Geopolitics could be the top factor influencing where investments in semiconductor manufacturing occur in the next several years, according to the director of industry research for SEMI, the semiconductor industry group.
During SEMI’s Innovation for a Transforming World virtual conference this week, Clark Tseng, director industry research for SEMI, said, “We never expected geopolitics to become the new factor driving fab investment, but it’s driving chip manufacturing investment around the world.”
As evidence, Tseng noted last month’s passage by Congress of the U.S. Innovation and Competition Act (USICA), which contains a $52 billion allocation to boost chip manufacturing in the U.S. He also cited South Korea’s plan to invest hundreds of billions of dollars in its own domestic chip manufacturing operations over the next decade, as well as efforts by the European Union and Japan to strengthen semiconductor manufacturing in their own regions.
The collective effect of these efforts to reduce how much of the world’s semiconductor manufacturing happens in China may not be felt for years. For example, Tseng said it likely will be 2024 before the industry sees real, substantial changes in the amount of chip manufacturing happening in the Americas resulting from the new fab investments that have been announced in this region in recent months. Much of the new, announced fab capacity won’t be in service until the first half of next year at the earliest, he added, and the geopolitical machinations continuing to affect the industry could cause some uncertainty.
Yet in the interim the global market for sales of materials and equipment used to make semiconductors will see a strong rebound from the darkest early days of the pandemic.
Global sales of semiconductor manufacturing equipment by original equipment manufacturers are forecast to soar 34% this year to $95.3 billion, compared to $71.1 billion in 2020, Tseng said, adding that the market should tip past $100 billion next year.
Chip shortages are still a problem, with waits of many weeks longer than typical in many segments. Tseng said the worldwide industry is still seeing some “tightness” in the markets for materials, such as wafers and wet chemicals, and there remains a shortage of supplies, such as wire bonding and epoxy molding compound, that are used for assembly and packaging. However, many materials and manufacturing equipment segments either are already rebounding or soon will, Tseng said.
Furthermore, the semiconductor market should remain strong for much of the current decade, said Marco Chisari, managing director and global head of semiconductor investment banking for Bank of America, Merrill Lynch. Chisari chased Tseng’s comments at the SEMI conference with a presentation of his own, suggesting that the semiconductor market is “in full rebound,” with the market “out-performing” expectations and industry indices hitting all-time highs on the stock market.
There are reasons to believe this growth “could be sustained for the next decade,” he said. “There is a convergence of trends driving extraordinary growth in this market,” including data sphere investments, 5G upgrades, AI innovation and spending on resources for edge, IoT, automotive/ADAS, interactive gaming, and augmented/virtual reality applications and deployments.
Still, the sector will not be void of risks. Among the challenges, the capital expenses by the major semiconductor companies “are ballooning,” partially as a result of the new fab investments. Also, in addition to ongoing chip shortages in some segments, manufacturing facilities could face a risk of “over-booking” with an increasing number of fab-less companies wanting access to their resources and factories as they look to satisfy rebounding demand from their own customers.
In addition, echoing Tseng, Chisari said “major geopolitical risks” could continue to loom over the sector, causing uncertainty.
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