2022年半导体行业战略分析报告

©PhonlamaiPhoto/GettyImages

April2022

SemiconductorsPractice

Strategiestoleadinthesemiconductorworld

Semiconductorcompaniescantakedifferentpathstocapturenewopportunitiesasdemandcontinuestooutstripsupply.

byOndrejBurkacky,MarcdeJong,andJuliaDragon

2Strategiestoleadinthesemiconductorworld

Basedonthenumbersalone,thisappearstobe

Tohelpsemiconductorcompaniesdevelopa

theidealtimetobeasemiconductorcompany.

comprehensiveplanforsuccess,wequantifiedthe

Withchipdemandsoaring,annualrevenue

benefitsofcapacityexpansiontodeterminewhen

increasedby9percentin2020andby23percent

constructionmaybejustified.Wealsoidentified

in2021—farabovethe5percentreportedin2019.

otherstrategiesthatcanhelpsemiconductor

Evenbeforethepandemic,capitalmarketswere

companiesimproveproductivityandrevenues,

rewardingtheindustry’ssurgingprofitability,with

suchasincreasingthefocusonleading-edge

semiconductorcompaniesdeliveringanannual

chips,pursuinginnovationsthatgobeyond

averageof25percentintotalshareholderreturns

nodesize,makingboldlong-terminvestments,

(TSR)fromtheendof2015totheendof2019.

developinggreaterresilience,improvingthe

Lastyear,shareholderssawevenhigherreturns,

talentpipeline,andcollaboratingwithinthe

averaging50percentperannumasremotework

semiconductorecosystem.

becamethenormandconsumersandbusinesses

uppedtheirtechnologypurchases,helpingtoacceleratethedigitalrevolution.

Behindthescenes,however,today’ssemiconductorcompaniesarefacingahostofchallenges.Evenwithfabsoperatingatfullcapacity,theyhavenotbeenabletomeetdemand,resultinginproductleadtimesofsixmonthsorlonger.Theongoingsemiconductorshortagenowroutinelymakesheadlines,especiallywhenitforcesautomotiveOEMstodelayvehicleproduction.What’smore,semiconductorcompaniesaregrapplingwithincreaseddesigncomplexity,atalentshortage,andpandemic-relatedissuesthataredisruptingthecomplex,globalsupplychainthatlinksplayersindifferentmarkets.Theshortageisnowsoconcerningthat

Understandingthe

semiconductorindustry

Althoughheadlinesaboutthesemiconductorshortageoftendiscussthesituationinbroadterms,theindustryincludesmanydifferentsegments:memory,logic,analog,discrete,opticalcomponents,andsensors.Individualsemiconductorcompaniesandtheirmanufacturingsitestendtofocusonselectsegments.Theirendcustomers,bycontrast,typicallyrequireproductsfromallsemiconductorsegmentsandthusrelyonmultiplesuppliers.Theabsenceofasinglespecializedchipcanbringthemanufactureofendproductstoahalt,evenifallothercomponentsareavailable.

itispromptingmorelargetechnologycompaniesandmajorautomotiveOEMstomovechipdesignin-house—atrendthatcouldhavemajorimplicationsforthemarket.

Inotherindustries,manufacturersoftenrespondtoshortagesbyincreasingoutput.Butfabconstructionandproductionramp-upforsemiconductorsareextremelycostlyandtimeconsuming—oftenrequiringayearforsignificantexpansionormorethanthreeyearstobuildanewfacility—whichmakesitdifficulttoincreasesemiconductorvolumesquickly.Whileincreasingcapacitymaysometimeshelp,itwillnotproduce

Theproductionprocessisalsomorecomplexandmultilayeredthanheadlinewritersoftenchoosetoacknowledge.Whenallproductionphasesareconsidered,theentireprocessextendsfrom

materialprocurementtoback-endmanufacturing(Exhibit1).(Somemaychoosetotakeanarrowerview,inwhichthevaluechainbeginsatthedesignphase.)Foreachproductsegment,mostcompaniesspecializeinthreeorfewerstepsandmayoutsourcesomeactivities,suchasprinted-circuit-boardassembly,topartners.Afterback-endmanufacturing,semiconductorsbecomepartoftheelectronicsvaluechain.

immediateresultsandtypicallyrequiresasignificantinvestmentformanyyearsbeforeadditionalrevenues—ifany—willappear.

Theindustryhasbecomeincreasinglyconsolidatedwithinmanyofthesevaluechainsegmentsoverthepast20years,andafewchampionshaveemerged

Strategiestoleadinthesemiconductorworld3

Micro-

Mobile

5

4

3

1

8

7

6

2

Exhibit1

Thesemiconductorvaluechainextendsfrommaterialprocurementtoback-endmanufacturing.

Valuechainareas

Electronicsvaluechain

Broadsemiconductorvaluechain

Narrowsemiconductorvaluechain

End

End

Backend

Packagingandtesting:

IDMor

outsourcedsemi-conductorassemblyandtest(OSAT)

Wafer

IP¹and

Capitalequipment

Wafer

PCB

Design

Chipdesignwithintegrat-eddevicemanufacturer(IDM)orwithout(fab-less)produc-tionassets

Materials

product

End-productdevelopment,assembly,salebyorigi-nalequip-mentmanu-facturers(OEM)orsuppliersperapplication

product

Componentsrelatedtoprintedcir-cuitboard(PCB)assembly

foundry

Front-endmanufactur-ing:IDMorcontractmanufactur-ing(foundry)

EDA²

Assemblyofelectronicscomponentsbyelectronicsmanufactur-ingservice(EMS)ororiginaldesignmanu-facturer(ODM)part-

IPblocksmostlyfordesign/

manu-

facturing

Software

Wafer

foundryandback-endmanu-facturingequipment

foundry

andback-

endmanu-

facturing

materials

forchipdesign,

EDA

ner

9

Examples

Raw

silicon

wafer

Lithographytool

¹Intellectualproperty.²Electronic-designautomation.

Digital-

signal-

processor

IPblock

processor

(design)

Processed

wafer

Packagedmicro-

processor

unit

PCB,capacitor

AssembledPCB

phone,

electronic

controlunit

(car)

ineacharea(Exhibit2).Asaresult,expertiseis

oftenconcentratedincertainmarkets(forinstance,

theUnitedStateshasthehighestpresenceof

fablessplayers—thatis,chipdesignonly—and

equipmentmanufacture).Nolocalmarkethasallthe

capabilitiesrequiredforend-to-endsemiconductor

designandmanufacturing,andtheconcentrationof

expertisehascreatedawebofinterdependencies

alongthevaluechain(Exhibit3).

Theconcentrationofexpertiseconveyssome

advantagesbecauseitoftenallowscompanies

toshareresources,suchaspowersupply,even

iftheyarerivals,whichhelpskeepcostsdown.

Employeeswiththerightskillsmayalsogravitate

toexpertiseclusters,creatingastrongtalent

pool.Buttheinterdependenciesalsomean

thatlocalshockscanhaveaglobaleffect,such

aswhenafloodinThailandin2011stopped

productioninmultiplememorybackendfabsin

thecountryandpushedpricesofmemorychips

30percenthigher.

Factorsbehindthesemiconductorshortage

Semiconductorfabswerealreadyoperatingatclosetofullcapacitybeforethepandemic

becausetheytrytoavoidinvestinginnewcapital

equipmentbeyondthatrequiredtomeetdemand

fromcustomers.Uncertaintradedynamics

alsomotivatedseveralplayerstoincreasetheir

semiconductorstocklevelstosecuresupply.The

pandemic,whichspurredpurchasesofcomputers

4Strategiestoleadinthesemiconductorworld

1

36

20

42

2

2

1

2

1

2

1

18

14

63

2

3

3

3

Exhibit2

Thesemiconductorindustryhasbecomeincreasinglyconsolidatedamongcertainmarketsegments.

5,000

Evaluationofsupplier

concentrationacross

Foundry

4,000

semiconductor

valuechainsteps,

Herindahl–Hirschman

index¹

3,000

Wafer

2,000

Equipment

1,000

Integrateddevicemanufacturer/fabless

0

2001200720132020

¹TheHerfindahl–HirschmanIndex(HHI)measuresmarketconcentration.AmarketplacewithanHHIof<1,500=lowconcentration;anHHIof1,500–2,500=moderateconcentration;anHHIof≥2,500=highconcentration.ThehighertheHHInumber,thelesscompetitivethemarket.

Source:Gartner;Omdia;McKinseyanalysis

Exhibit3

Nolocalmarketorcompanyhasallthecapabilitiesrequiredforend-to-endsemiconductordesignandmanufacturing.

2020semiconductorsalesalongthevaluechain,¹%share

100%

Equipment

6

25

65

Electronic-

designautomation²

1

40

30

28

Materials,

excludingwaferfab²

19

66

12

Wafer

materials

17

19

63

Intellectual

property²

38

12

46

FablessIntegrated(chipdesigndevice

only)manufacturers

21

52

12

15

Assembly,

testing,and

services

76

11

8

Pure-play

foundry

Taiwan

China

RestofworldEurope

US

¹Figuresmaynotsumto100%,becauseofrounding.

²Basedon2018sales.

Source:Gartner;Omdia;McKinseyanalysis

Strategiestoleadinthesemiconductorworld5

andotherdevicesforremotework,thentookdemandtoevengreaterheights.

ForautomotiveOEMsandothercompanies,oneresponsehasbeentodeviatefromtheirtypical“justintime”ordering.Instead,theyhavestartedtoordermorechipsthannecessarysothattheycanbuildtheirinventoryandhavereservesonhand.Intheshortterm,however,thismovehasmagnifiedthegapbetweensupplyanddemand.Overthelongerterm,somecompaniesmayconsiderrequestingbinding“takeorpay”contractsinwhichtheycaneitheracceptacertainquantityofchipsorpayafeeiftheydeclinetodoso.Thisarrangementhelpscompaniesalignchipdemandwithmanufacturingcapacitymoreaccurately.

Customersmayalsoconsidercoinvestingwithsemiconductorcompaniesinprojectsdesignedtoincreasefabcapacity.Suchprojectscanallowsemiconductorcompaniestoreducetheirup-frontinvestment,relievingpotentialcapitalexpenditureconstraints.Butcoinvestingwillnotimmediatelyimprovethesemiconductorshortage,giventhelongtimelinesforfabconstructionandproductionramp-up.

Achievingandmaintainingaleadingpositioninthesemiconductorindustry

Despitethecurrentuncertainty,thesemiconductorindustryispoisedforadditionalgrowth,as

moreandmoreproductsandservicesbecomeincreasinglydigitized.Morethanhalfofthesemiconductorindustry’scurrententerprisevalueisbasedonearnings-growthexpectations,asisreflectedincurrentvaluations:investorsexpectlong-termgrowthof7to8percentperannum,assumingtherecentmargintrajectory.

Butwhatstrategiescanhelptheindustrymeetthesetargets?Whiletheanswermayvarybasedonacompany’sstrengthsandweaknesses,allsemiconductorcompaniescouldbenefitbyrethinkingtheirapproachinsixcriticalareas:technologyleadership,long-termR&D,resilience,talent,ecosystemcapabilities,andgreatercapacity.Thefinalareaherewillnotprovideimmediatebenefits,ofcourse,butitcouldbeanimportantpartofalong-termstrategy.Wehavequantifiedthecostsassociatedwithfabsofdifferentsizestohelpsemiconductorcompaniesdetermineifcapacityexpansionisrightforthem.

Semiconductorcompaniescouldbenefitbyrethinkingtheirapproachinsixcriticalareas:technologyleadership,long-termR&D,resilience,talent,ecosystemcapabilities,andgreatercapacity.

6Strategiestoleadinthesemiconductorworld

Exhibit4

Semiconductorcompaniesofallsizescanhaveastrongoperatingmargin.

Semiconductorindustry(fabless,integrateddevicemanufacturer¹),performance,byrevenuequartile

2020

operatingmargin,%

50

40

30

20

10

0

–10

–20

–30

–40

–50

QUARTILE4

QUARTILE1

Averageoperating

margin

Quartile1

19.1

Quartile2

7.5

Quartile3

9.2

Quartile4

1.4

$10$100$1,000$10,000$100,000

2020semiconductorrevenues,

$million(logarithmicscale)

¹Outlieradjusted(samplesremovedwithsizablenegativeone-timeeffectsandsizablenonsemiconductorsales).

Source:Gartner;Omdia;McKinseyanalysis

Basedonarecentanalysisofintegrateddevicemanufacturers(IDMs)andfablessplayers,webelievethatstronggrowthispossibleforallsemiconductorcompanies,regardlessofsize(Exhibit4).Althoughthelargestcompaniesgeneratedthegreatesteconomicprofit,therearealsosmall,nicheplayerswithhighoperatingmargins.

Technologyleadership

Acrossallproductsegments,semiconductorcompaniesstriveforinnovationbecausefaster,morepowerfulchipsandleading-edgeequipmenthelpgenerategreatersalesinall

valuechainsegments.Thecompanieswiththemostdistinctivetechnologiesandproductsarelikelytobecometheglobalchampions.Inacross-industryanalysis,thesemiconductorsectorwassecondonlytopharmaceuticalsandbiotechnologyforR&Dspending—calculatedasapercentofsales(Exhibit5).Whenweexaminedindustrychampions,wefoundthattheyoftensucceededbyincorporatingthefollowingstrategiesintotheirR&Dplans.

Afocusonleading-edgechipsandthemachineryrequiredtocreatethem.Forsemiconductor

Strategiestoleadinthesemiconductorworld7

Pharmaceuticals

andbiotechnology

Exhibit5

AverageR&Dspendinginthesemiconductorindustryisveryhigh.

AverageR&Dspendingintensityin2020,%ofsales

15.4

14.2

11.8

9.0

5.1

4.8

Softwareandcomputerservices

Electronicsandelectricalequipment

SemiconductorsIThardwareAutomotive

Source:EUIndustrialR&DInvestmentScoreboard;ICInsights

3.8

4.0

3.0

General

industries

Aerospace

anddefense

Healthcaresystems

manufacturers,creatingsmallernodesizeshastraditionallybeenthepathtosuccess.Fordecades,

thenumberoftransistorsonachipdoubledeverytwoyears—theratepredictedbyMoore’slaw—assemiconductorcompaniesconstantlydecreasedthesizeoftechnologynodes.Inrecentyears,however,therateofdoublinghasslowedbecausetechnologicalchallengesincreaseastheindustryapproachesthephysicallimitsforthenumberoftransistorsthatcanbeincludedonasinglechip.Nevertheless,companieswillstillattempttopushthetechnology,becauseaveragedemandgrowthforchipswiththesmallestnodes—sevennanometers(nm)andbelow—willbefourpercentagepointshigherthansupplygrowththrough2025.

Theimportanceofnodesizevariesbydevicesegment,andthedemandforleading-edge

chipswillgrowmuchmoreinsomecategoriesthaninothers.Sincecustomersexpecthighperformanceforcompute-intensiveapplications,semiconductorcompaniesthatdesignchipsinthesmallestavailabletechnologynodemayhaveadistinctadvantageintheseareas.Inothersegments,largernodesareoftensuitablebecausecustomersaresatisfiedwithcurrentchipperformanceorrequirespecificfeatures,suchasfastswitching,andseelittleadvantageinmovingtosmallernodesizes.

Equipmentmanufacturersmaycapturegrowthbycreatingthemachineryrequiredtoenableleading-edgeinnovations.Inaddition,theycouldcreateequipmentthatincludesadvancedtechnologiestooptimizeprocesscontrol,aswellasyieldmonitoringandenhancement.

8Strategiestoleadinthesemiconductorworld

2

1

2

1

Demandforspecificmaturenodes(40to65nm)

isalsohigherthanaverage,sincetheyareused

inautomobilesandothercriticalproducts.Their

profitmarginshistoricallytendtobelower,

however,makingitsometimesdifficulttosupport

abusinesscaseforexpandingmature-node

capacity.Ifnewfabsarebuilt,thehighup-front

costswillmeanthatcompanieswillinitiallysee

lowerprofitsfromthemthantheywillfromexisting

fabswithdepreciatedassets.Toensuresolid

returnsoverthelongterm,playerscouldworkto

gethardcommitmentsfromtheircustomersto

guaranteethatnewfabswillhavehighutilization

onceonline.

Differentiationthrough‘morethanMoore.’Beyond

reducingstructuresize,somesemiconductor

companiesarepursuing“morethanMoore”

innovationstomaketheirproductsdistinctive.

Some,forinstance,aredevelopingsemiconductors

basedonmaterialsotherthansilicon.Compound

semiconductormaterials,suchassiliconcarbide

(SiC)andgalliumnitride(GaN),areparticularlywell

suitedforapplicationsrequiringbothhighpower

andfrequency,sincetheylimitenergylossandallow

forthecreationofsmallerformfactors.

Thepushforincreasedsustainabilityand

electrificationisspurringtheadoptionofSiCand

GaNpowerdevices,andthecompoundannual

growthrate(CAGR)forbothcategoriesisexpected

tofarexceedthe5percentgrowthforecasted

forthepowersemiconductormarketasawhole

(Exhibit6).Inthebase-casescenario,annualmarketgrowthisexpectedtobe23percentforSiC

devicesand40percentforGaNpowerdevices.

Equipmentmanufacturerscouldpromoteinnovation

andcapturenewopportunitiesbylaunching

machineryspecializedforprocessingSiCorGaN.

Exhibit6

Semiconductorindustryexpertsexpecthighgrowthratesforbothgalliumnitrideandsiliconcarbidepowerdevices.

Projectedrevenueforgalliumnitride(GaN)andsiliconcarbide(SiC)powerdevices,¹$billion

GaNpowerdevices

3

Upside

Base

Conservative

0202120222023202420252026

SiCpowerdevices

3

Upside

Base

Conservative

0202120222023202420252026

Source:Expertinterviews;KevinAndersonandRichardEden,SiC&GaNpowersemiconductorsreport,Omdia,June19,2020;GaNpowertransistorsalesdevelopment,Omdia,December2020;YolePowerDevicesSummary–2019-25;YoleTotalPowersemi-market—2019

Strategiestoleadinthesemiconductorworld9

Giventhatdemandsforthesemachineswillbelowerthanthatformainstreamleading-edgeequipment,manufacturersshouldcarefullyreviewthebusinesscasefordevelopingtheseinitiallynicheproducts.FoundriescouldprovideaccesstoSiC-andGaN-basedinnovationtoabroaderbaseoffablesssemiconductorplayers.

Afocusoninnovativefeaturesmaybeparticularlyvaluableinhigh-growthsegments,suchastheInternetofThings,becauseithelpsdifferentiateproductsfromcompetitors(forinstance,byoptimizingthefastswitchingrequiredinseveralradiofrequencyapplications).SeveralIDMsandfoundriesarealreadydevelopingsuchproductsinmaturenodes.

Advancedpackagingofsemiconductorcomponents.Thesetechniquesprovidebetterheatmanagementduringoperations,allowingcompaniestoplacesemiconductorcomponentsclosertogether.Withagreaternumberofconnectionpoints,thesechipsprovidehigherdata-transferratesandbetterperformance.Inaddition,advancedpackagingallowssemiconductorcompaniestocombinematureandleading-edgechipsinanintegratedsystemforapplicationsthatneedbothtypes,whichlowerscosts.Thistrend,calledheterogeneousintegration,enablescompaniestocombinemultiplesmallerchipsinsteadofmakingonelargechip.Largerchipsoftenhaveloweryield,withthedroptypicallyscalingwithchipsize,soheterogeneousintegrationmaydeliverprofoundcostbenefits.

Theadvanced-packagingmarketwasvaluedat$20billionin2020,andthisfigureisexpectedtoriseto$45billionby2026,whenitwillrepresentabout50percentofpackagingrevenues.Althoughleading-edgeIDMsandfoundriesaredrivingpackaginginnovations,advancedtechniquesalsocreateopportunitiesforotherplayersacrossthevaluechainbecausetheyboostdemandfornewmaterialsandnewequipment.

Specializedapplications.Application-specificintegratedchips(ASIC)integratewell-defined

algorithmsandfunctionsintotheirchipdesignandarecustomizedforspecificpurposes,suchasforuseinartificialintelligenceandcloudcomputing.Thesegmenthasrecentlygrownsignificantlyandcouldofferagoodopportunityforadditionalplayers.Smallcompaniesthatwanttofocusondevelopingspecializedsemiconductorscouldstillfindtheirproductsinhighdemand,eveniftheircustomerbaseisrelativelysmall.

ThecustomerbaseforASICsincludesmanydifferentcompanies,suchasautomotiveOEMsandhyperscalers,andtheirneedswillvary.SomecustomersmaydecidetodesigntheirownASICsin-housetoimprovecustomization,differentiatetheirproducts,andreduceleadtimes.Theywouldthenworkdirectlywithfoundriesfortheirmanufacturingneeds.Otherplayers,typicallysmallerones,prefertohaveanASICpartnerthatisresponsibleforallstepsneededtomovefromdesigntoendproductbecausethisrequiresmanyspecializedcompetencies.

Bold,long-termR&Dinvestments

R&Dcycleswithinthesemiconductorindustrycanbeverylong,sometimesextendingbeyondtenyears,andcompaniestypicallydonotseeimmediatereturns.Historically,somegovernmentshavehelpedfundsuchwork,sincemostpubliclylistedcompaniesdonotalwayshavetheappetiteforsuchlong-terminvestments.

Althoughmanyinvestorsmaybeskepticalofprovidingfundingoveranextendedperiod,semiconductorcompanieshaveproventhatbold,long-terminvestmentscaneventuallydeliversubstantialreturns.Forinstance,ASMLspent17yearsandabout$7billiondevelopingitsextreme-ultravioletlithographytechnology,includingtheabilitytoproducethetechnologyatvolume.ThelongR&Dtimelinewasworthwhile,sincethetoolisnowamajorsourceofrevenueforASML.Similarly,Armspentsixyearsdevelopinga64-bitcomputingprocessorthatisnowasignificantsourceofthecompany’srevenue.

10Strategiestoleadinthesemiconductorworld

Othercompaniesthatinvestheavilyinlong-termR&Dprojectscouldhelppromotetechnologicalleaps—oftenfarmorethannodereduction—thatcouldhelpimprovesociety.Thecreationofspecializedchipsforquantumcomputing,forexample,couldimprovepharmaceuticaldevelopment,sustainabilityprograms,andotherinitiativesacrossindustries.Inmostcases,semiconductorcompaniesarefocusingonincreasinginvestmentinareaswheretheyarealreadystrong,ratherthanbranchingintonewareastoextendtheirtechnologicaladvantageevenfurther.

Greaterresilienceinavolatileworld

Likeotherbusinesses,semiconductorcompaniesandotherindustrystakeholdersarestillattemptingtodevelopnewstrategiestomanagethehugedisruptionsarisingfromtheCOVID-19crisis,includingsupplychainproblemsandshiftingdemand.Onethingisclear:thepostpandemicworldwilllikelyremainmorevolatile,whichwillrequiregreaterresiliencefromcompanies.

Inmarketswithalargemismatchbetweenlocalsupplyanddemand,semiconductorcompaniescouldconsiderdedicatingmorecapacityforthenodesthataremosturgentlyneededtoprovidesomeshort-termrelief.Forinstance,Europeanendcustomerslargelyrequiresemiconductors

withnodeslargerthan28nmforautomotiveandindustrialapplications,whilecustomersintheUnitedStateshaveamuchhigherneedforsemiconductorswithnodessmallerthansevennm.Additionalcapacitymightbestbetailoredtomeetsuchneeds.Inadditiontohelpingthelocalmarket,thesemoveswouldincreasesupplychainresilienceandlessenintermarketdependencies.

Semiconductorcompaniescouldalsohelpdecreaseleadtimesbybecomingmoreagileandresponsive,suchasbyexpandingtheirsupplierbase,strengtheningpricingstrategies,improvingchipallocationtocustomers,workingwithindustryorganizationstoexploresolutionstothechipshortage,andinvitingcustomerstocoinvestinthedevelopmentofcustomchips.

Thecurrenteconomicsituationcallsforincreasedagility.Whiledemandforsemiconductorsisstrongnow,adownturninmajormarkets—alwaysapossibility—couldnecessitatenewstrategiestominimizecapitalexpendituresandmaximizerevenues.Forinstance,semiconductorcompaniesmightconsiderrevisingtheirdown-paymentpoliciesandchargecustomersupfrontfordedicatedcapacity,ortheymightrequirecustomerstoprovidebindingdemandforecastsmorethan18monthsinadvance.

Withgreatercompetition,semiconductorcompanieswouldbewisetoincreasetheireffortstorecruittalent,includingstaffwithexpertiseinprocesstechnologyandoperationsmanagement.

Strategiestoleadinthesemiconductorworld11

5

864

278

166

110

80

58

45

Astr