With 2021 behind us, the world is expected to see some alleviation in chip crunch at least in the second half of 2022. While dozens of new fabs that start production in the next few years may result in a rebalancing of demands and supplies, many are seeing a golden era for the semiconductor industry in the years ahead.

"This is just a true renaissance period for the industry," said Mark Edelstone, chairman of Morgan Stanley's global semiconductor investment banking, said in an online forum hosted by Silicon Catalyst, a semiconductor startup accelerator in California.

Having taken 15 semiconductor companies public and over decades of the semiconductor industry and investment banking experience, Edelstone said the demand for chips has changed from a very computer-centric world to a very pervasive and encompassing one. New demands from artificial intelligence (AI) and machine learning, industry 4.0, autonomous vehicles and robots, gaming AR/VR, smart home, mobile device, cloud/datacenter, and 5G communications, are forecasted to push the size of the semiconductor market to US$1 trillion by the end of this decade, from the US$553 billion estimated by World Semiconductor Trade Statistics (WSTS) for 2021, up 25.6% year-on-year.

Despite the optimism, there remain challenges for bringing the aspiration to reality. It takes the following efforts to sustain the new golden era of the semiconductor industry.

Talent

In SEMICON Taiwan 2021, held on Dec 28-30 in Taipei, "talents" was one of the most frequently mentioned words among panelists, keynote speakers, and opening remark givers in the forums throughout the three-day event. According to the 104 Corporation, the demand-supply gap of semiconductor industry talents in Taiwan has reached 27,700 per month as of Q2 2021, and the average vacancy of engineers in the first 3 quarters in 2021 reached more than 17,000, up 46.4% from the same period last year.

Job vacancies at IC foundry firms grew 55.3% on year in Q2, while those of packaging & testing and IC design companies increased by 51.2% and 40.8% during the same period.

The semiconductor industry is a capital-intensive industry that needs high quality and quantity of STEM (Science, Technology, Engineering, and Math) talents to do high-precision engineering work for long hours. Without sufficient talents, the rapidly growing market demand, as well as R&D for future innovation, is likely to come to a bottleneck.

Supply chain resilience

Global supply chains have learned a hard lesson from the damages caused by extreme weather and uncertainties such as the pandemic over the past few years. Like it or not, those factors and geopolitical tensions would continue to wreak havoc in the future. People are placing resilience as a priority over efficiency, with "just-in-case" stock prepared for the future, instead of zero tolerance for redundancy, or "just-in-time." The geologically diversified fab locations and vigilant semiconductor company management teams will also make a difference during crises like this.

Having said that, during the chip crunch, many people have been double ordered or triple ordered for the chips they need. Once the new capacities at new fabs are ready to ship the products, backlogs will disappear rapidly. That certainly tests the supply chain management capability of semiconductor companies.

But there are also new factors at play to tip the balance of supplies and demand. As countries such as the US, China and EU are all keen on securing critical resources, the cost-efficiency issue is just not relevant for critical chip supplies that governments want to get hold of. With more and more countries doling out subsidies to attract semiconductor companies to build new fabs to produce chips locally, will there be enough semiconductor talents to run all the extra fabs? With approximately 50% of the world's chips manufactured in Taiwan, the risk from geopolitical tension also needs to be monitored closely. These are the uncharted territory that the industry will have to explore in the future.

ESG

ESG and sustainability are getting more important for the semiconductor industry today. The net-zero carbon emission targets and the social and governance agenda are all critical for corporate survival. Companies that do not take these issues seriously might end up losing orders, being slapped with big carbon tariffs, or getting a very low valuation on capital markets because customers, banks, and investors simply would shun them.

As chips will be ubiquitous in all digital devices to enable a world of hyper connection, the semiconductor industry will be subject to monitoring for ESG compliance from ever more customers and investors.

Even more innovations

Deloitte Touche Tohmatsu predicted that some of the chip supplies will remain in shortage in 2022 because the demand is driven by digital transformation. The new demand for new chips will stimulate venture capital investments in semiconductor startups, according to the consulting firm. It is forecasting an excess of US$6 billion will be invested in global semiconductor startups in 2022, taking up only 2% of the US$300 billion in a total of global VC investments, but that is already more than 3 times the annual investments made to semiconductor startups between 2016 and 2020.

Innovations such as compound semiconductors, heterogeneous integration, and advanced packaging technologies are the new trends pursued by industry researchers and developers to meet new demands.

Experts at the "What happens next?" panel discussion hosted by Silicon Catalyst also noted that China has been investing in semiconductor startups aggressively and trying to build up domestic supplies to meet a self-sufficiency rate, so the US and the rest of the world need to continue innovating to stay ahead of the competition.

Basically, experts expect chip crunch will no longer be an issue in 2-3 years. By then the world would have lots of extra chip supplies to absorb. Hopefully, innovations for emerging trends such as metaverse devices, electronic vehicles, Internet of Things, edge computing, autonomous driving, AI, low-earth-orbit satellites, HPC, etc., will drive digital experiences and applications requiring new chip demands.

By: DocMemory
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