Semiconductor Industry: Challenges and Opportunities Ahead

The global semiconductor industry, which has enjoyed flourishing prosperity in the past 18 months, is set to face some serious challenges in the second half of 2022. The industry is now grappling with an excess of supply, which is mainly due to the low demand for consumer electronics, high inflation, and rising interest rates. Gartner has predicted a 7.4% growth in 2022 and a 2.5% decline in 2023 in the semiconductor sector, compared to the impressive 26.3% growth in 2021.

In this article, we will discuss the top three semiconductor trends that will shape the industry in the coming years. Firstly, the sluggish demand for consumer electronics, including smartphones, PCs, and tablets, has led to a downturn in the semiconductor industry. This has brought up a pessimistic perspective on the sector, and people are waiting to see how iPhone 14 performs. According to IDC, global shipments of smartphones in 2022 are estimated to be 1.27 billion units, with a 6.5% YoY decline. Similarly, global shipments of PCs and tablets are expected to decrease 12.8% and 6.8% to 305.3 million and 156.8 million units, respectively. This reduction has created an air of uncertainty in the industry, and people are waiting to see if the iPhone 14 can turn the situation around.

Secondly, automotive chips have emerged as the driving force to fuel semiconductor growth. According to McKinsey, this market will grow from USD 42 billion in 2021 to USD 125 billion in 2030, at a high CAGR of 13%. The growth momentum includes power control, central control, environmental perception, Internet of Vehicles, audio and video, AI functions, and so on. Besides, the demand for automotive chips with advanced processes is growing at a CAGR of 24% in the coming ten years, as solid computing power is needed for advanced functions such as self-driving, ADAS, and real-time road monitoring. In the future, automotive OEMs may directly collaborate with foundries, and it becomes trending for them to skip Tier 1 & 2 and participate in the supply chain.

Lastly, the US-China chip war continues to get fierce and is continuously harming the industry. The Biden administration announced the CHIPS and Science Act earlier in August to protect technology development in the US. This law emphasizes the importance of strengthening the US’s ability of supply chain management and domestic manufacturing and not relying on other countries. The US provides around USD 52 billion in funds to companies that invest in American semiconductor manufacturing, including Nvidia, Intel, TSMC, Samsung, and others. Companies that receive funds shall not develop the latest technologies or expand advanced chip capacity in China for ten years. US customers are also asking for a “certificate of origin” to prevent semiconductors made in China. This war will persist in 2023, and all the participants in this industry will be severely affected.

In conclusion, while 2023 may not be a positive year for the global semiconductor industry, there are still reasons to remain optimistic. Demand for consumer electronics will remain low, the US-China chip war will go on, and high inflation will continue. However, the automotive chips play a strong growth momentum to fuel semiconductors, and this market will continue to grow at a high CAGR in the coming years. In 2023, the semiconductor market is predicted to decrease slightly by 2.5%, but hopefully, 2024 will be a better year for the industry.