Semiconductor chips are the unsung heroes of modern technology, having revolutionized the world in ways no other technology has. From toys and smartphones to cars and hypersonic aircraft, these small but mighty devices are vital components of every aspect of our lives. Without semiconductors, many of the technologies we depend on today would not exist, making them an integral part of our daily routines from bustling cities to remote rural villages.
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Semiconductor design and manufacturing have been instrumental in the advancement of modern technology. From the development of microprocessors to the creation of integrated circuits, semiconductors have played a critical role in shaping the world we live in today. As technology continues to evolve at a rapid pace, semiconductor design has become even more critical in meeting the demands of the modern digital age.
However, there are several obstacles & growth factors that are likely to influence the future course of the semiconductor design and manufacturing industry.
Difficulty and Cost Involved in Semiconductor Design and Manufacturing
The demand for leading-edge technology leadership has become a necessity for the semiconductor industry. The total number of transistors on a chip has been increasing every two years in accordance with Moore’s law.
However, the semiconductor market is expected to be negatively impacted in 2023 due to the rapid deterioration in the global economy and a decline in consumer demand and according to Gartner’s recent forecast, the worldwide semiconductor revenue growth will slow down and might face a 3.6% decline in 2023.
In recent times, the increase in complexity has led to a decrease in the speed and the chip size has shrunk. One of the main reasons for the increased demand for the chip is that very few companies in the market are capable of manufacturing and designing them, and significant investment is required for research & development, design, and scaling.
A Tough Market to Crack but a Few have Made Their Mark
This industry’s technological transformation has created leading-edge capability within certain segments. A company’s success is based on the product and services they offer, and if the product is slightly better than the competitor’s products, it gets most of the industry revenue. Even if the competitor wants to challenge the company, they will not be able to as these companies are years ahead in terms of technological development.
“Technological developments play a major part in any company’s success while also deciding the company’s future in the market.”
Chips Shortage and its Impact on the Semiconductor Design & Manufacturing Industry
As we move into 2023, the semiconductor industry is undergoing a significant change as global macroeconomic and geopolitical factors take center stage. The top 10 chip companies have experienced a reduction in market capitalization due to high inflation, rising interest rates, and falling consumer confidence. Their combined market cap has decreased by 34% from US$2.9 trillion in November 2021 to US$1.9 trillion in November 2022.
Geopolitical barriers have played a significant role in the shortage of chip supply. One of the main factors was the restrictions on selling semiconductor chips to Chinese companies. Later, stockpiling of chips began so that they could be used in 5G smartphones and other electronic items, which in turn led to a shortage of semiconductor chips. This shortage affected the manufacturing of hi-tech products, causing consumers to wait longer to get their hands on necessary digital products.
Recently, there has been a reduction in the lead time for ordering semiconductors. For example, a few months ago, in Q3 and Q4 of 2022, the lead time for ordering the SLB or SLD category semiconductors was around a year, but now it has decreased to around six months, showing a 50% reduction in the lead time.
This shows the supply chain is recovering and is expected to return to its normal lead time of 4 to 8 weeks (about 2 months) soon.
Furthermore, according to experts, chipmakers are moving their production chains to neighboring countries because of a series of disruptions, including the Biden administration’s restrictions on chip sales to China. Vietnam and India have emerged as cost-effective alternatives with lower political risks.
Moreover, according to reports, the Indian government is considering an incentive package worth ₹76,000 crores to encourage semiconductor companies to establish over 20 semiconductor manufacturing units in India within the next six years. The proposed package is a response to the global semiconductor shortage, which is impacting several key industries.
However, despite the emergence of these new manufacturing hubs, experts suggest that China still maintains a significant advantage in terms of its expertise in chipmaking.
Even the leading semiconductor manufacturer, the Taiwan Semiconductor Manufacturing Company (TSMC), has increased its budget to $28 billion to help alleviate the semiconductor chip shortage and boost its manufacturing.
Many Industries Depend on Semiconductors
Any electronic equipment, whether big or small, high-tech, or low-tech, will not work without a semiconductor chip. Several industries rely heavily on semiconductors, including:
Computing – Memory chips and GPUs (Graphics Processing Units) are examples of the semiconductor components used in laptops and personal computers.
Internet of Things (IoT) Applications – We rely heavily on IoT devices for business and personal work. All the IoT apps we use have Integrated Circuits (ICs), sensors, and other components with built-in semiconductor chips. Without these chips, they will not work.
Artificial Intelligence (AI) – AI requires sensors, processors, and memory that require semiconductor chips to maintain and smoothly run the Artificial Intelligence (AI) environment.
Healthcare – Remote patient monitoring with the help of AI and automation, advanced equipment, and surgical instruments would not be possible without semiconductor chips that manage sensors, temperatures, pressure, and other important patient care functions.
Automotive – A modern car has many features such as autonomous driving, air conditioning, cameras, TVs, and more. All these features require semiconductor chips to provide a smooth driving experience.
Factors That Will Be Driving the Growth of the Semiconductor Design and Manufacturing Industry
The widespread use of semiconductors in various applications such as electronics, industrial equipment, automotive, networking and communications, and data processing is a significant factor driving the growth of the global semiconductor design and manufacturing market.
Additionally, the increasing adoption of digital technologies and consumer electronics worldwide is also contributing to this growth.
The increasing popularity of emerging technologies like AI and the IoT, which enable memory chips to process vast amounts of data quickly, is expected to offer growth prospects for market participants in the coming years.
The expanding use of AI, machine learning, IoT, and wireless communication devices is also driving demand for semiconductors.
The significant rise in remote work worldwide has notably increased the demand for PCs and laptops, leading to a significant surge in semiconductor use globally.
The development of numerous smart cities supported by government investments, rapid urbanization, and industrialization are likely to drive this demand.
Additionally, the growing demand for semiconductors in industrial equipment and the automotive sector has also contributed to their increased consumption.
Furthermore, the rising popularity and adoption of electric vehicles among consumers are fueling the growth of the semiconductor market.
The Future of Semiconductor Design with Quantum Computing
The semiconductor industry and quantum computing are currently the two areas of technology generating a lot of interest. Many high-tech leaders see quantum computing as the next important thing, and people in the industry are closely monitoring its progress. Some even speculate that quantum computing could eventually replace traditional computers altogether. However, based on the current state of technology, it is more likely that quantum computing will complement, rather than replace, current computers in the short and medium terms.
Quantum computing could be used to improve the processing time of specific tasks such as encryption and data processing. But for other functions, traditional computers will remain the default option as they provide adequate benefits, and quantum computing has limitations.
As companies invest more in quantum computing, there is potential for game-changing advances in processing power and speed. In addition, the cost of using quantum computing could decrease over time. Semiconductor design and manufacturing companies should keep a close eye on developments in this field and be patient in waiting for a return on investment. If they do, they could find many opportunities to capture value as quantum computing continues to evolve.
The semiconductor industry is critical to the hi-tech manufacturing industry’s success, as any new feature or task requires changes in semiconductor chip design. A worldwide chip shortage has made it difficult to meet end consumers’ demands, but semiconductors are vital for driving the economy of electronics businesses.
Since the 1970s, chip size has continuously decreased due to the development of advanced materials and manufacturing standards, which have also increased their capacity. To follow this trend, eInfochips, a leading technology company, is working on the latest 10nm, 7nm, and 5nm ASICs (Application Specific Integrated Circuits) that have the potential to revolutionize the technology industry. Click to read more about it.
Pooja Kanwar is part of the content team. She has more than two years of experience in content writing. She creates content related to digital transformation technologies including IoT, Robotic Process Automation, and Cloud. She holds a Bachelor of Business Administration (BBA Hons) Degree in Marketing.