Rise of the Asia Pacific "Big 4" semiconductor markets on global stage
Semiconductor market on course for recovery despite COVID-19 volatility, while rapid advances in 5G, cloud computing, big data, IoT and AI will continue to drive demand
Published: 31 August 2020
A new Deloitte report, Rise of the "Big 4": The semiconductor industry in Asia Pacific, points to the growing importance of Asia Pacific's "Big 4" semiconductor players in the global market, where 5G, AI and big data are set to become key drivers of demand. The report also analyzes how supply chain resilience is key to succeeding amid the emergence of "multi-markets" in the post-pandemic era.
Driven by government support, a vast market and increasing R&D expenditure, the Chinese Mainland, Japan, South Korea and Taiwan have become the "Big 4" semiconductor markets in Asia Pacific, and are now among the world's top five markets by revenue. Asia Pacific is also the world's biggest market for semiconductors, accounting for 60% of global sales.
South Korea currently leads the pack as the second largest semiconductor country after the US, while Taiwan has the world's biggest foundry. Japan's strength lies in its ability to create high purity upstream semiconductor materials. The Chinese Mainland is advancing rapidly, with a competitive edge in scaling a technology once it reaches maturity.
M&A within these four markets has been stable for the past five years. The Chinese Mainland tops the list with 137 deals from 2015-2019, with Japan recording the highest deal value at USD41.862 billion. The Chinese Mainland is also the most active in outbound deals, whereas South Korea is dominated by domestic M&A. Although "Big 4" M&A deal value shrank in 2019 after a boom in 2018, the Chinese Mainland remains the most active market.
Frank Li, Deloitte China Technology Industry Leader, says, "Currently, China is the largest Integrated Circuit (IC) consumer globally. China is also expected to accelerate the structural adjustment of its semiconductor industry through import substitution to stimulate demand for domestic semiconductors and boost investment. That said, the road to self-sufficiency will require a huge amount of capital, talent and time."
Although China is still lacking in the mid- to high-end segments in the global semiconductor value chain, it is closing the gap on all fronts, from equipment to Electronic Design Automation (EDA) software and Intellectual Property (IP) core.
China's semiconductor consumption is also shifting. Ten years ago almost 90% of its semiconductors were for export, but today 50% are consumed by domestic firms, including smartphone makers and data centers. By 2035, 75% of China's semiconductors are expected to be consumed internally.
Frank Li adds, "Global semiconductor revenue fell 12% to USD418 billion in 2019, largely due to lower demand and the US-China trade dispute dampening industry sentiment. The pandemic earlier this year drove a further contraction in the market. Nonetheless, China is a market too big to be ignored. Its skilled workforce, established supply chain network and capabilities mean it will remain attractive to semiconductor manufacturers. Demand will continue to be driven by key initiatives such as new infrastructure. China's population is just too large for the country not to be an important market in Asia Pacific and the world."
Leo Chen, Deloitte China Semiconductor Sector Leader, says, "Despite the volatility caused by COVID-19 delaying the recovery, the long-term outlook for the semiconductor industry remains positive. The maturity of many disruptive technologies, including AI, big data and 5G, will drive market growth. Considerable growth will be maintained once the economy recovers, especially in connectivity-related products such as smartphones and 5G devices."
According to Deloitte, supply chain disruption from COVID-19 was caused by a combination of lean production and global, multistage supply networks. Businesses should urgently consider how to improve supply chain network resilience by accounting for supply chain visibility, building reserves, and developing diverse supply chains.
Leo Chen concludes, "In the long term, semiconductor companies need to look at mapping and digitizing supply chains, keeping a global perspective while diversifying, as well as building strategic backup capacity and flexibility. The emergence of 'multi-markets' is set to reshape the future of the semiconductor industry worldwide."
Click here for the full report.