This market research report was originally published at the Yole Group’s website. It is reprinted here with the permission of the Yole Group.
Yole Group and ATREG reflect today on the fortunes of the global semiconductor industry to date and discuss how the major players need to invest in order to secure their supply chain and chip capacity.
Over the last five years, there have been key changes in the chip making industry such as Intel losing its crown to two relatively new contenders – Samsung and TSMC. Stephen Rothrock, ATREG’s CEO & Founder and Pierre Cambou, Principal Analyst at Yole Intelligence, part of Yole Group, had the opportunity to debate the state of the global semiconductor industry landscape and its evolution.
In at broad discussion, they covered the market and its growth prospects, as well as the global ecosystem and how companies can optimize supply. In this first article, they highlight their analysis of the industry’s latest investments and the strategies of the leading industry players. The second article to be published next week will discuss how semiconductor companies can strengthen the worldwide supply chain.
Yole Group’s analysis is based on the following annual products: Overview of the Semiconductor Devices Industry – Status of the Power Electronics Industry – Status of the Compound Semiconductor Industry – Status of the CMOS Image Sensor Industry – Status of the MEMS Industry and Status of the Memory Industry -Focus on Kioxia, as well as the Wafer Fab Equipment Market Monitor.
Global investments
The total value of the global semiconductor market grew from $850 billion in 2021 to $913 billion in 2022.
- The U.S. maintained a 41% market share,
- Taiwan grew from 15% in 2021 to 17% in 2022,
- Korea dropped from 17% in 2021 to 13% in 2022,
- Japan and Europe remained constant – 11% and 9% respectively,
- China increased from 4% in 2021 to 5% in 2022.
The semiconductor device market increased from $555 billion in 2021 to $573 billion in 2022.
- The U.S. grew its market share from 51% in 2021 to 53% in 2022,
- Korea shrank from 22% in 2021 to 18% in 2022,
- Japan increased market share from 8% in 2021 to 9% in 2022,
- China increased from 5% in 2021 to 6% in 2022,
- Taiwan and Europe remained constant – 5% and 9% respectively.
However, the gain in market share by U.S. semiconductor device companies has slowly eroded the added value which went down to 32% globally in 2022. Today, the entire industry relies on a sole player in Taiwan which is a disputed Chinese territory that could be cut off from the rest of the world if Taiwan-China tensions escalate. At the same time, mainland China has growth plans worth $143 billion up to 2025.
“Companies will need to invest about 20% of revenue into new foundries every year,” explains Cambou. “Announced expenditures total $800 billion which is about right if we match these to our semiconductor market forecast, but the key question is the geographical location of those investments.”
U.S. and EU CHIPS acts
The U.S. CHIPS and Science Act passed in August 2022 will provide $53 billion specifically for semiconductors in order to boost domestic research and manufacturing.
The more recent European Union’s (EU) CHIPS Act Act voted in April 2023 has provision for $47 billion in funding which, with the U.S. provisioning, provides a $100 billion transatlantic plan with a 53/47% U.S./EU split.
Over the past two years, chip makers everywhere have been making record fab investment announcements to attract CHIPS Act funding. Relative U.S. newcomer Wolfspeed announced $5 billion invested in its 200mm silicon carbide (SiC) fab located at the Marcy Nanocenter near Utica, New York, where production started in April 2022. Intel, TSMC, IBM, Samsung, Micron Technology, and Texas Instruments have also begun what ATREG describes as aggressive fab expansions to claim a share of the U.S. CHIPS Act funding pie.
U.S. players represent 60% of the semiconductor investment in the country.
Direct foreign investment (DFI) makes up the remainder. TSMC’s $40 billion fab construction in Arizona is one of the most significant, then Samsung ($25 billion), SK Hynix ($15 billion), NXP ($2.6 billion), Bosch ($1.5 billion), and X-Fab ($0.2 billion).
Pierre Cambou
Principal Analyst, Yole Intelligence (part of the Yole Group)
The U.S. Administration does not plan to fund entire projects, but instead will offer grants amounting to between 5% and 15% of a company’s capital expenditures for a project, with funding not expected to exceed 35% of the cost. Companies can also apply for a tax credit reimbursing them for 25% of project construction. “So far, more than $210 billion in private investments across 20 U.S. states have been committed since the CHIPS Act was signed into law,” notes Rothrock. “The first call for CHIPS Act application funding opened up at the end of February 2023 for projects to construct, expand, or modernize commercial facilities for the production of leading-edge, current-generation, and mature-node semiconductors, including both front-end wafer production and back-end packaging fabs.”
A rendering shows early plans for two new Intel processor factories in Magdeburg, Germany. Announced in March 2022, the project will deliver computer chips using Intel’s most advanced transistor technologies. (Credit: Intel Corporation)
“In the EU, Intel plans a $20 billion fab construction in Magdeburg, Germany and a $5 billion packaging and test facility in Poland. An STMicroelectronics and GlobalFoundries partnership will also invest $7 billion in a new fab in France. In addition, TSMC, Bosch, NXP, and Infineon are discussing an $11 billion partnership,” adds Cambou.
IDMs are also investing in Europe, with Infineon Technologies embarking on a $5 billion project in Dresden, Germany. “EU players represent 15% of announced investment on EU soil. DFI represents a massive 85%,” says Cambou.
When factoring in announcements regarding Korea and Taiwan, Cambou concludes that the U.S. will receive 26% and the EU 8% of total global semiconductor investments, pointing out that this allows the U.S. to control its own supply chain, but falls short of the EU’s goal to control 20% of global capacity by 2030.
Outside of the U.S. and the EU, Korea represents 30% of announced investments, doubling its current share of the industry while Taiwan represents 15% which is in line with its own current share. Mainland China will benefit from its government’s investment plan amounting to $143 billion which at 18% would triple its current share of the industry.
Impacts of investment strategies
“The companies that will be the real winners of the CHIPS Act are the ones that are agile enough to execute a site selection process quickly (Wolfspeed’s Mohawk Valley, NY fab is a great example) that can bring capital to the table, and that are committed to their local fab community by creating hundreds of regional skilled jobs in a very tight labor market,” observes Rothrock. Chip makers are also expected to implement programs such as affordable, high-quality childcare to attract more women into the semiconductor workforce and introduce training programs for local school, college, and university students.
It will be hard for the U.S. to match China’s level of investment in domestic chip manufacturing and even harder for us to leap ahead. This initial public funding of $52 billion is a great start, but while this package will help us keep pace with incentive programs around the world for now, it is nowhere near enough over the long term. In the meantime, many existing legacy fabs are being refurbished, converted, or upgraded to fill the gap until the announced greenfield fabs come online to boost capacity.
Steven Rothrock
CEO and Founder, ATREG
“Brownfield fab demand is at an all-time high, especially 200mm fabs and tools, driven by fear of allocation and the desire for internal manufacturing control,” explains Rothrock. Multiple fab transactions have taken place over the past 18 months to illustrate this trend, including Littelfuse’s purchase of the Elmos Dortmund, Germany facility, the sale of TSI’s Roseville, CA fab to Bosch, or the dispositions of three onsemi fabs to respectively LA Semiconductor (Pocatello, ID), Diodes (South Portland, ME), and BelGaN Group (Oudenaarde, Belgium). The appeal of brownfield fabs is that they are already operational and offer accelerated time-to-market, the potential to maintain positive cash flow (many with long-term supply agreements), already installed tool lines, equipment, and infrastructure, available intellectual property (IP) and expertise, as well as a highly skilled operational workforce.
“Over the next couple of years, there will be fierce competition not just for engineering resources or tools, but most of all for highly skilled fab operations workers as well as tradesmen such as electricians or plumbers needed for fab construction,” notes Rothrock.
Spending review
When such large sums are involved, it is only natural to ask if the industry has spent enough or too much and if the expenditure will solve any of the problems the industry faces.
The recent fab announcements will sustain +6.4% long-term semiconductor growth, says Cambou, although the industry is expected to face a -7% decrease year-on-year after a peak of $573 billion revenues in 2022. A more realistic prediction is +4.5% CAGR over the next five years, he says. Semiconductor wafer production is expected to grow by 30% by 2028 to reach a total capacity of 12,000kWpm 12” eq.
For Rothrock, the overall spend on semiconductor manufacturing has been staggering over the past 18 months, especially for 300mm. Global 300mm fab equipment spending for front-end facilities next year is expected to begin a growth streak and reach a record high of $119 billion in 2026. “300mm fabs are rare, but extremely sought after. A great example is Texas Instruments who not only purchased Micron’s Lehi, UT operational 300mm facility in February 2022, but also decided to build another new 300mm fab right next to the existing campus.”
Rendering of early plans for Texas Instruments’ next 300mm semiconductor wafer fab next to the company’s existing fab in Lehi, Utah. (Credit: Texas Instruments)
The market is responding. According to Yole Group’s Wafer Fab Equipment Market Monitor, wafer fab equipment billings increased by 13.6% year-over-year to $25.3 billion in the first quarter of 2023 while fab equipment investments are on track for a recovery in 2024 after a slowdown this year.
“It is pretty clear now that the CHIPS Act alone will not be enough to enable the U.S. to regain its semiconductor manufacturing leadership on the world stage,” concludes Rothrock. “We believe one of the solutions is to balance short-term investments that shore up capacity with spending aimed at mastering cutting-edge manufacturing, as well as longer-horizon R&D of next-generation technologies.”
