By: Manpreet Kaur
Semiconductor market: Size of the industry and other details
Semiconductors play a vital role as essential elements in contemporary electronics. They feature prominently in diverse products such as smartphones, laptops, vehicles, and medical equipment. These encompass various components like microprocessors, memory units, integrated circuits present in these devices, and many others. The global semiconductor market, valued at around USD 618 billion in 2022 by Semiconductor Equipment and Materials International (SEMI), is projected to hit USD 1 trillion by 2030. The surge in demand for chips, primarily driven by smartphones and computers, has expanded to include automobiles, IoT devices, and emerging technologies like AI and blockchain. Semiconductors, predominantly integrated circuits, are pivotal in various industries, from electronics to automotive and infrastructure. Despite constituting a small fraction of GDP, semiconductors are integral to around 12 percent of GDP due to their widespread usage in production processes. The recent semiconductor shortage underscored their critical importance, with estimates suggesting a USD 240 billion GDP reduction in the U.S. in 2021 alone, notably impacting industries like automotive. This shortage exemplifies the profound economic ramifications associated with semiconductor disruptions, showcasing their indispensable role in global economic activities.
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Overview of the semiconductor industry value chain
- The semiconductor industry operates within a complex global supply chain, involving numerous processes to transform inputs into outputs.
- No single company or country can independently perform all roles in the semiconductor supply chain, reflecting its highly specialized nature.
- Integrated circuit (IC) chips, vital to modern technology, undergo a production process spanning four to six months and over 500 discrete stages.
- Accenture estimates that inputs for a typical IC chip cross more than 70 international borders before reaching consumers.
- Leading chip sellers have extensive supplier networks worldwide, with some suppliers possessing unique technological capabilities.
- Policymakers need to understand the global semiconductor manufacturing landscape to navigate shifting supply chains effectively.
Value Chain Stages:
- Design: Involves creating semiconductor functions and performance, often performed by either companies themselves or specialized design houses.
- Manufacture: Encompasses the production of semiconductor raw materials and components, including wafers, masks, and packages.
- Front-end Process: Formation of circuits on the wafer, mainly handled by specialized foundries.
- Back-end Process: Includes wafer dicing, packaging, and testing, typically conducted by foundries or assembly/testing companies.
- Sale: Involves offering semiconductor products and services on the market by semiconductor manufacturers and trading companies.
- Final Products: Utilizes semiconductor features in the design and manufacture of various products like computers, smartphones, and automobiles.
- Final Productization: Carried out by finished product manufacturers and EMS (Electronic Manufacturing Services), in collaboration with semiconductor suppliers and customers, to meet market demands.
Challenges in the Semiconductor Supply Chain
Complexity and vulnerability to disruptions:
– The semiconductor supply chain has grown increasingly intricate, rendering it vulnerable to disruptions that can cascade throughout the entire system.
– Events like natural disasters, exemplified by Japan’s 2011 earthquake and tsunami, and the COVID-19 pandemic in 2020 have underscored the fragility of the supply chain.
– Lockdowns, worker shortages, and capacity reductions due to the pandemic led to chip shortages across various industries, particularly impacting automotive manufacturing.
Geopolitical tensions and concentrated manufacturing:
– Concentration of semiconductor manufacturing in a few key regions, notably Asia, has exposed the supply chain to geopolitical tensions and trade disputes.
– Recent trade restrictions imposed by the United States on Chinese semiconductor companies have heightened concerns about disruptions in material flows.
– Such tensions can disrupt the flow of materials and components, impacting global semiconductor production and distribution.
Imbalances in supply and demand:
– Internal and external factors, such as manufacturing capacity constraints and changes in demand, contribute to shortages in the semiconductor supply chain.
– Industries like automotive and medical devices face delays in product delivery due to semiconductor procurement challenges, highlighting the criticality of semiconductor supply chain resilience.
Custom specifications and inventory management:
– Semiconductors, designed for diverse applications, pose challenges in manufacturing complexity and inventory management.
– Companies must balance customization needs with supply chain optimization to maintain agility and respond effectively to market fluctuations.
– Managing a spectrum of semiconductor products requires a flexible and efficient supply chain to meet diverse customer demands.
The complexity of the global supply chain:
– Semiconductor manufacturing relies on a complex global network involving numerous countries and companies, contributing to supply chain complexity.
– Multiple stages, from raw material supply to assembly/testing to sales, necessitate international divisions of labor, amplifying the intricacies of the semiconductor supply chain.
– Challenges such as extended lead times and limited market adjustments arise from the dispersed nature of semiconductor manufacturing processes, affecting companies’ ability to respond swiftly to market dynamics.
How can SpendEdge help companies with the semiconductor supply chain?
Supply chain updates:
At SpendEdge we provide comprehensive supply chain updates, offering real-time insights and risk notifications to optimize cost-cutting opportunities and mitigate uncertainties. With alerts for inventory levels, commodity price fluctuations, and supply shortages, businesses can make informed decisions based on whole-life costs and quality scores. Leveraging origin and transit data, our experts can help you trace and track vulnerabilities while improving supply chain sustainability and brand reputation. Businesses can ensure efficient procurement decisions aligned with vendor KPIs and SLAs through tailored backup plans and supplier benchmarks, supported by deep insights and forecasting accuracy.
Supply chain risk analysis:
SpendEdge offers a comprehensive solution to optimize supply chain risk management and decision-making. By precisely assessing risk profiles for each supply chain segment, businesses can prioritize and address vulnerabilities effectively. Real-time insights from supply-side big data enable proactive operations enhancement, with dashboard views providing clear performance snapshots. Segment-wise efficiency metrics allow for targeted improvements, while unified enterprise-wide risk views facilitate streamlined remediation efforts. We help you quantify the potential impacts of critical vulnerabilities and identify opportunities to enhance supply chain resilience. Leveraging supplier intelligence and market insights, businesses can make informed investment decisions and expand into emerging markets confidently. With our intelligence, organizations gain a competitive edge by maximizing supply-side intelligence and mitigating risks effectively.
Supply chain mapping:
SpendEdge provides a holistic approach to supply chain management, offering a comprehensive view of the entire process. By enhancing knowledge of supply origins and bottlenecks, businesses can optimize operations and mitigate risks effectively. With insights into supplier responsibilities and risk factors, organizations can proactively frame strategies to address potential disruptions before they impact operations. We also enable evaluation of supplier practices regarding ESG and social factors, ensuring compliance and reputation protection. By prioritizing sustainability and compliance, businesses attract investors and gain a competitive edge. With our expertise, organizations maximize cost and time savings while ensuring seamless operations and sustainable growth.
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Conclusion
In conclusion, the semiconductor industry stands as a cornerstone of modern technological advancement, vital to a myriad of sectors from electronics to automotive and beyond. However, its intricate global supply chain poses significant challenges, from geopolitical tensions to supply-demand imbalances and regulatory risks. Through comprehensive solutions like those offered by SpendEdge, companies can navigate these complexities with confidence. By leveraging real-time insights, risk analysis, and supply chain mapping, businesses can optimize operations, mitigate disruptions, and enhance resilience. With a strategic approach to supply chain management, organizations can not only safeguard their operations but also seize opportunities for growth and sustainability in an ever-evolving market landscape.
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Author’s Details
Manpreet Kaur
Assistant Manager Presales – Sourcing and Procurement Intelligence
Manpreet is a presales specialist at Infiniti Research and has expertise in sales, business strategy execution, and innovative solution design. She is actively involved in supporting clients from F&B, CPG, Healthcare, Pharma, Chemicals, BFSI, Oil & Gas and Automotive sectors.
