SIA's Latest Report: Status and Challenges of US Semiconductors

Recently, because of the US embargo on Huawei, domestic readers, and even global stakeholders, have been highly concerned about the strength of US semiconductors and the semiconductor strife between China and the US. The US has even seen a semiconductor manufacturing renaissance in the last month, with several legislators suggesting that the US itself should introduce relevant policies and funding to support the development of semiconductors. In response, the SIA has released this report, which provides an in-depth look at the current state of the US semiconductor industry and the challenges it faces.

For decades, US companies have been world leaders in the production of these tiny chips that power modern technology. US leadership in the semiconductor sector is a key reason why the US is the world's largest economy and a leader in the most advanced technologies.

Since COVID-19 began in the early 2020s, people have been using semiconductor technology to find cures, care for the sick, work and study at home, order groceries and other essential items, and maintain the myriad other systems that underpin modern society. This is a reminder of the importance of semiconductors in addressing the world's most pressing challenges and crises.

The US semiconductor industry continues to maintain its global leadership in semiconductor technologies that are critical to the future, including artificial intelligence (AI), quantum computing, and advanced wireless networks (such as 5G). Despite negative year-over-year global sales growth in 2019, the US semiconductor industry maintained its global market share leadership and maintained a high level of investment in research and development (R&D) and capital expenditures (CAPEX).

These industry investments have enabled the US to maintain its leading position in semiconductor innovation. US companies are leading the way in 5G technology and have developed all the advanced semiconductors related to artificial intelligence and big data that power everything from supercomputers to internet data centers.

However, the US automotive industry faces a number of challenges. The new crown pneumonia outbreak has upended the global economy, disrupted global supply chains, and created significant market uncertainty in the short term. Rising costs of innovation in semiconductor manufacturing and design, particularly at the frontier, also pose new challenges. In addition, while the US remains the global leader in semiconductor design and R&D, the largest share of chip manufacturing is now taking place in Asia. Finally, international political instability, particularly with respect to trade policy, is forcing the US industry to consider how to remain competitive in a world of unpredictable uncertainty and policy constraints. The US semiconductor industry relies heavily on its deep global supply chain and access to overseas markets.

Overall, while the US industry continues to lead the global industry, it also faces clear challenges as it seeks to maintain its leadership position in the future.

The Global Semiconductor Market

Fifty years ago, semiconductor technology helped put men on the moon and return them safely to their homes. More recently, semiconductors have made self-driving cars possible. Semiconductors have become vital to the operation of everything from the economy to national security. The market demand for semiconductors drives the development of chips and makes the impossible possible by bringing convenience to our lives. This is why the semiconductor industry has been able to sustain long-term growth. However, in the short term, there is significant uncertainty around the COVID-19 pandemic and other macroeconomic factors.

Following record sales of US$ 468.8 billion in 2018, global semiconductor sales in 2019 fell by 12 percent to US$ 412.3 billion, largely due to the cyclical nature of the memory market. The World Semiconductor Trade Statistics (WSTS) Semiconductor Market Forecast, published in June 2020, predicts that sales in the global semiconductor industry will increase slightly in 2020, to $426 billion, a downward revision from the 2020 forecast in the fall of 2019, mainly due to the negative impact of the COVID-19 pandemic in early 2020 on the global economy and supply chain to. By 2021, global semiconductor sales are forecast to rebound to US$452 billion according to WSTS.

Drivers of the Semiconductor Market

Semiconductors not only power a wide range of products in smartphones, computers, automobiles, and industrial equipment but also create emerging markets such as artificial intelligence, quantum computing, and advanced wireless networks (including 5G). Semiconductors are the engine that drives technological progress. Advanced semiconductors create better products, leading to greater demand and sales revenue, which in turn increases R&D investment for the development of more advanced semiconductors and leads to new applications.

For example, the packaging of low-power analog and radio frequency (RF) electronics onto a chip has made mobile phones possible. When all this is packaged together and connected to a network, the smartphone emerges. This innovation also made the digital economy possible, as increasingly powerful microprocessors and networking chips made computers capable enough to support cloud computing. Today, it is opening up new areas of demand. And the current market share of end-user demand remains stable.

The data shows that demand for end markets was stable until 2018, but in mid-2019, the prices of almost all semiconductors used in end products declined. A major factor in the decline in the selling price of end-use products was due to a decrease in the price of memory products.

Now that artificial intelligence, quantum computing, and advanced wireless networks are opening up new areas of semiconductor demand, US companies are poised to benefit from them. If history is any guide, the future will bring many applications that are unimaginable today. When the first handheld mobile phones and later smartphones appeared, it was thought that only executives would use them. Just over 40 years ago, the first handheld calculators with four functions were sold in aviation magazines for $500 each, the equivalent of $2,400 today. Back then, handhelds were actually receivers attached by wires to a desk or wall phone. Then, surprisingly, the calculator and phone functions of almost every smartphone sold today were free; the real value added was the camera and internet connection. None of this could have happened until the first innovations in semiconductors appeared.

And we can imagine a semiconductor future.

Smart cities use semiconductors to collect location, direction, and speed data from smartphones to coordinate traffic signals and optimize traffic flow. As vehicles become more autonomous in the future, they will be connected to traffic light cameras that can detect buildings, fallen trees, or, more importantly, children playing on the road. Thus 5G becomes even more important.

In the future, the same semiconductor technology will be used to build more efficient factories, connected via the Internet of Things (IoT), where robots will make assembly more efficient. Smart private clouds with 5G connectivity will provide the artificial intelligence needed to run intelligent factories.

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