AMR Future Brief|Top 7 Factors for a Dynamic Surge in the World’s Semiconductor Investment

In today’s interconnected world, semiconductors are becoming dominant in powering the technology that surrounds us. From smartphones, computers, cars and washing machines, almost every electronic device relies on computer chip production or semiconductors. As the demand for advanced technology continues to soar, the world is witnessing a substantial increase in investment in the semiconductor industry from countries around the world. 

The Turbulent Semiconductor Industry 

The global semiconductor market is projected to reach a staggering $1,033.5 billion by 2031, witnessing substantial growth from $555.9 billion in 2021. The semiconductor industry has experienced turbulence in recent years due to several factors. Disruptions in supply chains caused by the COVID-19 pandemic and geopolitical tensions in Asia, where 90% of the world’s most advanced chips originate, have highlighted the industry's vulnerability. The shortage of semiconductor chips in 2021 highlighted the global industry’s dependence on a few key suppliers, with Taiwan Semiconductor Manufacturing Company (TSMC) producing 90% of the world’s most advanced semiconductors. 

To reduce this dependency and strengthen domestic chip industries, governments worldwide are investing heavily in semiconductor production. For instance, the United States signed into law the US Chips Act, pledging $52 billion to boost domestic chip production. The European Union has its own project worth €43 billion, and the United Kingdom has promised £1 billion of investment in the sector. 

7 Reasons Why the World is Heavily Investing in the Semiconductors 

1. Global Collaborative Efforts 

The semiconductor industry operates as a global effort, with no single country or region dominating every segment of the supply chain. This global dispersion of expertise allows companies to seek investment opportunities in various regions that align with their specific requirements. Historically, semiconductor companies concentrated their operations in areas with established ecosystems and infrastructure. However, there is now a growing trend of exploring new regions that offer advantages in terms of sustainability, supply chain security, and subsidies. 

2. Government Incentives Driving Investments 

The significant investments from governments are encouraging big chip manufacturers to respond and establish or expand their production capabilities. For instance, Germany has seen a wave of investment, with a Taiwanese semiconductor manufacturer joining forces with three European companies to invest €10 billion in Dresden. Belgium, Lithuania, and the Czech Republic have also witnessed substantial investments. The realization of the importance of semiconductors for technical development and industry resilience has prompted governments to strengthen their domestic semiconductor industries. By reducing dependence on Asian countries, governments aim to enhance their countries’ technological capabilities and secure a stable supply of semiconductors.  

3. Focus on Sustainability 

In recent years, sustainability has emerged as an important consideration for semiconductor companies. Motivated by voluntary and mandatory targets, semiconductor manufacturers are actively working towards reducing their emissions. Companies are setting ambitious emissions reduction goals, transitioning to renewable energy sources, and addressing supply chain sustainability. Sustainability-driven investments in semiconductors not only align with environmental goals but also cater to the demands of customers who prioritize sustainable practices. 

4. Supply Chain Security and Resilience 

Geopolitical dynamics, economic uncertainty, and recent disruptions like the global pandemic have heightened concerns about supply chain security. Semiconductor companies are increasingly looking to localize their manufacturing operations to mitigate risks and enhance resilience. Governments, in turn, support nearshoring efforts to ensure a steady supply of chips for local industries, including automakers and national security platforms. By reducing dependence on a single region and diversifying the supply chain, countries are aiming to safeguard their technological advancements and maintain a competitive edge. 

5. Increased Subsidies and Incentives 

To attract semiconductor investments and foster the growth of semiconductor ecosystems, various countries have increased subsidies and introduced new incentive programs. The European Union and the United States have implemented policies to support semiconductor companies. Countries without well-established semiconductor ecosystems, such as India and Spain, are actively seeking to attract investments by offering favorable programs and incentives. 

6. Geopolitical Tensions and National Security Concerns 

Geopolitical tensions, particularly in Asia, have further highlighted the need for increased investment in semiconductors. Certain countries, such as Taiwan, are major players in the semiconductor manufacturing industry. Concerns about national security and potential supply chain disruptions have prompted governments to act. Countries like the United States, the European Union, and even India are all investing significant resources to strengthen their domestic chip industries, reducing reliance on external suppliers and ensuring their technological sovereignty. 

7. Technological Advancements and Innovation 

The rapid advancement of technology requires semiconductor companies to constantly innovate and develop new chip designs and functionalities. Traditional silicon-based chips have been the industry standard for decades, but new approaches are emerging. One example is the development of flexible chips that can bend, providing opportunities for wearable technology, clothing authentication, and other applications. Companies like Pragmatic Semiconductor in the UK are investing in flexible chip production, offering cost-effective alternatives to traditional silicon-based chips.