Pooja Kanwar, marketing executive, eInfochips
Semiconductor chips are the unsung heroes of modern technology, having revolutionised the world in ways no other technology has. From toys and smartphones to cars and hypersonic aircraft, these small but mighty devices are vital components of every aspect of our lives. Without semiconductors, many of the technologies we depend on today would not exist, making them an integral part of our daily routines, whether we live in bustling cities or remote rural villages.
Semiconductor design and manufacturing are instrumental in the advancement of modern technology. From the development of microprocessors to the creation of integrated circuits, semiconductors have played a critical role in shaping the world we live in today. As technology continues to evolve at a rapid pace, semiconductor design has become even more critical in meeting the demands of the modern digital age.
However, there are several obstacles and growth factors that are likely to influence the future course of the semiconductor design and manufacturing industry.
Difficulties in semiconductor design and manufacturing
The demand for leading-edge technology leadership has become a necessity for the semiconductor industry. The total number of transistors on a chip has been increasing every two years in accordance with Moore’s law1. However, the semiconductor design and manufacturing market is expected to be negatively impacted in 2023 due to the rapid deterioration in the global economy and a decline in consumer demand. According to technological research and consulting firm Gartner, worldwide semiconductor revenue growth is expected to decline by 3.6 percent in 20232.
In recent times, the ever-reducing size and -increasing complexity of chips have slowed their manufacture. Moreover, very few companies in the market are capable of designing and manufacturing them, and significant investment is required for R&D, design and scaling.
This industry’s technological transformation has created leading-edge capability in certain segments. A company’s success is based on the product and services it offers, and if the product is even just slightly better than the competitor’s, it gets most of the industry revenue. Even if the competitor wants to challenge the company, it will not be able to as these companies are years ahead in terms of technological development. Technological developments play a major part in any company’s success while also deciding its future in the market.
Impact of chips shortage on semiconductor design and manufacturing industry
The semiconductor industry is undergoing a significant change as global macroeconomic and geopolitical factors take centre stage. The top 10 chip companies have experienced a reduction in market capitalisation due to high inflation, rising interest rates and falling consumer confidence. Their combined market cap decreased by 34 percent from US$2.9 trillion in November 2021 to $1.9 trillion in November 20223.
Geopolitical barriers have played a significant role in the chip supply shortage. One of the main factors was the restrictions on selling semiconductor chips to Chinese companies. Later, stockpiling of chips began so that they could be used in 5G smartphones and other electronic items, which in turn led to a shortage of semiconductor chips. This shortage affected the manufacturing of hi-tech products, causing consumers to wait longer to get their hands on necessary digital products.
According to management consulting firm Bain & Company, the lead times for most semiconductor types have reduced over the last year but remain almost three-times more than pre-pandemic induced shortage lead times4. They were 27 weeks in January, nine weeks less than what they were at their January 2022 peak.
Furthermore, chipmakers are moving their production chains from China to neighbouring countries because of a series of disruptions, including the Biden administration’s restrictions on chip sales to China. Vietnam and India have emerged as cost-effective alternatives with lower political risks5. However, despite the emergence of these new manufacturing hubs, experts suggest that China still maintains a significant advantage in terms of its expertise in chipmaking.
Fields dependent on semiconductors
Any electronic equipment, whether big or small, high-tech or low-tech, will not work without a semiconductor chip. Many fields rely heavily on semiconductors, including computing, the internet of things (IoT), artificial intelligence (AI), healthcare and automotive.
Computing
Desktop computers, laptops, tablets and mobile phones all incorporate semiconductor or semiconductor-based components such as memory chips and graphics processing units (GPUs).
The IoT
All IoT apps rely on integrated circuits (ICs), sensors and other components that have built-in semiconductor chips.
AI
AI requires sensors, processors and memory, the maintaining and smooth running of which depends on semiconductor chips.
Healthcare
Remote patient monitoring with the help of AI and automation, and advanced medical equipment and surgical instruments would not be possible without semiconductor chips managing sensors for the monitoring of, for example, pressure, force, airflow, oxygen and temperature.
Automotive
A modern car has many features, such as autonomous driving, air conditioning, cameras and TV, all of which require semiconductor chips to ensure a smooth driving experience.
Factors driving worldwide semiconductor design and manufacturing market growth include:
- the widespread use of semiconductors in various fields such as automotive, data processing, electronics, digital technology, industrial equipment, and networking and communications;
- the increasing popularity of emerging technologies such as AI and the IoT, which enable memory chips to process vast amounts of data quickly;
- the expanding use of AI, the IoT, machine learning and wireless communication devices;
- the significant rise in remote working worldwide, which has notably increased the demand for PCs and laptops;
- the development of numerous smart cities supported by government investments, rapid urbanisation and industrialisation; and
- the rising popularity and adoption of electric vehicles.
Quantum versus conventional computing
Semiconductors and quantum computing are the two areas of technology currently generating a lot of interest. Many high-tech leaders see quantum computing as the next big thing, and people in the industry are closely monitoring its progress. Some even speculate that quantum computing could eventually replace conventional computing altogether. However, based on the current state of technology, it is more likely that quantum computing will complement rather than replace conventional computing in the short and medium terms.
Quantum computing could be used to improve the processing time of specific tasks such as data processing and encryption. However, for other functions, conventional computing will remain the default option as it provides adequate benefits and quantum computing has limitations.
As companies invest more in quantum computing, there is the potential for game-changing advances in processing power and speed. In addition, the cost of using quantum computing could decrease over time. Semiconductor design and manufacturing companies should keep a close eye on developments in this field and be patient in waiting for a return on investment (ROI). If they do, they could find many opportunities to capture value as quantum computing continues to evolve.
Wrap-up
The semiconductor industry is critical to the hi-tech manufacturing industry’s success, as any new feature or task requires changes in semiconductor chip design. A worldwide chip shortage has made it difficult to meet end consumers’ demands, but semiconductors are vital for driving the economy of electronics businesses.
Since the 1970s, chip size has continuously decreased and its capacity increased due to the development of advanced materials and manufacturing standards. Following this trend, eInfochips is working on the latest 10, 7 and 5 nm application-specific integrated circuits (ASICs).
eInfochips
References1Moore’s Law was a prediction made by American engineer Gordon Moore in 1965 that the number of transistors per silicon (Si) chip would double every year. In 1975, as the rate of growth began to slow, Moore revised the timeframe to every two years. His revised prediction was two months out, with the number of transistors per chip having doubled circa every 18 months since 1961.
2Goasduff, L. (2022). Gartner forecasts worldwide semiconductor growth to decline 3.6 percent in 2023 [press release]. Gartner. November 28.Available at: https://bit.ly/41RIEbN
3Simons, C., Kulik, B., Nichloas, J. and Bish, J. (2023). 2023 semiconductor industry outlook [report]. Deloitte.Available at: https://bit.ly/3oEmyvq
4Hanbury, P. and Hoecker, A. (2023). The chip shortage recovery has turned a corner [press release]. Bain & Company. March 23.Available at: https://bit.ly/3UZAXy6
5Soon, W. (2022). India and Vietnam could benefit as chipmakers shift away from China [press release]. CNBC. December 12.Available at: https://bit.ly/41LqWHH