electronic products.

Q. China is already undertaking various efforts to grow its semiconductor industry and is also leading the packaging segment and the US and EU are also doing the same. In this cutthroat competition, what could be the strategy for India to spearhead the industry? What is the growth percentage you can see in the coming few years?

India is spearheading in the right direction by focusing on building and creating an ecosystem that will have far reaching consequences for the electronics industry. India should focus more on onboarding companies across the value chain from wafer suppliers to OEMs. We see the India semiconductor market to grow with about 30% CAGR till the end of this decade. 

Q.  In technology perspective, AI and IoT are playing a significant role in escalating chip manufacturing. What are some of the additional technologies, which you think could be a game-changer for this industry? How GenAI can help the industry to grow more?

Some other technologies would be different architectures that are being used in compute chips. From ARM to RISC-V they are helping grow the ecosystem by offering designs that can offer superior compute capabilities. AI is the most important technology currently for chip manufacturing. From accelerating chip development time to chip manufacturing AI is helping ushering new age of chips that have higher compute capabilities. Additionally, AI is helping in the manufacturing process to help with higher yield rates and lowering fab costs. As the Moore’s law becomes constrained, EUV is another technology that is helping chip manufacturing overcome the limitations. With EUV wafer equipment it is allowing foundries to enter production in Angstrom era for chips.

EUV Wafer Equipment

Q. Taiwan is already furnished with the world's largest semiconductor foundry and the USA along with the EU is also undertaking efforts in growing foundries. Why is it so difficult for a country like India to develop semiconductor foundries? Micron is developing an assembly plant and there are PLI schemes to boost the entire value chain. What is the actual challenge in India in setting-up chip foundry?

Semiconductor manufacturing is a highly complex and technology-intensive field. The cost of setting up a foundry can be considerable along with the resources required to set up and run a foundry. Considerable amount of water, power and land is required continually to sustain a foundry. It also requires access to cutting-edge technology and highly skilled engineers and technicians. Developing this expertise or attracting the right talent can be challenging. Creating a robust and reliable supply chain is crucial for foundry operations, given the sensitive and precise nature of semiconductor manufacturing. Establishing such a supply chain in India, where the semiconductor ecosystem is still developing, can add to challenges. Semiconductor manufacturing also has considerable environmental implications, including high water usage and chemical waste. Adhering to environmental regulations and ensuring sustainable practices can add to the complexity and cost.

Q. Can you highlight some of the latest initiatives by Counterpoint Research in boosting the semiconductor global sector? What are some of your upcoming programs and initiatives?

We have robust research across the value chain from both primary and secondary research methods from Foundry to End Equipment. We have experienced researchers working with us to provide actionable market insights across the whole semiconductor ecosystem. We have Foundry Trackers, AP SoC trackers, (Tracking SoC), Data Center trackers (Tracking CPU/GPU/Servers), PC Tracker (PC, AI PC, ARM PC) BoM (Bill Of materials) services and component level services that helps the enterprises working in semiconductor space to ascertain market dynamics and demand.