Semiconductors are vital components of the electronics manufacturing services (EMS) industry, serving as building blocks of chips while enabling innovation, like miniaturization and the Internet of Things (IoT). We look at how semiconductors fared in 2023 and what to expect in the coming year.

 

Thanks to constant technological development, The semiconductor industry has been consistently thriving throughout the years. For the past three decades, the market increased by over a thousand percent, from US$30 billion to US$600 billion, creating many businesses and jobs.

However, problems in the semiconductor supply chain have been ongoing since 2020. The COVID-19 pandemic, which limited in-person interactions, spurred a surge in the demand for personal electronics as computers and smartphones became the main modes of communication. As semiconductor manufacturers struggled to keep up with the growing market, industries that depended on chip fabricators were also impacted. 

Here are other factors that contributed to the chip crunch:

• Global events

The industry’s supply chain was already in trouble even before the pandemic. Trade disagreements between the US and Asia’s key chip manufacturers like China, Japan and Korea have already affected cost and distribution. Meanwhile, catastrophes like Taiwan’s dry spell and Japan’s fires from 2019 to 2021 worsened resource scarcity.

• Shifting demand

During the start of the pandemic in 2020, consumers cut down on buying automobiles, causing the automotive industry, once a significant semiconductor client, to decrease their chip purchases. The industry then transferred its attention to other markets, such as personal electronics. But people started repurchasing cars, which posed a challenge for the semiconductor fabricators.

• Growth of the Internet of Things (IoT)

IoT is on the rise as more and more equipment and gadgets communicate via the internet. Smart homes, remote patient monitoring, and factory predictive maintenance are only some of IoT’s applications today. But this technology is swiftly accelerating, positioning semiconductors as a precious commodity in today’s digital-driven world.

It’s also important to note that though smartphones and personal computers ruled the list of purchases during the pandemic, the demand for these dropped when health restrictions were limited. As a result, some chips had an oversupply—a situation that worsened with inflation and an uncertain global economy. Major global chipmakers, Samsung and SK Hynix, incurred billions of operating losses because of the oversupply.

What countries are doing

Because the chip shortage is a global concern, governments and private entities are taking steps to address it. 

USA

Chip manufacturing in the US is a major business, taking up a third of semiconductor purchases worldwide. To fortify the supply chain, the government passed the CHIPS Act. This incentivized chipmaking by granting tax credits to semiconductor businesses and providing US$52 billion for new programs. The Act also invested US$2 million in semiconductor equipment, education, packaging and monitoring in Vietnam.

As a result, US-based companies like Micron and GlobalFoundries have expanded by building chip factories. Meanwhile, foreign businesses have also launched chip-based projects in America, adding up to more than US$200 billion in investments, creating thousands of jobs in the industry.

Europe

The EU also passed a Chips Act in July 2023 to boost its semiconductor industry and encourage investment, research and advancement. The initiative aims to release €43 billion to give the EU a stronger global market presence in semiconductors, increasing its share from 10% to 20% by 2030.

Right now, Europe heavily relies on exported chips, which disrupted vital industries, like the health and energy sectors, during the COVID-19 pandemic. The Chips Act hopes to decrease the region’s dependency on foreign chipmakers while improving the EU’s semiconductor industry to create quality jobs and supply chain resilience.

Intel and STMicroelectronics also announced new manufacturing sites in Europe.

Asia

East Asia makes up 75% of the global semiconductor fabrication, with South Korea and Taiwan producing over 90% of the more sophisticated chips. While supply chain issues are still happening, these countries and China are successfully managing boosted production costs and resource shortages, allowing them to churn out 90% of their pre-pandemic output. Companies are also establishing new plants to improve production, especially in Taiwan and China.

How the industry is faring now

With all the countries’ combined efforts to stabilize supply chains, stakeholders generally feel optimistic about the industry. However, the chip crunch in the early months of the pandemic has yet to be fully resolved.

In this digital era, almost all electronic gadgets utilize microchips, particularly those that conduct information processing and computation. Adding to the clogged production is the intricate process of developing chips, which may take up to half a year to finish. Additionally, chip facilities are difficult to set up, with some taking years before they are fully operational.

With semiconductor earnings decreasing by over US$64 billion in 2023 from 2022, some predict a long-awaited growth of more than US$98 billion in 2024.

Still, semiconductors have differing views on when things will pick up. Intel’s CEO predicts supply issues will bleed into 2024 because of insufficient production machinery. Meanwhile, Taiwan Semiconductor Manufacturing Company (TSMC) forecasts that limitations in the production of AI chips will be lifted in 18 months. 

Though conflicting opinions continue, one thing remains certain: crucial infrastructure and economic and political health must be in place to fortify the semiconductor space. The only problem is that these factors are unpredictable, especially in today’s modern world.

What we need to do

Aside from developing an extensive talent pool, here are other steps to keep the industry innovating and developing diverse technologies.

• Maximize available technologies

While conducting product design and development, companies can integrate smart technologies to conduct consumer testing and metrics monitoring. For example, RFID (radio-frequency identification) tags and AI-based analytics can monitor product usage while enhancing user experience.

• Stay on top of tech trends

While resolving the chip crunch, the industry must continue to be forward-thinking by developing custom chips. Focusing on new technologies such as millimeter-wave (mmWave), silicon photonics, and power electronics can also boost semiconductor growth.

• Highlight test solutions & measurement processes

One way to ensure tech innovations is discovering faster and more accurate test and measurement procedures. This helps create new products and innovative solutions years before they’re released. A do-it-yourself strategy in chip manufacturing will also guarantee high-standard testing technologies, which maintain product excellence and efficiency.

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