Anchor of global semiconductor - Asia Pacific Takes Off
Currently demand for semiconductors driven by smart devices and automobiles has for the past ten years promoted the development of the semiconductor industry, based on the needs of consumers. However, with the continuous development of technology, we believe that in the next 10 years, the key drivers behind the development of the semiconductor industry will gradually transfer from the consumer side to the "consumer + corporate" dual sides, especially for digital technologies such as 5G, AI and the Internet of Things, of which utilization will be more driven by the enterprise side. As the "Big four" semiconductor regions – South Korea, Japan, Mainland China and Taiwan (China) – have played a leading role in the development of the semiconductor industry at the upstream, midstream and downstream, even on a global level. According to this, Deloitte China Technology, Media & Telecommunications (TMT) Industry released its latest annual report on the semiconductor industry - Anchor of global semiconductor - Asia Pacific Takes Off, saying that with the increasing demand for the semiconductor market and increasing standards for diversification, Asia Pacific countries will accelerate the pace of R&D and innovation around semiconductors, in order to compete and excel in such a highly competitive environment. In return, this will transform the Asia Pacific into the cornerstone of the world's semiconductor industry.
Asia Pacific becomes an anchor in global semiconductor
South Korea, Japan, Mainland China and Taiwan (China) have each played a critical role in the development of the semiconductor industry, from upstream to downstream. A series of black swan events have made the Asia Pacific semiconductor market strategically critical. We expect that the semiconductor industry in the Asia Pacific will grow its global share to 62% by 2030, and the global market of semiconductors will exceed USD 1 trillion.
Figure: Asia Pacific's share in the global semiconductor industry
Rivalry in the "Big 4" semiconductor regions
- In the field of semiconductor materials, Japanese companies account for more than half of the global market share.
- The semiconductor design sector in the Asia Pacific region ranks as second tier compared to its manufacturing industry. Only Taiwan had three integrated circuit (IC) design companies listed in top 10 for revenue in 2020.
- The total volume of semiconductor chips made in Taiwan (China) accounts for over 50% of the global total. Meanwhile, South Korea has the similar strengths in wafer manufacturing, including the long-term experience, the constant policy and financial support from government and corporation.
- Mainland China and Taiwan (China) are regarded as the top-tier in the global outsourced semiconductor assembly and test (OSAT) industry.
Figure: Proportion of Asia-Pacific semiconductor sector in global value chain (2020)
Semiconductors are the "Big 4" important economic lifeblood
- The semiconductor industries in South Korea and Taiwan (China) constitute a large proportion of their respective GDPs. South Korea's semiconductor industry is large in scale. A large-scale and stable semiconductor value chain can be formed and semiconductor city clusters can be formed between cities, based on the competitiveness of its corporate quantities and experience.
- Compared to all three other regions, Taiwan has maintained a relatively high export volume, followed by Mainland China, South Korea and Japan.
- Imports of semiconductors into China are higher than that of other regions.
Figure: Proportion of semiconductor in GDP in Asia-Pacific region
The government plays a crucial role in promoting the semiconductor sector in the Asia Pacific region
- In the next decade, the South Korean government will work in collaboration with local companies to invest KRW510 trillion (USD450 billion) on establishment of the world's largest semiconductor industry supply chain.
- Japan plans to attract more advanced technology investment from abroad. Japan has also set up a fund of JPY200 billion and plans to substantially expand support polices.
- The second phase of the China National Fund was also approved in 2018, which means USD30 billion from the second phase of this fund will be invested in the semiconductor industry over the next few years.
- Companies in Taiwan (China) plan to invest over USD107 billion on semiconductors by 2025.
Figure: Government investment in the semiconductor industry in the Asia Pacific
When Uncertainty Becomes the New Norm - Restructuring and Balancing
The normalization of black swan events provide today's semiconductor industry with an opportunity to rethink and reshape the existing business model. To create a more flexible semiconductor supply network and a more adaptable future for the industry, we need greater cooperation between semiconductor manufacturers and suppliers:
- At the national level, global semiconductor shortages and geopolitical tensions have led to increased scrutiny of the semiconductor supply chain and a scramble for leadership in the semiconductor industry. Governments across the region are also racing to secure and strengthen supply chains.
- At the enterprise level, companies should assess the potential impact of supplier loss of manufacturing capacity on the business and establish alternative supplier options to minimize supply chain disruptions in the short term. In the long run, semiconductor companies should review their supply chain strategies and operating models to address the risks posed by geographic concentration and a lack of adaptability in manufacturing. Rather than relying on a geographically centralized manufacturing model, semiconductor companies should consider moving to a 'flexible supply node network' model that is flexible and allows for multiple paths, helping eliminate single-points-of-failure.
AI Driving the Transformation of Semiconductor Manufacturing
AI's impact on the semiconductor industry is two-folds. The first is by fostering demand for emerging AI technologies to create new market opportunities. The second is to use AI to improve the design and manufacturing of semiconductors. Aided by the application of artificial intelligence in the semiconductor industry, the sector will realize new profit growth by saving costs, shortening the time to market, improving operational efficiency and product quality. Artificial intelligence could potentially contribute over USD1 billion to the annual profits of the global semiconductor companies over the next ten years.
Keys to adoption of AI in semiconductor
With increasingly fierce competition in the semiconductor industry, demand is constantly increasing, and semiconductor companies need to develop new strategies to maintain their competitiveness. The development of the semiconductor company affects the demand of AI talents to grow rapidly, but right now the semiconductor industry is facing a shortage of AI talent. AI also needs more technical support in the process.
Automotive semiconductors become the three elements of the fastest growing sub-sector of semiconductors
The higher the degree of intelligent autonomy, the greater the number of control chips and capacity of storage required. Correspondingly, demand for semiconductors will increase dramatically. Pure electric vehicles that in time will replace a large number of traditional fuel vehicles under the global low carbon economic movement, resulting in a significant increase in demand for power semiconductors and third-generation semiconductors. In addition, internetization will significantly increase the demand for the side of the vehicle and road test sensors and communication chips. The Asia Pacific automotive semiconductor market accounts for one third of the world's total, and Japan is the clear leader in the market.
Figure: Global Growth Rate by Type of Semiconductor (CAGR) 2020-2025
Businesses around the world are rapidly shifting their focus to 5G, Wi-Fi 6 to accelerate innovation and digital transformation