A $ 3 trillion investment is needed to meet the chip demand

With the effect of the new type of coronavirus (Kovid-19) epidemic, starting from the automotive sector, taking the leading role of a global “bottleneck”, chips stand out as indispensable elements of today’s economies.

While the chip is described as printing electronic circuits using high technology on a semiconductor material, chips are used in almost all devices operating with electricity today.

Chips are used in credit cards, phones, home electronics, tablets, computers and automobiles.

While the global problem in chip supply, which is the “backbone” of the digital economy, which started in automotive and spread to sectors such as electronics, continues, manufacturers are working hard to meet the increasing demand.

While the chip shortage is expected to cause billions of dollars in damage by causing disruptions in production, industry representatives state that the chip shortage cannot be solved in a short time.

Chip production requires high R&D and capital expenditure

While chips, also known as “semiconductors”, are seen as one of the competitive factors between countries, chip manufacturers intensify their investments in order to meet the increasing demand.

While auto factories in many countries of the world are shutting down due to “chip scarcity”, many countries want to establish a modern chip factory so that the local industry is supplied in a timely and adequate manner in the future.

Semiconductors, which are highly complex to design and manufacture, require a high rate of both R&D and capital expenditure.

The report of the Semiconductor Industry Association (SIA) and Boston Consulting Group reveals that to meet the growing demand for semiconductors in the next 10 years, an investment of approximately $ 3 trillion will be required globally in R&D and capital expenditures.

According to the report, the US leads in R&D-intensive activities such as electronic design automation, chip design and advanced manufacturing equipment, while East Asia stands out in chip manufacturing, which requires access to solid infrastructure and skilled workforce, as well as large capital investments supported by government incentives.

China, on the other hand, is a leader in assembly, packaging and testing, which requires relatively little skill and more capital, while investing strongly in expanding the value chain.

4th most traded product

While chips are the 4th most traded product in the world after crude oil, refined oil and cars, the USA and China, which account for 25 percent of global consumption, stand out as the largest markets in this field.

Experts underline the need for collaboration between industry representatives and governments to facilitate global access to markets, technologies, capital and capabilities, and to make the supply chain more resilient.

Approximately 75 percent of chip production capacity is concentrated in China and East Asia, a region that is significantly subject to high seismic activity and geopolitical stresses. Also, most of the world’s most advanced semiconductor manufacturing capacity is located in South Korea and Taiwan.

It is stated that if natural disasters, infrastructure problems or global conflicts occur in these regions, it may cause serious interruptions in chip supply.

Fully “self-contained” localized supply chains are also predicted to create significantly higher costs and lead to a 35-65 percent increase in semiconductor prices.

Companies seek support

Semiconductor companies must continue to invest more than $ 90 billion in R&D annually to develop increasingly sophisticated chips to power applications such as artificial intelligence, the internet of things, or autonomous vehicles. This amount corresponds to about 20 percent of global semiconductor sales.

Companies such as TSMC, Samsung and Intel produce advanced semiconductors in the world. Intel is seeking $ 10 billion in support from policy makers to set up and manufacture factories in Europe.

Demand for chips is expected to grow tremendously in the next few years, with US chip maker Intel anticipating a deal with European countries for this new factory this summer.

The industry may experience a shortage of highly skilled workers in the years to come.

On the other hand, highly skilled employees are critical for an R&D-intensive industry such as chips. However, it is stated that the industry faces a risk of a shortage of highly skilled employees that could limit the pace of innovation in the coming years.

It is noted that the shortage of talented employees may significantly undermine the industry’s ability to sustain rapid and uninterrupted innovation for years to come, although it does not threaten large-scale disruption to its operations.

It is emphasized that governments should implement market-oriented incentive programs against the risks of global supply cuts. It is stated that steps should be taken to further encourage global trade and international cooperation on R&D and technology standards.