January 25, 2022
January 25, 2022
Contributor: Meghan Rimol
It echoes a larger trend among chip manufacturers that are expanding their U.S. presence to meet future semiconductor demand amidst ongoing global shortages.
Since chip shortages began making waves in the technology world in early 2021, semiconductors continue to dominate news headlines on what seems like a weekly basis. Most recently, Intel announced that it will invest more than $20 billion in the construction of two new Ohio-based chip factories aimed at boosting production to meet the surging demand for semiconductors. They are just the latest in a series of vendors, including Samsung, Texas Instruments and GlobalFoundries, that are planning to build or expand their semiconductor manufacturing presence in the U.S. within the next three to five years.
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We spoke with Alan Priestley, Vice President Analyst at Gartner, to learn what’s happening in the semiconductor market, including why the U.S. is a hotbed for chip manufacturers and the cause and effects of ongoing semiconductor shortages.
The global automotive industry has, in particular, felt the reverberating effects of chip shortages. In the U.S., where automotive manufacturing is a key component of the national economy, the federal government responded throughout the last year with the introduction of legislation and new programs aimed at increasing domestic semiconductor manufacturing. Such programs attempt to curb future disruptions to the supply chain by reducing reliance on semiconductor fabrication plants based in Asia.
For example, the CHIPS for America Act, part of the National Defense Authorization Act for fiscal year 2021, authorizes $52 billion in funding to support the expansion of the U.S. semiconductor market. Irrespective of the shortages, Intel and other vendors need new fabrication plants to support the next generation of process nodes. As the U.S. continues to demonstrate its willingness to invest in semiconductor manufacturing, it is becoming an appealing market for such expansion.
The semiconductor market had a particularly strong 2021 with worldwide semiconductor revenue increasing 25% year over year to $583.5 billion. This marked the first time that the market rose above the $500 billion threshold. The growing 5G smartphone market was a significant driver of semiconductor demand, as was the continued strength of the worldwide PC market.
It’s important to note that the growth in the market is not due to high demand alone. The chip shortage led to logistics and raw material price increases, which in turn drove semiconductors’ average selling price (ASP) higher. Coupled with high demand, ASP increases contributed to the overall growth of the market in 2021. All 10 of the top semiconductor vendors experienced revenue growth from 2020-2021, with some reaching growth rates upward of 50% for the year.
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According to the Gartner Index of Inventory Semiconductor Supply Chain Tracking (GIISST), the fourth quarter of 2021 saw a modest improvement in semiconductor inventories over the previous three quarters, but inventories have not yet returned to normal levels. We expect they will recover gradually and enter the normal zone by the second quarter of this year. However, new restrictions and supply chain disruptions caused by the Omicron variant could further delay the market’s recovery. In a pessimistic scenario, this would mean shortages could last into the fourth quarter of the year.
As a result of the shortages, businesses can expect to see continued extension of PC shipment lead times. We may also see delays in new product launches or even defeaturing of products — for example, lowering the memory or storage capacity of PCs and mobile devices. Those looking to procure devices for their enterprises should watch out for new lockdown announcements, restrictions on free movement of material and workforce and delays in capacity expansion. These may be early indicators that semiconductor shortages will extend further into 2022.
As it will take years before new U.S. semiconductor manufacturing facilities are fully operational, such expansion will not alleviate the current chip shortage. It will, however, help support the production and delivery of chips for U.S.-based electronics and automotive manufacturers. Still, it’s important to note that building new leading-edge fabrication plants in the U.S. does not make the region self-sufficient. Electronics products rely on chips from a wide range of fabricators, and most semiconductors are integrated into products in factories based outside of the U.S., so this will continue to be a largely global market.
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Recommended resources for Gartner clients*:
Forecast Analysis: Electronics and Semiconductors, Worldwide
Semiconductor Forecast Database, Worldwide, 4Q21 Update
Forecast Analysis: Semiconductor Capital Spending and Manufacturing Equipment, Worldwide
Semiconductor Inventory Analysis, Worldwide, 4Q21 Update
*Note that some documents may not be available to all Gartner clients.