Semiconductors – the Next Wave

Semiconductors – the Next Wave: Opportunities and winning strategies for semiconductor companies was jointly conducted by Deloitte China Technology, Media and Telecommunications (TMT) Industry, Deloitte Taiwan, Deloitte Japan and Deloitte Korea. In the view of the current situation and future trends of the semiconductor market in East Asia, this report mainly illustrates the opportunities brought by the automotive semiconductors and AI chips to the semiconductor market. Furthermore, the report covers the new norm of M&A activities that have been occurring in the semiconductor market, which will provide a broader perspective for Chinese local semiconductor players and the multinationals who are trying to access the Chinese market.

Viewpoints / key findings

➤ East Asia (Mainland China, Japan, South Korea and Taiwan) has become a hotspot for the semiconductor industry due to its burgeoning economy, the rise of mobile communications and growth in cloud computing.

• China, in particular, commands almost half of overall market value, split roughly 50-50 between domestic demand and Taiwan-based, world-leading ODMs or foundries serving global clients. China also aspires to a self-sufficient semiconductor industry and ascension to become a global powerhouse at the same time.
• Japan, on the other hand, is an important supplier of semiconductor materials, high-end equipment and special semiconductors. Meanwhile, South Korea has a commanding lead in the global HBM (high bandwidth memory) DRAM (dynamic random-access memory) market.

➤ The semiconductor sector's growth trajectory will flatten somewhat as demand for consumer electronics saturates. However, many emerging segments will provide semiconductor companies with abundant opportunities.

• In the automotive sector, the adoption of safety-related electronics systems has grown explosively. Semiconductor components that make up these electronic systems will cost USD600 per car by 2022. Automotive semiconductor vendors will benefit from a surge in demand for various semiconductor devices in cars, including microcontrollers (MCUs), sensors and memory. Automation, electrification, digital connectivity and security will result in the addition of more semiconductor content to automotive electronics and subsystems in the next decade.
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• The AI semiconductor scene has seen a race not just at the application level, but also at the semiconductor chip level, where different architectures are vying for a piece of the pie. The cloud is the biggest market for AI chips, as their adoption in data centers continues to increase as a means of enhancing efficiency and reducing operational cost.

➤ M&A activity in the semiconductor industry has already peaked and specialized verticals are becoming the primary focus. Japan and Korea are seeking to revive their industries through acquisitions, while the continuing trade war and disputes over intellectual property will hamper China's ambition to go on a global spending spree.

➤ China has become a source of income for top global semiconductor companies, many of which generate over half of their revenue from China. Multinationals trying to access the Chinese market should consider a multitude of factors such as policies, technologies, marketing, logistics and global strategies.