US semiconductor industry faces unprecedented challenges, historic opportunities

Governments across the world, and the USA, have taken notice of the importance of semiconductors. They have or are contemplating policies to incentivize increased chip production and innovation.

A new Semiconductor Industry Association (SIA) report tried to put this past year in perspective, as well as seeks to show how the US semiconductor industry has weathered the storm’s global position across a variety of metrics, including market share, manufacturing, and technology competitiveness. The 2021 state-of-the-US semiconductor industry report demonstrates that while the US industry has faced unprecedented challenges over the past year, it also has an historic opportunity to improve upon its current leadership position in the global industry.

Falan Yinug, Director, Industry Statistics and Economic Policy, SIA, said the 2021 state-of-the-US semiconductor industry report stated there are a number of ways semiconductors is helping the world. There is also the global chips shortage. Semiconductor companies are working hard to meet the market demand. There has been the Chips for America Act / Fabs Act, as well. Fab capacity share in Asia will continue to increase.

The semiconductor market grew by nearly 7 percent in 2020. The US industry market share was about 47 percent as of 2020. Korea 20 percent, Japan 10 percent, Europe 10 percent, Taiwan 7 percent, and China 5 percent, make up the rest. There were 277,000 direct jobs in the US semiconductor industry. The US semiconductor innovation policy landscape looks to invest in US semiconductor leadership, strengthen America’s technology workforce, promote free trade and protect IP, and co-operate with like-minded economies.

There was a panel discussion organized by SIA. The participants were John Pitzer, MD, Credit Suisse, Dan Hutcheson, CEO and Chairman, VLSIResearch, and Dale Ford, Chief Analyst, Electronic Components Industry Association (ECIA).

Semiconductors regain value
John Pitzer, Credit Suisse, said that after ~20 years of losing value in the global economy, semiconductors are now poised to regain value. There were barriers to entry, supply growth and the end demand in 1998-2007. Now, barriers to entry are rising. Sub-wavelength processing, multi-core, SoCs, and ecosystem development have greatly increased the R&D burden. R&D became the new driver for scale.

Over the last 12 years, there have been over 250 M&A transactions valued in over $500 billion, which is over 3x more than in the prior 15 years. Foundry increased from ~3 percent of semiconductor revenue in 1994 to over ~40 percent in 2020. Supply growth is currently decelerating. Beginning 2008, Moore’s Law started to become more difficult. DRAM and fabless consolidation caused supply growth to decelerate. End demand is now moving toward cloudification. ASP declines have slowed from 4 percent CAGR to flat. App-driven growth should provide foundation for stable to rising ASPs in the longer term. Autos, industrial and data centers are three high-growth markets.

Data economy has been moving from consumer electronics to IoT, DRAM and NAND, wireless infrastructure, etc. People came up with brand new use cases. New business models have sprung up. AI/ML promises to lower the cost of analytics. It is a big potential TAM. Pace with which we move to data economy is crucial for $1 trillion semiconductor revenue before data economy upscale. We can expect to see an oversupply in 2023.

Strategic trends
Dan Hutcheson, VLSIResearch, spoke about strategic trends in semiconductor industry. The chip innovation engine is relentlessly driving multiple opportunities. The USA lost semiconductor manufacturing share for nearly six decades. Europe and Japan saw a rise, as was China. Wafer fabs are natural monopolies today. $20 billion is the cost of new 3nm gigafab. $7 billion is the cost to upgrade it to 2nm.

EDA broke design-fab coupling, and silicon shield incentives shifted manufacturing to Asia. US capex phobia favored fabless, and US industrial policy phobia favored silicon shield regions. Foreign STEM students received financial advantages at US universities. Investors were also voting against US chip companies. The threat of higher corporate taxes is hurting the value of America’s semiconductor industry.

Today, there new are policies to strengthen US chip manufacturing. In business infrastructure, there is single federal construction permitting process, public-private partnerships with proven structure, and linking American leadership in universities and semiconductor technology. In human infrastructure, financial incentives are provided for STEM college degrees, making STEM college loan payments tax deductible, etc.

Components revenue growth
Dale Ford, ECIA, noted the electronic components revenue growth. Semiconductor revenue growth cycle shows Q-over-Q surge to the highest level in over a decade. Annual revenue growth breaks positive in Aug. 2022. There are strong demand and technology drivers. Will this see a shift in consumer spending?

Today, there is strong start to the current cycle, and most cycles last about four years. The current cycle is outperforming most cycles. ECIA North America sales sentiment survey trends see a huge peak currently. We are seeing stability. In Q4, there are strong expectations for exceptional growth. The overall market status and outlook is also strong.

Drivers of demand, are that the best industries are getting better, and worst are getting worse. Semiconductors sit at the top! Technology hardware is also strong. Data creation, communication, storage and analysis are going to be the drivers if the accelerated fourth industrial revolution (Industry 4.0). Cloud, IoT, and 5G, are the main drivers. EV/HEVs, green/renewable energy are also drivers of demand. The expected timeline for employee return is said to be around Q2-2022 and beyond. There are new company policies coming into place, and continue to evolve.

Supply chain disruptors have been climate, politics, etc. NA lead times are currently shattering records. Worldwide semiconductor unit shipments have seen an increase. It is 34 percent for discretes, 40.6 percent for analog ICs, and 49.1 percent for passives. Right now, transportation disruption is the main concern, along with port shortages, etc.