Semiconductors have become indispensable, penetrating every aspect of our lives.
Computer chips are the engine of the digital economy, and their continually expanding functions are driving technologies like generative artificial intelligence that have the potential to transform multiple industries. Their critical role was highlighted when the pandemic disrupted chip production in Asia, causing global technology supply chains to unravel.
Since the invention of the transistor, semiconductors have driven industrial progress and enabled key applications like personal computing, smartphones, data centers, and cloud computing. This has created a complex and interdependent relationship between semiconductors and modern industry. Today, semiconductors are essential, penetrating every facet of our lives.
It is expected that the global semiconductor revenue will grow more than twice as fast as global GDP, reaching over one trillion dollars by 2030.
Therefore, it’s no surprise that these devices have become the focal point of intense competition among the world’s economic superpowers. The United States has already implemented a series of measures to ensure it maintains its leadership in this critical field. Chips are likely to remain a key focus of the incoming Trump administration, which aims to consolidate U.S. power and manufacturing.
01
Why are chips so important?
They are essential for processing and understanding vast amounts of data, which has now become as crucial to the economy as oil. Chips (short for semiconductors or integrated circuits) are made from materials deposited on silicon wafers and can perform multiple functions.
Memory chips, which store data, are relatively simple and can be traded like commodities. Logic chips, which run programs and act as the brain of devices, are more complex and expensive. The use of components like Nvidia’s H100 AI accelerators is closely tied to the fate of tech giants such as Alphabet’s Google and Microsoft, as they race to build large data centers and secure leadership in what is considered the future of computing.
Even everyday devices are increasingly reliant on chips. In cars packed with various small components, each time you press a button, a simple chip converts this touch into an electronic signal. All battery-powered devices need chips to convert and regulate current.
02
Why is there a chip manufacturing race?
Most of the world’s leading semiconductor technology comes from the United States. China is the largest market for electronic components and increasingly wants to produce more chips domestically.
The United States is allocating large government funds to revive the domestic production of these components to reduce what it sees as a dangerous dependence on a few factories in East Asia. Several other countries, including Germany, Spain, India, and Japan, are also following its lead.
03
Who controls the supply?
Chip manufacturing has become an increasingly unstable and exclusive business. Building a new factory costs over $20 billion and takes years to complete, requiring 24/7 operation to be profitable. The scale required has reduced the number of companies with cutting-edge technology to just three—TSMC (Taiwan Semiconductor Manufacturing Company), South Korea’s Samsung Electronics, and U.S.-based Intel. TSMC and Samsung serve as so-called foundries, providing outsourced manufacturing for companies worldwide.
The largest global tech companies depend on access to the best manufacturing capabilities, most of which are located in Taiwan. Intel, which once focused on producing chips for its own use, is now trying to compete with TSMC and Samsung for foundry business. At the lower end of the food chain, there is a huge industry that produces so-called analog chips.
Companies like Texas Instruments and STMicroelectronics are the major manufacturers of these components, which regulate power inside smartphones, control temperature, and convert sound into electrical pulses.
04
How is the chip race progressing?
The CHIPS and Science Act of 2022 allocated $39 billion in direct grants and $75 billion in loans and loan guarantees to revitalize U.S. chip manufacturing.
The European Union has already devised a $46.3 billion plan to expand local manufacturing capacity. The European Commission estimates that public and private investments in the sector will exceed $108 billion. The goal is to double the EU’s output by 2030, capturing 20% of the global market.
Japan and South Korea are developing plans to invest billions of dollars in their domestic chip industries. Japanese companies are world leaders in chip manufacturing equipment design, while South Korean giants Samsung and SK Hynix are global leaders in memory chips, especially those used by Nvidia in AI development.
India approved a $15.2 billion investment in semiconductor manufacturing plants in February, including a proposal by Tata Group to build the country’s first large chip manufacturing facility.
In Saudi Arabia, the Public Investment Fund is considering a large, unspecified investment to launch the country’s entry into the chip industry while seeking to diversify its economy and reduce reliance on fossil fuels.
Japan’s Ministry of Trade has raised about $25.3 billion for a chip initiative launched in 2021. The project includes two TSMC foundries in southern Kumamoto and another in northern Hokkaido, with the goal of local company Rapidus beginning mass production of 2nm logic chips by 2027.
05
Current state of the semiconductor industry
Over the past two decades, memory ICs have been the fastest-growing semiconductor category, with DRAM and HBM being particularly prominent. DRAM will account for 14% of total semiconductor revenue in 2024, while HBM, optimized for high-performance parallel computing and AI workloads, is expected to grow rapidly, with a 64% increase in volume and a 58% compound annual growth rate by 2028.
HBM improves AI application performance through high throughput and low latency, as seen in Nvidia and AMD GPUs. The broader DRAM market is driven by cost and scale, while HBM, due to its advanced technical requirements, represents a high-barrier, closed-loop ecosystem. From HBM4 onwards, as logic and memory chips begin to merge, the market will require semiconductor companies to better integrate various customers, and cooperation between foundries and memory companies will become crucial.
With the rise of electric vehicles (EVs) and software-defined vehicles (SDVs), the automotive semiconductor market is undergoing a major transformation. The automotive semiconductor market reached a high of $76 billion in 2023 and is expected to grow to $117 billion over the next five years, with a compound annual growth rate of 8.9%.
The electrification of vehicles is driving demand for power semiconductors, especially in electric vehicle systems like inverters and battery management. Wide bandgap (WBG) devices like silicon carbide (SiC) and gallium nitride (GaN) are favored for their superior efficiency and are expected to reach $6 billion by 2028, capturing 18% of the market share.
Automotive SoC (System on Chip) revenue will reach $7 billion in 2023, and is expected to grow at a 17% compound annual growth rate by 2028, largely driven by the core role of high-performance SoCs in real-time data processing, ADAS control, safety modules, and infotainment systems in SDVs.
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