3 Threats To The Semiconductor Industry

By John Oncea, Editor

A flourishing semiconductor industry is facing a few challenges at the moment. While the industry's long-term future isn’t in doubt, the potential for stumbles along the way must be dealt with.

The semiconductor industry, according to the Semiconductor Industry Association (SIA), saw global sales drop to $526.8 billion in 2023, an 8.2% decrease from 2022’s record high of $574.1 billion. Most of that damage was done early with sales picking up over the second half of the year.

“In fact,” SIA writes, “fourth-quarter sales of $146.0 billion were 11.6% more than the total from the fourth quarter of 2022 and 8.4% higher than the total from the third quarter of 2023. And global sales for December 2023 were $48.6 billion, an increase of 1.5% compared to November 2023 total.”

SIA president and CEO John Neuffer said, “With chips playing a larger and more important role in countless products the world depends on, the long-term outlook for the semiconductor market is extremely strong. Advancing government policies that invest in R&D, strengthen the semiconductor workforce, and reduce trade barriers will help the industry continue to grow and innovate for many years to come.”

Despite the downturn in 2023, double-digit market growth is projected for 2024 with global sales expected to reach $588 billion, a 13% increase from 2023. As far as long-term growth is concerned, SIA is predicting the semiconductor market to reach $1 trillion by 2030, driven by innovations in markets such as artificial intelligence (AI), automotive, and industrial sectors.

Despite the positive outlook, the industry faces several challenges that must be met to avoid the same decrease that occurred last year. These challenges include supply change disruptions, increasing technological complexity, and a talent shortage.

A Quick Look Back

Semiconductors are materials with electrical conductivity between that of conductors and insulators. Their development has revolutionized electronics and computing since their invention in the mid-20th century.

The first documented observation of a semiconductor effect, writes Cornell University, was by Michael Faraday in 1833, who noticed that the electrical resistance of silver sulfide decreased with temperature, unlike metals. However, the true potential of semiconductors wasn't realized until much later.

The pivotal moment in semiconductor history came in 1947 when John Bardeen, Walter H. Brattain, and William B. Shockley invented the transistor at Bell Laboratories, Britannica adds. This invention, which earned them the Nobel Prize in Physics in 1956, marked the beginning of the semiconductor revolution.

While early transistors used germanium as the semiconductor material, silicon became the preferred material in the 1960s due to its abundance, lower cost, and ability to operate at higher temperatures.

In 1959, the bipolar integrated circuit (IC) was invented by Jack Kilby and Robert Noyce, leading to the development of increasingly complex circuits including large-scale integration (LSI) in the 1970s, very large-scale integration (VLSI) in the 1980s, and ultra-large-scale integration (ULSI) in the 1990s.

In 1971, Intel released the 4004, the world's first single-chip microprocessor, paving the way for the personal computer revolution and the digital age.

In 1965, writes Tokyo Electron, Gordon Moore predicted that the number of transistors on a chip would double approximately every two years. This observation, known as Moore’s Law, has largely held and has driven the rapid advancement of semiconductor technology.

More recent developments include the development of compound semiconductors like gallium arsenide – and potentially graphene – for specialized applications, advanced manufacturing techniques that have allowed for the creation of nanoscale semiconductor devices, and continued research in areas such as quantum computing, graphene-based electronics, and organic semiconductors.

Semiconductors have become ubiquitous in modern technology, powering everything from smartphones to advanced scientific instruments. Their ongoing development continues to shape our technological landscape.

Threats To Future Innovation

Is the future of the semiconductor industry in jeopardy? No, it’s quite the opposite. SIA projects “the U.S. will triple its domestic semiconductor manufacturing capacity from 2022 – when the CHIPS and Science Act (CHIPS) was enacted – to 2032. The projected 203% growth is the largest projected percent increase in the world over that time.”

“Effective policies, such as the CHIPS and Science Act, are spurring more investments in the U.S. semiconductor industry,” said Rich Templeton, Chairperson of the Board at Texas Instruments and SIA board chair. These investments will help America grow its share of global semiconductor production and innovation, furthering economic growth and technological competitiveness. Continued and expanded government-industry collaboration will help ensure we build on this momentum and continue our next steps forward.”

But, as noted earlier, several threats could hinder the development and use of semiconductors, including supply chain disruptions. According to EIDA Solutions, this threat stems from several factors:

• The geographic concentration of manufacturing, especially in Asia
• Geopolitical tensions, particularly between the U.S. and China
• Natural disasters and extreme weather events affecting key production regions
• Shortages of raw materials and critical components
• Logistical challenges in transporting chips across international borders

The complex, globalized nature of semiconductor production makes the industry particularly susceptible to supply chain shocks. A disruption in one area can have far-reaching consequences throughout the entire ecosystem.

A second threat is technological complexity and miniaturization challenges. As the industry pushes toward smaller, more powerful chips, it faces increasing technological hurdles including:

• Difficulty in maintaining Moore's Law of transistor density doubling
• Rising costs and complexity in research and development
• Challenges in quality control and yield improvement for advanced nodes
• Need for new materials and manufacturing techniques to overcome physical limitations

These challenges pressure companies to innovate rapidly while maintaining cost-effectiveness and reliability. Pursuing innovative technology also requires massive capital investments, which can be risky in an uncertain market.

Finally, the industry is grappling with a significant shortage of skilled professionals. A high demand for experts in materials science, device physics, and process engineering exists across multiple high-tech industries. In addition, rapid technological advancements are outpacing workforce skill development and there are few qualified professionals with the specialized knowledge needed in emerging areas like AI chip design.

While not explicitly mentioned in the top three, it's worth noting that cybersecurity threats and the complex regulatory environment also pose significant challenges to the semiconductor industry. These factors contribute to the overall risk landscape that semiconductor companies must navigate.