The Semiconductor Industry
A global semiconductor race takes place between the United States, Europe, and China. Each country or regional block attempts to control the semiconductor production and not overly rely on the other for vital technology and materials.
Semiconductor production is divided into three key areas: design, which includes research & development, intellectual property, and software, and companies like Nvidia
The supply chain constraints in the semiconductor industry are well known; they are likely the reason why the wait for your new car or dishwasher is now 5-6 months rather than the standard 5-6 weeks, and the excessive demand relative to the supply continues this month. In 2021, CIQ found that standard logic device lead times have increased by 75% on average. Most end-customers experience increases to 52 weeks. That means automakers and alike will experience wait times of up to a year from ordering the chips to placing them in cars. And executives in the semiconductor industry do not expect supply chain improvements until the second half of 2022 or the first half of 2023. Yet, the global semiconductor companies have seen their shares lose 10 percent or more of their value in the last couple of weeks amidst a broader pessimistic market shift.
While making that stance publicly, he recently traveled to Asia to meet with both TSM and Samsung. Interestingly, in March of 2021, Mr. Gelsinger said Intel would make its U.S. factories, which are expected to be completed in the coming years, specifically designed for outsourced manufacturing, making Intel a direct competitor to TSM and Samsung. What the outcome will be from those meetings in the coming weeks and months could be crucial for the semiconductor industry and the attempt of governments to control it.
It is favorable to the U.S. to have the largest chipmaker in the world produce not only its chips in U.S. factories, but if designers of chips like Nvidia and Advanced Micro Devices
This also happens amid the EU presenting its Chips Act – similar to the U.S. CHIPS Act – where the EU lays out the goal for the regional bloc to account for 20 percent of the global semiconductor market share by 2030. Currently, , it will not reach that goal unless it digs deeper into chip design.
The Race Continues
But the U.S. and Europe, which have formed a somewhat vague alliance on semiconductors, do not let their own companies roam freely either. The U.S. has already sued to block Nvidia’s deal to buy the British chip designer Arm Ltd., and Margrethe Vestager, the European Union’s antitrust chief, piled on just a few weeks ago, saying Brussels regulators are “deeply concerned” by the proposed acquisition. Arm’s technology is used by everyone from Amazon.com Inc.
Approval for the deal, announced more than a year ago, hinges on Nvidia’s ability to persuade Arm’s many global customers that it will remain neutral. Nvidia says the company won’t give itself priority over other customers. Whether the deal goes through or not remains to be seen, but neither the U.S. nor Europe seems to think that consolidation of the industry is what favors them.
The level of competition in the semiconductor industry between the United States, Europe, and China will only intensify in the future. Even though the U.S has for now an advantage in access to semiconductor technology, , China dominates avital industry that the U.S. hopes to one day lead: the production of EV batteries. China has 14 times the electric car battery-making capacity of the United States. Even though more output of semiconductors will be reshored from Asia to North America in the coming years, the United States and Europe will still rely on China for the electrification of vehicles and more.
Special thanks to Gustav Andersson, whose editorial and research skills significantly contributed to this article.
About Earl Carr
Earl Carr is the Chief Global Strategist at Pivotal Advisors based in New York City. His responsibilities include working closely with the firm’s CEO and President to manage the Global Research Team and to develop and execute the firm’s global thought leadership and cross-border business development mandate. Earl is the Editor of the recent book, “From Trump to Biden and Beyond: Reimagining US-China Relations” Palgrave-Macmillan Press, September 2021.