2025 global semiconductor industry outlook

Many of the chips that are being used for training and inference of gen AI cost tens of thousands of dollars and are destined for large cloud data centers. In 2024 and 2025, these chips, or lightweight versions of them, are also finding homes in the enterprise edge, as well as computers, smartphones, and (over time) in other edge devices such as Internet of Things (IoT) applications. In many cases these chips are being used for either gen AI, traditional AI (machine learning) or, increasingly, a combination of both.

The enterprise edge market was already a factor in 2024, but the question in 2025 will be about smaller, cheaper, less powerful versions of these chips becoming a key part of computers and smartphones. What they lack in per-chip value, they can make up for in volume: PC sales are expected to be over 260 million units in 2025, while smartphones are expected to be over 1.24 billion units. Sometimes the “gen AI chip” can be a standalone single piece of silicon, but more commonly it's a few square millimeters of dedicated AI processing real estate that is tiny part of a much larger chip.

Strategic questions to consider:

• Although gen AI chips for data centers are in demand now, are there any signs that demand is weakening, or that processing is moving away from data centers to edge devices?
• Given the success of gen AI chips in data centers, the market potential for various edge chips may drive M&A and attract further private equity, venture capital, and sovereign wealth fund interest: Chip companies are already aligning with financial players. Could we see more of this in 2025?
• Some analysts expect the market for gen AI inference to grow faster than training in 2025 and beyond: What implications could this have on various semiconductor sectors and players? As the cost of AI inference reduces at a faster pace, how can it affect semiconductor chips?
• With greater focus on sustainability and the heightening stress on power consumption due to an AI-driven surge in electricity demand, how can the industry strike a balance between power efficiency and performance in small form-factors including laptops, mobile phones, and IoT devices?

Deloitte predicted that, by 2023, AI would emerge as a powerful aid to human semiconductor engineers, assisting them on extreme complex chip design processes, and enabling them to find ways to improve and optimize PPA (power, performance and area). As of 2024, gen AI has enabled rapid iterations to enhance existing designs and discover entirely new ones and can do it in less time. In 2025, there will likely be more emphasis towards ‘shift left’—an approach to chip design and development where testing, verification, and validation are moved up earlier in the chip design and development process—as optimization strategies could evolve from simple PPA metrics to system-level metrics like performance per watt, FLOPs per watt (FLOPs denotes floating point operations per second), and thermal factors. And the combination of advanced AI capabilities—graph neural networks (GNN) and reinforcement learning (RL)—will likely continue to help design chips that are more power-efficient than typical chips produced by human engineers.

Strategic questions to consider

• As AI in chip design becomes more prevalent and common and electronic design automation (EDA) becomes more and more AI-enabled, how can the chip industry proactively ensure trust and transparency in the complex design process by always keeping human engineers in the loop and giving them a major role in the overall process?
• In the case of custom silicon design, what’s the nature of the relationship between device manufacturers, product designers, and chip designers? And what are some differentiating factors for chip companies and end customers? Does increased customization give scale advantages in terms of product pricing, or lower the cost to produce a prototype or accelerate prototype production?
• New tools and methodologies may require the broader chip industry, including EDA and design houses, to consider long-term direction and goals. In this context, what aspects should semi companies address from the standpoints of systems engineering and chip development/R&D?
• How might the growing demand to more quickly design more complex chips and at an increasingly faster pace affect manufacturing capabilities and capacity, especially for the back-end players?

Globally, countries are not producing enough skilled talent to meet their workforce needs. From core engineering to chip design and manufacturing, operations, and maintenance, AI may help alleviate some engineering talent shortages, but the skill gap looms. Attracting and retaining talent will likely continue to be a challenge for many organizations in 2025, and a big part of the problem is an aging workforce, which is more prominent in the United States and even Europe. Add the complex geopolitical landscape and supply chain fragility to this equation, and it becomes clear that the availability of talent supply is under stress globally.

With onshoring and reshoring of fabrication, assembly, and test in the US and Europe, there will likely be pressure on chip industry companies and foundries as they source more of the talent locally in 2025. For example, talent challenges are contributing to delays in opening new plants. On a related note, “friendshoring” (collaborating with companies from countries considered to be allies) can provide stability and resilience to supply chains, especially for the United States and European Union. But it also demands scouting for the right skills to help meet new capacity demands and talent roles in destinations such as Malaysia, India, Japan, and Poland.

The semiconductor industry can’t continue to wrestle over the same finite talent pool and still expect to keep up with the pace of technological advancement and capacity expansion. So, what can semiconductor companies do in 2025 to address the talent conundrum?

To help attract AI and chip talent, chip companies should consider offering a sense of trust, stability, and projected market growth; with this, they can help make the industry more appealing to recent high school grads and fresh entrants to help reinvigorate talent pipelines.

Countries aiming to benefit from their respective domestic chips acts should consider weaving in strategic goals and aspects related to workforce development and activation. Semi companies should consider collaborating with educational institutions (high schools, technical colleges, and universities) and local government organizations to leverage chip funds to develop and curate targeted workforce training and development programs aligned with specific industry needs in the region.

Semi companies should design flexible upskilling and reskilling programs for career path flexibility to help address future workforce skills and gaps. Additionally, they should implement and leverage advanced tech and AI-based tools to assess diverse talent related factors such as supply, demand, and current and projected spend, to perform complex workforce scenario modeling to support strategic talent decision-making.

Strategic questions to consider

• How should the workforce be characterized and segmented based on specialization areas, for example, design and IP, and manufacturing, operator, engineering, and technical roles? And how can the industry customize talent sourcing and skill development strategies based on these roles, as well as based on specific geographic regions where hiring takes place?
• An emerging trend is agentic AI: Could multimodal, multiagent AI be a partial solution to the looming talent shortage?
• When integrating new talent into a mainstream workforce, what nuances and factors should be considered to ensure a consistent corporate culture? And what associated risks and pitfalls related to talent retention issues and talent pipeline development gaps should be tackled?
• As part of future talent pipeline development, what adjacent skilled workforce types should be considered and what should the overall talent mix be, including full-time and gig workers, to help position the company strongly in the next one to two years?

In 2024, geopolitical tensions were extensively impacting the chip industry, and for 2025, these tensions are expected to intensify. In December 2024, the outgoing administration issued new US export restrictions, focusing on advanced nodes and adding categories for advanced inspection and metrology. Over 100 new entities, mainly Chinese, were added to the restricted list. The US seems to be adopting a “small yard, high fence” approach, imposing strict restrictions on a small subset of chip technologies crucial for defense and military AI applications.

If the new administration implements these restrictions, AI advancements will increasingly be seen as national security issues. Following the US restrictions, China announced further restrictions on exporting key materials like gallium and germanium, essential for semiconductor manufacturing. This highlights the ongoing challenge of material restrictions and the need for increased recycling of e-waste.

In January 2025, the outgoing administration announced an Interim Final Rule on AI Technology Diffusion, imposing new controls on chip exports. It is unclear whether the incoming administration will modify these restrictions. Additionally, the new administration has proposed increasing tariffs on goods from China, Mexico, and Canada, complicating global semiconductor supply chains and impacting profits, costs, and industry policies.

Geopolitical risks, such as conflicts in Ukraine/Russia and the Middle-East, continue to affect semiconductor manufacturing, supply chains, and critical raw materials. The December martial law order in South Korea highlighted the global dependency on certain types of semiconductors, with South Korea producing almost 75% of the world's DRAM memory chips.

Natural disasters also pose risks to key materials. 2024’s Hurricane Helene temporarily shut down two mines in North Carolina that are sources of nearly all the world’s ultra-high purity quartz—essential for making the crucibles which are a key part of the chipmaking process. With climate change increasing the frequency and intensity of extreme weather events, expanding the sources for key materials is likely to continue to be a supply chain priority.

Despite these challenges, semiconductor supply chains were resilient in 2024, with the industry growing by almost 20%. There is no immediate reason to believe 2025 will be different, but the risk remains. With gen AI chips expected to account for up to 50% of sales, the industry could be more vulnerable to supply chain disruptions than ever before. While initiatives like onshoring, re-shoring, near-shoring, and friendshoring are in early stages, the industry remains vulnerable for the next year or two, at least.

Strategic questions to consider

• Given the fluid geopolitical environment and escalating export restrictions, what should be the mix of reshoring vs. offshoring? And how should the industry factor potential disruptions to any existing supply chain channel partner relationships in erstwhile friendly countries and allies, aka friendshoring?
• As the unpredictable climate-driven disruptions affect materials and components supplies, how could this aspect—coupled with an already complex geopolitical landscape—impact both the front-end wafer fab and backend assembly and test, and packaging plants that are being ambitiously planned and rolled out in dozens of countries worldwide?
• If the trade wars continue to escalate, what could it mean for talent sourcing and availability? Can export restrictions further extend to, and eventually cascade into, a much broader talent mobility challenge for countries locking horns in the chip race?
• How might countries with chip manufacturing capacity respond to potential additional US tariffs, given the incentive to shift activities to the US? Can the higher-value-add activities be ideal candidates to be shifted to the US given the higher cost, and might US-based companies rethink their offshore manufacturing investments and activities in an effort to gain an edge in the chips industry?