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Top 3 Reasons Driving the Global Market of Semiconductors at 8.3% CAGR to 2028

June 28, 2021 | Information & Technology

Semiconductors are nowadays gaining high popularity from consumers and corporations worldwide for their usage in a wide range of devices, such as medical equipment, smartphones, space vehicles, appliances, and car computers. Manufacturers are continuing to prosper because of the proliferation of electronic devices. These companies are majorly augmented by the goal of developing faster, smaller, and cost-effective products to facilitate cheaper, powerful, and streamlined technology. As per a report by Fortune Business Insights™, the global semiconductors market size of is projected to reach USD 803.15 billion in 2028 at a CAGR of 8.3%.

Work from Home Norms amid COVID-19 Pandemic to Result in Moderate Growth

This market was severely affected because of the COVID-19 pandemic that hit the world in early 2020. At the same time, the ongoing U.S.-China trade war has crippled the technology sector. Various businesses across networking and communications, data processing, and automotive were also impacted, which, in turn, has resulted in the halt of manufacturing activities. At present, the U.S. is at the forefront of the market because of the emergence of 5G, artificial intelligence (AI), and quantum computing technologies. But, the pandemic has disrupted logistics and supply chain of various companies, thereby causing uncertainty. Besides, disturbances in industrial and automotive sectors globally have made it difficult for manufacturers to predict the future demand. The European Automobile Manufacturers Association (ACEA), for instance, declared that in January and February 2020, the sales of automotive declined by 7.4%.

Moreover, as China is considered to be the ‘motor city’, stringent social distancing and lockdown norms implemented by regulatory bodies have made it challenging for automakers, such as Toyota Motors, General Motors, and Honda Motors to operate their production facilities in this country. As per the United Nations Conference on Trade and Development (UNCTAD), the decline of export of components and auto parts from China by only 2% to Japan, the Republic of Korea, the U.S., and EU could lead to a reduction of USD 7 billion in terms of automotive export. But on the bright side, increasing work from home practices in several nations have surged the demand for data processing and networking & communication applications. It is anticipated to moderately uplift this industry amid the pandemic.

Top 3 Reasons Driving the Demand for Semiconductors:

Deployment of Wireless & 5G Communication Technologies to Strengthen the Industry

With the advent of wireless and 5G communication technologies, the industry is expected to transform at a fast pace in the upcoming years as they rely highly on innovative semiconductor chips. These are being constantly utilized in smartphones, intelligent cars, and smart cities. Additionally, renowned companies, such as Ericsson, Nokia, and Huawei are planning to develop numerous solutions for grabbing more opportunities in the field of 5G communication technology. These companies are currently focusing on creating high-end architecture, wireless technology, and core networks that can be used to operate 5G. This would further ensure minimum uplink rate and network latency.

In April 2021, for instance, IS-Wireless, a prominent developer of software-defined 4G and 5G mobile networks announced its plans to deploy 5G networks on the basis of the Open-Radio Access Network (Open RAN) technology in Poland. This novel technology would help companies to source software and hardware from various vendors for building their own networks. The company is set to deploy this technology from the second half of 2021.

Implementation of Universal Norms & Standards by Governments to Propel Demand

Significant changes in government standards are expected to create high demand for semiconductors in the near future. This would occur because manufacturers would order products in bulk, rather than purchasing a handful of them. This will not only assist them in investing heavily in component manufacturing as per the formalized standards, but will also help them gain access to the latest technologies. As per a few component and technology manufacturers, once these new regulations and standards are implemented, applications, such as drones, cyber security, AI, autonomous vehicles, IoT, and 5G would reach up to 2%, 6%, 10%, 19%, 28%, and 36%, respectively.

For instance, in August 2020, the government of China issued new policies to encourage foreign and U.S. semiconductor firms to transfer specific technologies, R&D programs, talents, and intellectual property (IP) to China. These rules are also applicable to companies situated in Macau, Hong Kong, and Taiwan. The new rules would target crucial capabilities across the industry’s value chain consisting packaging & testing, software design & tools, materials, fabrication, integrated circuit (IC), and equipment. The government has also planned to provide superior terms, such as IP protection, financing, tariff, and taxes over the next ten years.

Surging Adoption of Connected Technologies to Help Firms Generate More Revenues

Connected technologies, namely, wireless communications and IoT are playing a very important role in this industry. Manufacturers worldwide have developed a novel ecosystem for generating more revenues owing to the convergence of these technologies. Additionally, they contain industrial and automotive electronics and hence, the requirement of high-quality MCUs, circuits, and ICs is necessary. These are needed for developing state-of-the-art safety features in vehicles. Apart from that, end-users are nowadays demanding for semiconductors embedded with AI on account of the increasing number of data centers around the globe. Connectivity for solid-state lighting, energy management, transportation, security, and automation would also showcase surging demand from industrial electronics companies.

In April 2021, for instance, Dialog Semiconductor introduced a NOR flash memory chip called AT25EU. The company declared that it is the fastest operation and lowest power consumption chip. As per one of the company officials, “This high-performance product would help Dialog to enhance its performance and reduce the cost of unique IoT devices. It will be available for sampling from the second quarter of 2021.”

Is Rapid Utilization of IoT & AI Chips the Only Way to Succeed in this Industry?

Even though the industry is growing exponentially, no one knows with certainty exactly where it is headed as it depends on a wide range of factors, especially rising prices of rare earth metals, experimentation with cutting-edge materials, and adoption of new technologies by manufacturers. According to a study by the International Roadmap for Devices and Systems (IRDS), those manufacturers that would be able to meet the needs of both IoT and AI chips are anticipated to rise in future. Overall, semiconductors can overcome scientific and economic barriers and pave the way towards significant achievements.

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