2023 Semiconductor Outlook

Author
Parichart Jiravachara
Partner | Risk Advisory
Deloitte Thailand

Contributor
Tasada Sangmanacharoen
Senior Consultant | Clients & Markets
Deloitte Thailand

Something worse than a global semiconductor industry shortage or surplus is having both at once. Dominant 2023 global economic and geopolitical factors are shaping the chip industry. A surge in inflation, rising interest rates, and leading tech companies’ retreats have resulted in a dramatic loss in market capitalization: the top 10 chip companies globally combined market cap plummeted 34% from US$2.9 trillion in November 2021 to US$1.9 trillion in November 2022. Although high-end memory prices are a half lower in the past year, the average lead times for the overall industry as of October 2022 still stood at approximately 25.5 weeks, compared to a more normal 10-14 weeks. Moreover, the US government tighten the regulations around the export of advanced semiconductor technologies to China in October 2022 that saw likely to shape the entire industry for 2023.

Still, a bright side still saw existing. Deloitte anticipates that 2023 could act as the pause that refreshes and allows the chip industry to consider five big areas:

1. Bring manufacturing closer to home with both entirely new fabs and the expansion of existing facilities—with extensive use of friend-shoring

The chip industry and governments now recognize that no region can fully be self-sufficient but also needs to rely on trusted friends and allies for parts of its semi-supply chain. The category of chips is not uniform. Each type of chip may require different wafer sizes and process technologies, materials, facilities, equipment and design tools, radiation tolerance, etc. Some parts may be in our region (onshoring); some parts could be in geographies very close to our region (nearshoring); and some could be in regions that we consider friends and allies (friend-shoring). Those regions may be relatively nearby, or they might be on the other side of the world.

2. Manage the diversification risks and challenges that come with localization and friend-shoring.

The US and Europe chip industries are looking at diversifying not just fabs but all parts of the semi-supply chain. They would move chipmaking out of the traditional strongholds in the Asia Pacific region into North America and Europe. However, replicating the capabilities of Asian manufacturing locations is not easy. Until the supply chain, pandemic, and trade issues surfaced, Asia had secured a supply of raw and manufactured materials to make hundreds of components. It still has leading-edge chip production facilities and can even ship final products to the end customers.

3. Digitally transform and digitize many parts of the process: financial planning and operations, order management, and supply chain.

The global semiconductor industry is anticipated to grow to US$1 trillion in revenues by 2030, doubling in the decade. This growth is expected to require investment in related-manufacturing processes.

Currently, more than 90% of the back-end assembly and testing base is in Asia, either in foundries or outsourced semiconductor assembly and test (OSAT) providers. Whereas several companies in the chip industry are adding new assembly and test capacity locally, which could exacerbate the existing challenge of siloed supply chain tech and systems. This is where integrated data platforms, next-generation ERP, planning, supplier collaboration systems, artificial intelligence (AI), and cognitive technologies are expected to make OSAT processes more efficient and help sense and preemptively plan for future supply chain shocks.

4. Address and balance the semiconductor talent equation: shortages in some roles, but layoffs in others.

Semi-talent was in short supply in 2022—and the shortage is expected to get even worse in 2023. Deloitte predicts that the semiconductor workforce—estimated at more than 2 million direct semiconductor employees worldwide in 2021—will need to grow by more than 1 million additional skilled workers by 2030: roughly adding more than 100,000 workers annually. Chip companies’ talent challenges are compounded by the urgent need to build large-scale fab facilities in multiple regions. Therefore, they need to accelerate hiring for a range of skills: electricians, pipefitters, and welders; technical engineers, maintenance personnel, and smart factory automation specialists; and graduate electrical engineers to design chips and the tools and manufacturing processes that make the chips.

5. Establish and accelerate the path toward achieving environmental, social, and governance (ESG) goals, particularly around sustainability.

The production process for every new generation of chips uses more energy, water, and greenhouse gases (GHGs)—especially process gases with high Global Warming Potential (GWP) that are difficult to mitigate. And by 2030, the information and communications technology industry are likely to account for 20% of global electricity demand. Thus, investors, customers, board members, and regulators are requiring more transparent and comprehensive disclosures on GHG emissions, environmental risks, and mitigation actions. Some chip manufacturers have already implemented technologies that allow them to recycle and reuse water. Additionally, companies have increased renewable energy used to generate power for their office buildings and manufacturing facilities. Besides, using less water and energy not only reduces the ESG footprint but could also reduce operating costs because of lowered spending on resource consumption, potentially benefitting the bottom line.

Semiconductor situation in Thailand

According to TPSO, Thailand’s semiconductor trade is classified into two groups; Integrated Circuit and Diodes-Transistors-Semiconductor. Thailand’s supplies of semiconductor saw improving as integrated circuit import increased from 484,706 mTHB in 2021 to 669,667 mTHB in 2022, or grew 38%, which the import in Jan-Apr 2023 was mainly contributed by Taiwan at 75,126 mTHB. For diodes-transistors-semiconductor, the import increased from 81,314 mTHB in 2021 to 101,248 mTHB in 2022, or rose 25% and the import in Jan-Apr 2023 was mainly fueled by China at 25,042 mTHB. However, the continuance of technology decoupling of China and the West such as the US restricted exports to China of equipment used in fabricating semiconductors also has impact to Thailand. TDRI stated that semiconductor shortages pose headwinds for the recovery of the Thai economy as Thailand relies on imports of energy and semiconductors, the latter mainly for its car and electronics manufacturing. Still, there is still a bright sight, the US diversifying its chip supplies from Taiwan and China to ASEAN members had made Thailand’s diodes-transistors-semiconductor export to the US increased 145% from 4M2022 to 4M2023, stood at 29,299 mTHB.