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SECTORS SEMICONDUCTORS


and high-performance computing,” MrWei said in the letter.


Leading edge competition As semiconductors are used in every- thing fromsmartphones and games consoles to industrial equipment, they are the foundation of our mod- ern digital infrastructure, and cru- cial to technological development. Huge capital investment is


needed to keep developing and pro- ducing themost advanced chips, which at present are 5-nanometer (nm). These chips have smaller tran- sistors than less sophisticated designs enabling higher performance and lower energy consumption. Only TSMCand its South Korean


rival Samsung currently produce 5-nmand 7-nmchips at scale, while US chipmaker Intel is not expected to produce 7-nmat its own fabrica- tion facilities, or “fabs”, until 2022. The two East Asia-based companies combined are forecast to represent 43% of global semiconductor capex spending this year, according tomar- ket intelligence firm IC Insights. But Intel has laid out ambitious


capex plans too. On March 23, Intel announced plans to invest $20bn in two new fabs in Arizona,which is expected to create thousands of high-tech and construction jobs. Intel CEOPat Gelsinger said in a


statement that these investments are setting “a course for a new era of innovation and product leadership” at the company, as it aims to become amajor provider of foundry capacity in the US and Europe for its global customers. “We are excited to be partnering


with the state of Arizona and the Biden administration on incentives that spur this type of domestic investment,” he added, stating that Intel plans to announce further capacity expansions globally within the year. Samsung is currently consider-


ing four US sites – two in Arizona, one in NewYork and another in


THE SHORTAGEANDTHE COVID-19 PANDEMICHAVE EACHDEMONSTRATED HOWMUCHWERELY ONSEMICONDUCTORS


90


Texas – for a new $17bn chipmanu- facturing plant. Elsewhere, the world’s second


largestmemory chipmaker, SK Hynix, expects to spend $8.9bn on capex this year, while data storage giantWestern Digital has forecast it will increase semiconductor capex by 82.4% compared with 2020, according to market intelligence firm Semico Research. GlobalFoundries has announced that it too will invest $1.4bn to raise output at its three factories in the US, Singapore and Germany.


Technological revolution As future technological development in areas such as artificial intelli- gence and quantumcomputing rest of their underlying chips, companies are investing to stay ahead of the competition. Apple, which is based in Silicon


Valley, the US tech hub named after themetal fromwhich chips are made, recently announced plans for a European Silicon Design Center in Munch, Germany. The company will invest more than $1bn in the next three years, adding hundreds of employees to its local workforce of almost 1500 engineers, to focus on future wireless technologies. Tim Cook, Apple’s CEO, outlined


his excitement in a statement on March 10, saying that the company’s Munich engineering teamwill explore “the new frontiers of 5G technology, to a newgeneration of technologies that bring power, speed, and connectivity to the world”. The automotive industry is


another in which new technology is driving adoption of micro chips. Matteo Fini, who leads the automo- tive supply chain team at data pro- vider IHS Markit, says that “shifts in the auto industry, such as electrifi- cation, automation and enhanced infotainment systems, are going to make carmakers even more reliant on chips”. “Semiconductor content in elec-


tric powertrains is currently over four times higher than an internal combustion engine,” he adds. Despite a focus on technologi-


cally enabled vehicles, the automo- tive industry accounted for 12.2%of global semiconductor demand in 2019, while communications and computers combined to make up more than 60%, according toWSTS. The relatively smaller share held by


automakers led themto be hit hard- estwhen the supply crunch took hold.


“When fabrication capacity tight-


ens, as in the current shortage, the larger customers in other sectors that account for more production have priority,” says BettinaWeiss, chief of staff and global smart mobil- ity lead at Semi. After automotive suppliers can-


celled chip orders in the second quarter of 2020, when vehicle pro- duction came to a near standstill due to Covid-19, chipmakers shifted fab capacity to meet high demand for homecomputing and network equipment. But the prolonged short- age of chips since then has high- lighted the need to massively increase capacity.


Supply constraints “The complexity and global interde- pendence of the semiconductor sup- ply chain cannot be understated,” says MsWeiss. “Firms in key coun- tries across continents contribute differentmaterials and expertise in design, equipment, manufacturing, assembly and testing.” Due to the complexity of the chip


manufacturing process, Mr Manocha says that it takes several weeks to set up in an existing fab, and can take anywhere fromseveral quarters to a couple of years to bring new capacity online. The vastmajority of installed


capacity is currently concentrated in east Asia, which accounts for three- quarters of the global total, accord- ing to data fromBoston Consulting Group and the Semiconductor Industry Association (SIA), a US trade body. A combination of government incentives, the presence of industry leaders such as TSMCand Samsung, and the contracting of East Asian manufacturers to produce designs of multinational tech companies has helped to entrench the region’s dom- inance.


Since 1990, the US’s share of


global semiconductor manufactur- ing capacity has fallen from37% to just 12%last year,while Europe’s share declined from44%to 9%. Mainland China expanded its share from almost nothing to 15%over the same period, a figure that is expected to rise to 24% in the next decade.


“While semiconductor compa-


nies have made some shifts and diversification of their supply chains


www.fDiIntelligence.com April/May 2021


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