Research conducted by McKinsey & Co into the global semiconductor chip market found that industry revenue is set to grow 6-8% annually over the next decade to top $1 trillion by 2030.
“We are seeing demand growing across several key markets, with the digitalisation of life and business accelerating even further,” said Ondrej Burkacky, senior partner in McKinsey’s Munich office and head of global semiconductor consulting.
“If you consider megatrends such as working from home, the widespread application of artificial intelligence and machine learning, and rising demand for electric cars, all of these indicate that demand for semiconductors will continue to pick up strongly as we move deeper into a digital-first society.”
The research, however, also raised some interesting findings in terms of capacity and on-going chip shortages.
“Growth in demand is a given and the big issue is how the semiconductor industry satisfies that demand. Over the coming years there will be ongoing shortages, and there is a real need for additional capacity to be built. Fabs are currently experiencing a rate of utilisation that’s over 90 per cent. It’s a non-linear manufacturing process with many individual steps so at that level of utilisation we’ll see lead times explode and that’s not a healthy situation,” said Burkacky. “With every increase in demand we need to see new capacity, whether that’s expanding existing capacity or building new facilities.”
The research conducted by McKinsey looked in detail at various sectors and found that effects of the imbalance between supply and demand were most evident when specific industries were considered. The research found that 70 per cent of industry growth up to 2030 will be driven by just three sectors: automotive, computing and data storage, and wireless communications.
McKinsey is predicting a 13-15 per cent annual increase in chips for the automotive industry as the market shifts to ramp up production of electric vehicles and fully autonomous driving becomes mainstream.
“Automotive companies sold fewer cars despite demand skyrocketing due to the chip shortage. The waiting time for individual chips required for car manufacturing is currently more than twenty weeks in some cases, causing longer lead times than ever before,” explained Burkacky. “Our forecast predicts that this gap in supply for chips between 22 and 65 nanometers in size will continue through 2022 and beyond.”
In fact, when NE spoke directly with Burkacky he suggested that with the number of semiconductors in a car doubling until 2030, alongside surging demand from sectors such as industrial, IoT, AI, cloud computing and 5G it was unlikely that the market would return to normality by 2023.
“While we’re not seeing shortages in leading edge nodes, it’s more in mature nodes, additional capacity will help but it won’t solve the broader issues around supply and demand. We think that it’ll require 2-3 more years before that gap is closed.”
According to Burkacky, the automotive industry is now looking to replenish stocks and is moving away from a just-in-time model.
“Part of the new normal is building up 3-6 months’ worth of inventory,” he added. “The issue for the automotive industry is not just stock levels but the type of stock. For many OEMs and Tier 1’s they can’t be sure they will have the right mix of product in the future and that will add to delays.”
All or this means that the supply chain needs to be more transparent, both in terms of relationships and contracts.
“Prior to the pandemic most OEMs didn’t know what chips were in their vehicles. They were just buying modules that performed a specific task. Forecasting wasn’t precise enough and there was lack of communication. There needs to be a re-balancing and a better understanding of how long it takes to manufacture chips. Other sectors have been much better at pre-ordering chips and I think the automotive sector sometimes forgets that it only accounts for 8 per cent of semiconductor demand. The automotive sector needs to better understand that they are benchmarked against other industries, and that a semiconductor factory supplies a much broader range of industries.”
In its report McKinsey is projecting that the current global landscape paired with advances in nascent technologies will encourage semiconductor companies to find more innovative solutions to help curb the chip shortage.
Smaller, regional players are expected to enter the market and will focus on products that have specific applications, which could allow customers to seek out advanced chips that circumvent the global supply chain in favour of more highly specialised, regional manufacturers.
Burkacky said, “All the signs point to growth over the next decade. However, in order to set the industry up for long-term success, the immediate task at hand is for leaders to focus strategically on R&D, factories and sourcing to unlock new markets of opportunity and strengthen the semiconductor industry’s ecosystem.”
