Market analysis semiconductor The semiconductor market in numbers: Unbridled growth in a billion-dollar market

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Both companies and states are investing massively in semiconductor technology to stabilize supply chains and meet demand through leaps in innovation, such as AI. An analysis of market potential based on current figures.

The international semiconductor industry moved into the spotlight of the global public during the significant disruptions in supply chains between 2021 and 2022. What industry insiders have long been aware of has now become evident: The semiconductor market is complex and indispensable for the global industry.

Analyses by IC Insights or Semiengineering.com show that in 2022 alone, more than 190 billion euros were invested in the semiconductor market. An additional 300 billion US dollars have been announced by leading semiconductor companies for the coming years. For comparison: The sum corresponds roughly to the investment amount that the global automotive industry plans to invest in research and development by 2028, particularly due to the megatrends of electrification and autonomous driving.

Taiwan undisputedly in first place in semiconductor production

The development is also gaining momentum from politics. The supply chain problems during the pandemic and beyond have made it clear that semiconductor chips are critical infrastructure. With the concrete shortage situation, politics in Europe and the USA have decided to promote local production more intensively again.

Thus, billions in tax dollars flow into the settlement of FABs. How far behind Europe is in chip production is shown by the global top 10 semiconductor foundries (Image 1). Europe is listed there only under "Other." Unsurprisingly, Taiwanese semiconductor production is the undisputed leader. The graphic from the current Semicon Report highlights the immense lead that Taiwan holds.

The fact that industrial policy is now being made and more subsidies are flowing into semiconductor production is an important sign for Europe and Germany in particular. Over the last 30 years, the regions of Saxony and Saxony-Anhalt have succeeded in creating an attractive location for international players through the strategic development of production sites, expertise at universities, and research centers.

An investment that pays off, as confirmed by international settlements in the region. However, the industry association ZVEI has criticized that German subsidies are too selective and do not sufficiently support the entire semiconductor ecosystem. So far, the association criticizes that important sub-sectors such as printed circuit boards and electronics manufacturing services (EMS), which make the further processing of chips possible in the first place, have been left out in the allocation of subsidies.

The "Semicon Landscape" in Image 2 shows that the entire ecosystem from material to software includes more than 300 companies in new industrial sectors with various subgroups. Particularly in mechanical engineering, relevant providers come from Europe, as well as in the development and manufacturing of chips for sensors and power electronics.

Artificial intelligence fuels chip demand

However, the market promises significant growth in the future, as shown by a look at the key growth drivers of the semiconductor industry. Data storage, wireless communication, and automotive electronics are the largest drivers of the semiconductor industry, accounting for more than 70 percent of industry growth (Image 3).

The electrification of the automotive industry and advances in autonomous driving are driving growth, as is the expansion of the Internet of Things in industrial and consumer environments. The future topic of artificial intelligence, particularly generative artificial intelligence (GenAI), which has achieved enormous leaps of innovation in a very short time, is increasing the demand for intelligent chips to an unprecedented extent.

According to current analyses, the demand for logic chips for GenAI applications will rise by up to an additional 3.6 million wafers (Image 4). To meet this, a corresponding increase in production capacities is required, which is why up to eight new fabs will be needed by 2030.

The graphic in Image 4 also makes it clear that NAND and DRAM chips are required in the double-digit million range in the field of memory technology. This demand primarily arises from the increasing performance requirements and the growing rack density in specialized data centers as a result of the rising number of complex GenAI applications. Manufacturers are already investing to massively ramp up production.

New construction and optimization: Meeting the demand

By 2025, a total of 79 new fabs are planned to meet the increasing demand. All major OEMs—from Globalfoundries to Intel and Micron, to Samsung, TSMC, and Texas Instruments—are planning to build highly efficient and powerful new factories.

Worldwide, there are currently 486 FABs; 289 of them produce 200-mm wafers and 197 of them produce 300-mm wafers. There is a high demand for new 300-mm factories, especially for industries that require new processors, larger memories, and billions of transistors. Therefore, of the new FABs, 54 factories will produce 300-mm wafers, while 25 will manufacture 200-mm wafers, specifically for silicon carbide-based semiconductors.

The expansion of new chip factories takes time, so existing facilities are being retrofitted and a higher degree of automation is being introduced. Last year, the SCIO Automation Group, an international platform for automation, acquired the German fab automation company Fabmatics.

Fabmatics, headquartered in Dresden, Germany, is a specialist in the automation of existing semiconductor FABs. Through a fully integrated and modular system based on standardized components, the company optimizes material flow through improved handling, transport, and storage processes. Process optimizations like these contribute to expanding existing production capacities and meeting current demand.

The semiconductor market: Growth market and outlook for Europe

The numbers show a clear trend: the demand for chips will continue in the medium term. They are the foundation for the most important technologies of our time; accordingly, government subsidies are flowing extensively into semiconductor production. In recent years, supply chain issues have demonstrated how fragile the global ecosystem can be.

Nearshoring production to the USA and Europe will somewhat mitigate this risk, but establishing a complete, complex ecosystem in one region remains a challenge. For every job in a fab, five jobs are created at suppliers.

In the medium term, OEMs will focus on being able to meet the demand at all. Therefore, they are committed to both building new factories and optimizing existing facilities to increase capacities in the short term.

The rapid development of data centers for AI is not yet considered in most studies and planning. It is not foreseeable that the relevance of the key technology "semiconductors" will diminish. The AI chip market seems to be dominated initially by the USA and China. We hope that Europe will still leverage its historical strength in terms of Industrial IoT. European research is also leading in the field of quantum computing. May the applications also be brought to market by European companies. (kr)

*Philipp Schlüter is a partner and semiconductor expert at M&A consultancy Pava Partners, where he advises companies specifically from the semiconductor sector on sales, strategic acquisitions, financing, and succession.