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Greater AI adoption fuels semiconductor industry
Momentum positive, but challenges remain, Asia major player in global manufacturing
Darryl Yu 4 Oct 2024

With the semiconductor market globally having experienced rapid growth over the past couple of years, it is poised to be boosted further with the increasing need for computing power necessitated by the greater take-up rate of artificial intelligence (AI), led by platforms like ChatGPT and Microsoft’s Copilot.

The semiconductor manuifacturing market, according to Morningstar, is expected to reach an aggregated US$1 trillion revenue milestone between 2030 and 2032. In fact, AI accelerator revenue will increase roughly four times over the next several years with growth being led by Nvidia.

AI, already a primary valuation driver, will make up, Morningstar predicts, nearly 40% to 50% of total company revenue for key semiconductor firms like Broadcom, AMD and Marvell Technology.

“While the AI processing chips, especially those from Nvidia, are the most obvious beneficiaries of AI-related demand, there are also other parts of the value chain that will benefit,” a Morningstar report states. “Specifically, we see material growth coming from networking, memory and equipment firms and foundries. AI-related demand is expected to drive growth across a broad swath of the semiconductor value chain.”

The positive outlook for the sector bodes well for several markets in Asia, which are looking to cement their positions as leaders within the semiconductor value chain globally. The region accounts for approximately 60% of the global semiconductor manufacturing market, according Deloitte data, with the expectation that this percentage will grow to 62% by 2030.  

Taiwan, mainland China, South Korea and Japan dominate semiconductor manufacturing in Asia; and China has heavily invested in its onshore operations with an eye to reducing its reliance on foreign suppliers.

Recently, China launched the third phase of its National Integrated Circuit Industry Investment Fund, which involves investing 340 billion yuan (US$47.5 billion) to support the development of the country’s semiconductor value chain.

And Malaysia, looking to avoid geopolitical complications, has voiced its intent to become a key neutral semiconductor manufacturing hub. Malaysian Prime Minister Anwar Ibrahim, earlier in the year, pledged at least 25 billion ringgit (US$5.3 billion) in financial incentives to entice foreign investors to come to the Southeast Asian nation and train local engineers.  

Despite the positive momentum for the semiconductor market in Asia, the industry still faces several challenges, chief among them, a talent shortage, with around 82% of semiconductor executives citing this as a major problem for the industry.

“The availability of skilled and well-trained labour,” notes a commentary from data provider International Data Corporation, “has always been critical to the development of the semiconductor manufacturing industry.” 

There are also sustainability concerns, with environmental, social and governance criteria becoming a mainstay when doing commercial activities nowadays. It is critical for semiconductor manufacturing, which is very energy intensive, to be aware of their greenhouse gas emissions from non-renewable energy sources.

Finally, the industry needs to keep up with Moore’s Law – which predicts the doubling of transistors on a chip approximately every two years and mandates continuous innovation to overcome  technical limitations.