New research from McKinsey & Co into the global semiconductor chip market suggests that industry revenue is set to grow 6-8% annually over the next decade and will top $1 trillion by 2030.
According to McKinsey strong levels of demand are growing across several key markets, driven by megatrends such as working from home, the widespread application of artificial intelligence and machine learning, and rising demand for electric cars.
That projected level of demand brings into sharp focus the ongoing chip shortage while demonstrating just how dependent modern industry is on just a few semiconductor manufacturers, primarily in Asia.
Hence the decision by the likes of the US, the EU and China to spend billions in both public and private investment on creating a domestic semiconductor industry.
Last month Spain announced that it was to spend €11 billion on semiconductors with the aim, according to prime minister Pedro Sanchez, of putting Spain at the, “Vanguard of industrial and technological progress,” adding that semiconductors are of “global geostrategic importance” and that Spain, “will not lose the race to the most advanced technology.”
Fine words but can the EU, let alone Spain, really expect to be able to compete when it comes to going head-to-head with established players like TSMC?
At present Europe not only has a limited share of the overall semiconductor market but there aren’t that many companies in the EU that design new chips. By contrast in the US, which already has a sizeable chip industry, there is a huge design industry.
Critics of the EU’s plans to invest billions on manufacturing suggest that without an equally huge investment on design it will be wasted money.
According to a report from the German think tank, Stiftung Neue Verantwortung (SNV), that looked at semiconductor manufacturing in Europe, because there are so few European-designed chips any new chip factories would need to seek orders from elsewhere, such as the US, and why would US customers turn to Europe rather than to South Korea, Taiwan or the United States?
So, is boosting manufacturing alone a mistake? Perhaps not, in the very long term, but maybe European automotive and industrial customers need to invest in developing more resilient and transparent supply chains.
As McKinsey’s report suggests the ‘fab cavalry’ won’t deliver an appreciable boost to chip supplies for several years, but investing in supply chains, making them more resilient and even stockpiling chips, might be a better way of handling chip shortages that are likely to last for several years.
