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Semiconductor manufacturing industry to reach USD 536.2B by 2022

The worldwide semiconductor market was valued at USD 468.8 billion in 2018, an increase of 13.7% from 2017. The year 2019 is forecasted to decrease to USD 4545.5 billion. Asia Pacific remains the dominating region with 60% market share totaling USD 282.86 billion in 2017

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Definition / Scope

Advancement in semiconductor technology could be derived from Moore’s law that states that computers power doubles every two years with successive lower cost. The average number of transistors on a single semiconductor that is required in a smartphone has increased massively from 4,777 transistors in 1983 to almost 1.7 billion transistors in 2018.

Semiconductors of today are capable of performing massive computation occupied by billions of transistors on a chip the size of a square centimeter with circuits measured at the nanoscale. Those transistors contained in semiconductors are 10,000 times thinner than a human hair. The semiconductors are used almost in every electrical and electronic device from smartphones that we use to capture photos daily to cars that we use to travel and beyond.

Market Overview

The worldwide semiconductor market was valued at USD 468.8 billion in 2018, an increase of 13.7% from 2017. The year 2019 is forecasted to decrease to USD 454.5 billion.

Samsung remained the largest consumer of semiconductors in 2018 capturing 10% market share followed by 9.2% share held by Apple. Dell, Lenovo, and Huawei are among the other purchasers of semiconductor each owning the market share ranging from 3 % to 4%. Other leading global brands such as LG and HP had less than 3% share in the global market.

On the other hand, the top Integrated Circuit (IC) manufacturers were Broadcom and Qualcomm. Broadcom had total revenue of USD 18.94 billion in 2018. Likewise, Qualcomm’s revenue for 2018 amounted USD 16.37 billion. Nvidia remained at the third largest IC producers with USD 11.16 billion revenue in 2018.

Asia Pacific remains the dominating region with 60% market share totalling USD 282.86 billion in 2017 and in the subsequent years. America is the second largest region when it comes to consuming semiconductor capturing nearly 21% of global semiconductor manufacturing amounting USD 102.99 billion. European market constitutes just below 10% share of the global semiconductor production business. Japan alone captures 8.8% market share since 2017.

By device types, Integrated Circuits (IC) are the most consumable devices demanded by top global consumers from computer manufacturers to medical device producers. In 2018, a total of USD 393.28 billion worth of ICs were sold globally constituting 83.9% share among all semiconductor devices. Sensors are the least valued devices in terms of sales value recording just USD 13.35 billion in 2018. Discrete semiconductors sold during 2018 were worth USD 24.10 billion.

By end use, the vast majority of semiconductor demand was driven from the communication sector in 2018. This segment held 32% of global demand. Another competing industry that attracted huge demand was PCs segment that captured a 30.3% share. Industrial demand and demand coming from consumer segment had a 13% market share each. Automotive sectors pulled 11% market share.

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Key Metrics

Metrics Value Explanation
Base Year 2018 Researched through internet


Market Risks

Intellectual property infringement from technology transfer

Though almost half of the world’s chips are designed in the US by ‘fabless’ companies, where much of the production, assembly, and packaging is done in the host country. In 2017, for instance, a total of USD 192.5 billion worth of chips was manufactured in China. The process deteriorates the protection of intellectual designs as technology is transferred in other countries and the international technology transfer act is not that much stringent. Therefore, the owners of such IP bear the risk of diluting their patent rights in a host country.

Import ceiling on devices made up of restricted substances

The following list provided the currently restricted substances and their restriction limit both in Chinese and European regions. Any electrical and electronics products subject to the Restriction of Hazardous Substances (RoHS) above the stated limits are not allowed to be sold in such regions where the law binds so.

Top Market Opportunities

The automotive semiconductor market is expected to reach USD 48.78 billion by 2022, at a CAGR of 5.8%. Automotive chips currently account for about 8 percent of total semiconductor sales. The growing demand from buyers for the cars that have electronically equipped systems such as remote control, braking systems, and safety alert, mapping application, LED lights, etc. has provided an increasing opportunity to semiconductor manufacturers. These driving forces highlight the upward trajectory for semiconductor providers.

Automotive

  • Body electronics (remote control)
  • Chassis (braking systems)
  • Safety (lane departure warning)

The market for medical electronics manufacturing reached USD 236 billion in 2018 from USD 210 in 2016. The revenue for such devices will account for USD 258 billion by 2020. Electronics such as batteries and capacitors were valued at USD 17.82 billion as of 2018. Therapeutics segment constitutes a 50% share in terms of medical electronics equipment.

Medical

  • Medical imaging (MRI)
  • Patient monitoring system (blood pressure)
  • Medical instrumentation (dialysis machines)

Market Drivers

  • Artificial Intelligence

The increasing adoption of AI-based applications across different industries drives new growth opportunities for semiconductor manufacturers and suppliers. AI will also bring improvements in semiconductor manufacturing, by speeding up the process, increasing chip performance, reducing production costs, and increasing output.

  • Autonomous vehicles

Semiconductors will be of extensive demand in automotive technologies used for connected cars and, UAVs, and electric vehicles. The rapidly-evolving automotive market presents a glowing opportunity for automotive semiconductors to support increased connectivity, battery performance in EVs, enhanced sensors, and other technologies.

Audi is the world’s first OEM to have unveiled a car with L3 capabilities. It is also the first car to feature a long-range LiDAR at the front. Bosch, by far is the leading company to file 958 autonomous driving patent. Audi has filed 516 patents related to autonomous driving so far. Semiconductor and ICs in the automated cars enable for forwarding camera, GPS, LiDAR, stationary obstacle detection, etc. The total market for privately owned autonomous vehicles is expected to be USD 60.01 billion by 2030.

  • IoT

Between 2015 and 2020, IoT integrated circuit sales are projected to rise by a CAGR of 13.3%, which is projected to reach USD 354.7 billion in four years. There so far are 26 billion connective devices globally and technology spending on IoT is predicted to reach USD 745 billion in 2019 and USD 1.2 trillion in 2022.

Market Restraints

Increasing R & D cost

New entrants despite having cutting-edge designs need to invest not only in the acquiring and retaining talent. These incremental costs add up to the price of R & D.

Indirect Tariff

Indirect tariffs such as delay in customs clearance reduce the competitiveness of electronics production particularly in the South Asian market since these markets are highly dependent on imports.

In India, for instance, the average time to clear customs varies from 2-10 days for large firms and 14-21 days for SMEs.

Industry Challenges

As most of the devices these days are extensively powered by IoT, security concerns around such connected devices pose a major threat to semiconductor companies. These include home automation systems, wearable devices, and industrial automation products. Semiconductor products, especially those used in medical electronics and industrial automation, will, therefore, face security concern. Insufficient scrutiny questions the legacy of such devices.

Format War

The major challenge faced by semiconductors in automotive electronics is how standards will evolve and who will set them since there is still much uncertainty. The concerns lie in whether OEMs will move first or ‘fabless’ companies will dominate the format war first.

Labour Cost

Increasing labor cost in overly relied Chinese has deteriorated the outsourcing of semiconductors manufacturing by fabless companies. The average hourly rate in China hit USD 3.60 in 2017, a spike of 64% since 2011.

This trend has shifted the manufacturing of semiconductors to low- labor economy like Vietnam.

Technology Trends

Artificial Intelligence

The advancement in semiconductors technology has made possible to generate data, to train the deep learning algorithms, and to infer in real-world solutions that AI has become critical.

Quantum Computing

Quantum computing requires millions of sophisticated fabrication capabilities, specialized materials, and advanced technologies to perform 100 million times faster than the personal computers that we use. The innovation in a semiconductor that follows Moore’s law has made it possible to significantly reduce the cost of such components.

Paradigm shift in mobility

Semiconductors have enabled most of the recent innovations in automotive technology, including vision-based, enhanced graphics processing units (GPUs) and application processors, sensors, and DRAM and NAND flash.

With hands-free mobile service and online navigation now standard in most new vehicles, automotive players have moved to the next wave of innovation in connected cars

Other areas of technological breakthrough in the automotive industry include matrix LED lights, enhanced lidar sensors those that use lasers to measure the distance to a target and better camera-based sensors. 3-D mapping applications, EV batteries, and augmented-reality technologies, such as heads-up displays are other technological advancements.

Regulatory Trends

USA and China trade dispute

In 2018, the regulatory authority banned the operation of ZTE in the USA while further imposing a 25% tariff on USD 50 billion of Chinese goods entering America. Further, the USA set a USD 200 billion tariff list subject to 10% tariff that will ultimately reach the above mentioned 25% tariff rate. This trade war will impact supply chain management including sourcing and production of semiconductors.

The Government of India has launched the National Policy on Electronics (NPE) which aim to reach a turnover of USD 400 billion attracting investment of USD 100 billion to promote ‘Make in India’ campaign while creating 28 million new employment opportunity.

FCC Part 15 (Intentional Radiators) in the USA comply with any such intentional radiator, a device that is intended to emit radio energy. This scope includes any WiFi and Bluetooth Enabled device.

Another compliance in the USA includes an Underwriter Laboratories that frame safety standards for electronics and components. While UL compliance is not required by law, most retailers will not buy products that are not UL certified. UL compliance among Chinese manufacturers is very rare in most industries. The Low Voltage Directive (LVD) in Europe applies to electronics, and components, with an input, or output, ranging between 50 to 1000 volts AC, and 75 to 1500 volts DC.

As such, the Low Voltage Directive is not applicable to most handheld devices but does cover, for example, phone and laptop chargers. Similarly, the EMC Directive in Europe ensures that electrical equipment doesn’t interfere with other electronics, and signals, in its proximity. While the EMC Directive is applicable to a wide range of products, certification may not be mandatory for certain smaller devices, which are very unlikely to interfere with other electronics.

The RoHS directive applicable in most of the region including but not limited to Europe and China restricts the amounts of certain substances in electronics, including lead, cadmium, and mercury.

Other Key Market Trends

  • The US semiconductor industry catered almost 250,000 direct jobs in 2018 and over a million indirect jobs in the value chain.
  • The global wearable medical device market size was valued at USD 10.3 billion in 2018 and is expected to witness a CAGR of 26.1% over the forecast period.

Market Size and Forecast

Apparently, computer is the highest revenue generating segment for semiconductor manufacturers. In 2018, the segment provided a total of USD 161.6 billion in income to the semiconductor producers. Furthermore, memory is the hot cake within the computer segment accounting for 51.7% of the total revenue.

Microprocessors (MPU) combined with micro-controllers (MCU) and digital signal processors (DSP) is the second largest sub-segment that was worth USD 44.1 billion in 2018. Similarly, integration of semiconductors in smartphones was worth USD 144.9 billion where again memory chips sub-segment constituted 48.9% share amounting USD 70.9 billion. Application specific integration of semiconductors resulted in USD 45.3 billion in revenue in 2018.

Technology deployment in retail and automotive sector leveraged the purchase of semiconductors worth USD 59 billion and USD 43.3 billion respectively during the same period. Construction and telecommunication are another two sectors where semiconductors are widely used in various types of equipment making the chunk to produce combined revenue of USD 72.4 billion.

The automotive industry is further predicted to be the most growing sector to increase the use of semiconductors at a CAGR of 9.5% during 2018-22 followed by a 5.2% growth rate in the construction area. Retail is the least projected growth segment to have a semiconductor application.

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Market Outlook

Overall, the total market for semiconductor is forecasted to reach USD 536.2 billion growing at a CAGR of 5.1% by 2022.

Semiconductor revenue from computer segment is estimated to reach USD 168.7 billion by 2022, memory being the largest gross revenue making sub-application with USD 81.9 billion in the purchase. The smartphone is another competing market where USD 162.6 billion of semiconductors is forecasted to be sold mainly for memory and application-specific tasks.

Retail is the only segment that will witness a decline in semiconductor consumption while automotive is the highest surging sector to integrate semiconductors to enable the technology to control and monitor the motion and safety. Semiconductor utilization in the construction industry will increase by USD 10 billion whereas there will be a slight increase in semiconductor application in the telecommunication industry.

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Distribution Chain Analysis

The inputs and raw materials used in semiconductor fabrication include silicon and silicon chips (for wafers), plastic (to form the layers of circuit boards), ceramics, various metals (mainly Aluminium and copper, but also gold and silver), and doped chemicals and other materials. Elements boron, gallium, phosphorus, and arsenic are used in silicon chips to turn a silicon crystal from a good insulator into a viable conductor, or anything in between. Key inputs to other electronic components include various quantities of metals such as Aluminium, copper, gold, and silver.

The next stage in the value chain is components. Electronic components are electronic elements with two or more connecting leads or metallic pads intended to be connected, usually by soldering to a printed circuit board (PCB), to create an electronic circuit.

Integrated circuits (or semiconductors) are the most expensive components, and the most important given these are what enable a product to process and/or store information.

Electronic subassemblies vary by final product; however, circuit boards are found in most electronic products. A circuit board is put into a plastic or metal enclosure (also called casing or housing) to form a subassembly.

The electro-mechanical assembly process involves enclosure fabrication, installation of subassemblies and components, and installation and routing of cables. The final assembled product is then a “product-specific” part, indicating it is ready to go into a definable final product.

Displays are another common subassembly in consumer electronics, and if included, is often the most expensive intermediate input. The two main types today are: liquid crystal displays (LCD) and organic light emitting diode (OLED); prior technologies included plasma display panels (PDP), while the earliest displays were from cathode ray tubes (CRT).

The distribution and sales methods for electronics components vary by type and the relative value of the part. Passive electronic component manufacturers (other than semiconductors) sell over half of their products via distributors.

Final products are destined to a growing range of end markets, from computers and consumer electronics to appliances, cars, medical equipment and devices, industrial equipment, and aerospace and defense (A&D) products. These markets, starting with consumer electronics, and followed by computers and communication devices, were the original products capable of storing and processing information, and the entire output of these industries is included in this analysis.

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Competitive Landscape

In 2018, the US-based manufacturers had a 46% market share comparing manufacturers located the rest of the world. Other countries had market share in the bracket of 5% to 22%. European companies had just 9% market share less than that of firms operating in Japan where such companies gained 10% market share.

South Korea had the largest market share in the Asia Pacific region controlling 22% of the global share while Taiwan and China held 6% and 5% share respectively. China’s semiconductor industry has tremendously grown from just USD 9 billion in 2014 to USD 103 billion in 2018 at a CAGR of 19.3% and projected to reach USD 150 billion by 2020.

Likewise, China’s IC industry has dramatically grown from just USD 1.3 billion in 2014 to USD 33 billion in 2018 at a CAGR of 29% and projected to reach USD 150 billion by 2020.

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Key Market Players

The top 5 vendors of semiconductor enjoyed more than 45% market share in the revenue. Among them, Samsung electronics had the largest market share of 15.9% and total revenue of USD 75.85 billion in 2018. Intel was the second largest vendor of semiconductors with a 13.8% market share. Its total earnings from the sale of semiconductor in 2018 were USD 65.86 billion.

Qualcomm

Qualcomm was incorporated in the USA in 1985 and reincorporated in Delaware in 1991. It is a global leader in the development and commercialization of foundational technologies and products used in mobile devices and other wireless products, including network equipment, broadband gateway equipment, and consumer electronic devices.

The company is a pioneer in 3G (third generation) and 4G (fourth generation) wireless technologies and is now a leader in 5G (fifth generation) wireless technologies to empower a new era of intelligent, connected devices. Its major revenues principally come from sales of integrated circuit products and licensing our intellectual property, including patents, software, and other rights.

The company conducts business primarily through our QCT (Qualcomm CDMA Technologies) semiconductor business and our QTL (Qualcomm Technology Licensing) licensing business. QCT develops and supplies integrated circuits (also known as chips or chipsets) and system software based on CDMA, OFDMA and other technologies for use in mobile devices, wireless networks, devices used in IoT, broadband gateway equipment, consumer electronic devices and automotive telematics and infotainment systems.

QTL grants licenses to use portions of our intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products. Qualcomm gained 3.2% market share with USD 15.38 billion in revenue in 2018.

Broadcom

Broadcom Inc. is the successor to Broadcom Limited, a company organized under the laws of the Republic of Singapore. It is the second largest global technology leader that designs, develops and supplies a broad range of semiconductor and infrastructure software solutions. It develops semiconductor devices with a focus on complex digital and mixed signal complementary metal oxide semiconductor, or CMOS, based devices and analog III-V based products.

Original equipment manufacturers, or OEMs, or their contract manufacturers, and distributors typically account for the substantial majority of its semiconductor sales. The company's USD 16.54 billion revenue generation in 2018 lifted it to grab a 3.5 % global market share.

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Strategic Conclusion

There has been increased adoption of semiconductor in a broader array of application markets such as automotive and construction in comparison to traditional growth driving segments including consumer electronics and telecommunication industry. Although the adoption rate in such segments is notably high, overall, the market for semiconductor is muted with a slight growth rate worldwide.

Further Reading

  • 2018 Semiconductor Equipment and Material Market, SEMI, 2018
  • World Semiconductor Trade Statistics, WSTS, 2018
  • 2018 Factbook, SIS. 2018
  • Winning the Future, A blueprint for sustained US leadership in semiconductor technology, SIS, 2019
  • KMPG Global Semiconductor Outlook, KPMG, 2013
  • China’s strategy to promote IC industry, SImgui Technologies, 2018
  • Business Outlook Global Electronics Industry, Custer Consulting Group, 2018
  • Korea and Electronics Global Value Chain, Duke Global Value Chain Center, 2017
  • Annual report, Qualcomm, 2018
  • Annual report, Broadcom, 2018
  • Global Autonomous Driving Market Outlook 2018, Frost & Sullivan, 2018
  • Semiconductors, McKinsey, 2017
  • Semiconductors, KPMG, 2019

http://www1.semi.org/eu/sites/semi.org/files/events/presentations/01_Lara%20Chamness_SEMI_0.pdf

https://www.wsts.org/76/103/WSTS-Semiconductor-Market-Forecast-Autumn-2018

https://assets.kpmg/content/dam/kpmg/pdf/2013/12/kpmg-2013-global-semiconductor-survey.pdf

https://www.mckinsey.com/~/media/McKinsey/Industries/Semiconductors/Our%20Insights/McKinsey%20on%20Semiconductors%20Issue%206%20-%20Spring%202017/McK%20on%20Semiconductors_Issue%206_2017.ashx

https://assets.kpmg/content/dam/kpmg/us/pdf/2019/03/kpmg-semiconductor.pdf

https://gvcc.duke.edu/cggclisting/chapter-3-korea-and-the-electronics-global-value-chain/


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