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The semiconductor industry is at a pivotal juncture, facing a mix of challenges and opportunities that will shape its future trajectory. As the global chip shortage gradually eases, demand for semiconductors is surging, driven by the rapid growth of AI, automotive applications, and high-performance computing.
According to a CNBC report, the increasing demand for AI-driven applications is propelling chip demand, with AI becoming the number two revenue driver in 2024. This aligns with the upward move by microprocessors, considering the heavy usage of GPUs by leading AI models. Regionally, US respondents are substantially more bullish on AI, rating it the most important revenue driver for 2024, ahead of automotive. European respondents actually rated AI fourth, behind automotive, IoT, and industrial equipment, while ASPAC leaders rank AI fifth, behind automotive, wireless communications, consumer electronics, and cloud/data centers.
Even with this high demand, there are issues regarding where the world’s semiconductor chips come from. Most of the world’s semiconductor chips are manufactured in Taiwan, and with instability such as earthquakes and the threat of a Chinese takeover, the US has had to rethink its semiconductor chip strategy. To mitigate these risks, the US government has been investing in domestic semiconductor manufacturing capabilities and incentivizing companies to establish production facilities within the country. For instance, the CHIPS Act, signed into law in 2022, allocates $52 billion to boost domestic semiconductor research, development, and production.
One significant development is the construction of Taiwan Semiconductor Manufacturing Company's (TSMC) factories in Arizona. TSMC, the world's largest contract chipmaker, announced plans to build two advanced semiconductor fabrication plants in Phoenix, Arizona. These facilities are expected to start production in 2024 and will significantly enhance the local semiconductor manufacturing infrastructure, creating thousands of high-tech jobs and reducing the US's reliance on foreign semiconductor supply chains (Jones, 2023). This strategic shift aims to ensure a stable supply of critical components essential for various industries, from consumer electronics to defense systems, and enhance national security (Smith, 2023).
Talent remains a significant challenge for the industry, with Bain's report on the Semiconductor Industry predicting a shortfall of 67,000 skilled workers in the Semiconductor Industry in the US alone by 2030. This shortage could stifle innovation and hinder growth, making it crucial for companies to invest in employee development, foster a positive company culture, and partner with universities and research institutions to secure a competitive edge in the industry.
The industry also faces critical challenges such as potential inventory gluts and economic slowdown risks. To navigate these challenges, semiconductor companies need to focus on agility, strategic planning, and addressing talent shortages, geopolitical complexities, and financial uncertainties.
Despite these challenges, the semiconductor industry is poised for growth, with the automotive sector emerging as a key driver. The increasing adoption of electric vehicles (EVs) and advanced driver-assistance systems (ADAS) is fueling demand for semiconductors in the automotive industry. Additionally, the rise of 5G and the growing demand for high-performance computing in data centers create new opportunities for semiconductor companies, as noted in the Enegetiq company blog.
As the semiconductor industry navigates this evolving landscape, investors should keep a close eye on companies that are well-positioned to capitalize on the growing demand for AI, automotive applications, and high-performance computing. These companies should have a strong focus on talent development, supply chain resilience, and strategic planning to ensure long-term success.
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