the systems view blog

Applying our perspective to industry topics and trends

October 31, 2023

Semiconductor Shortage Update: The State of the Industry Going into 2024

The semiconductor shortage has been ongoing since 2022, causing a series of bottlenecks for chip manufacturers and the industries that rely on them.

Due to these barriers, the global semiconductor industry is predicted to decrease $67.4 billion in revenue from last year to present, necessitating a plan that combats the shortage and produces enough chips to meet the ever-lasting demand.

This blog post will detail the current state of the shortage, the reasons for its persistence, what the experts are saying, and will reveal 2024’s semiconductor outlook.

Why the Shortage Took Place

First, let’s take a look back at why the shortage happened in the first place. Though the shortage took center stage in 2022, supply chain issues began in 2021 during the tail end of the COVID-19 pandemic. The inability to meet orders with the existing supply worsened, and demand only continued to increase.

The semiconductor industry is cyclical, and shortages are not uncommon. But the pandemic accelerated the shortage, as consumers rushed to purchase technology and data-centers were overloaded due to video-calling and streaming. Semiconductor fabs simply couldn’t produce the numbers of chips that were required to meet the demand. Action needed to be taken in order to address the issue.

The CHIPs Act

As American chipmakers make up one third of global semiconductor sales, and meeting demand is critical to many national industries, President Biden signed the CHIPs Act in 2022, which provided a 25% tax credit for U.S. chipmaking and semiconductor facilities, as well as $52 billion in funding for new semiconductor programs. The U.S. government also brought Vietnam, a large producer for semiconductors, into the CHIP Act by introducing a $2 million investment into its facilities, training, packaging, and testing.

Since the Act was signed, many companies took the initiative to send applications to access the funds, with state incentives as a required additive to the federal funding. Some examples of applications from major companies include Micron, a memory chip manufacturer, who seeks to build a $100 billion chip factory in Syracuse and is applying for an additional $15 billion towards another factory in Idaho. A second application from GlobalFoundries, a Fab 8 Factory, is seeking funds for an expansion project to build another factory. Albany Nanotech, partnering with IBM, also applied for billions toward the creation of a national chip research center.

The Industry’s Varying Challenges

The shortage may have started with the pandemic, but the supply chain issue isn’t over. Demand continues to increase as a diverse range of industries are receiving an influx of chip orders and manufacturers are struggling to keep up. Currently, Taiwan, South Korea and China are able to combat the high production costs and lack of material, and are producing 90% of their previous normal.

As competition increases, manufacturers in other areas are turning towards improving packaging services to improve their response to high demand. COWOS, an advanced chip packaging methodology by TSMA, offers packaging, speed, and performance for chips specifically tailored for artificial intelligence usage. With the rapid explosion of AI, stacking and packaging this way could be a game changer for chip manufacturers. But although AI has become a key focus, many companies are having difficulty getting involved in AI production. AI requires GPUs to train itself for continuous improvement, but Nvidia controls about 80-95% of the market, making it near impossible for startups to enter this arena.

Demand for consumer products like smartphones and computers has dropped post-pandemic, and resulted in the oversupply of two types of chips—NAND and DRAM memory—as companies stockpiled chips during the shortage to build up their inventory. As inflation increased, the economy weakened and interest rates rose, thus chip sales have slowed. Samsung and SK Hynix, two of the world’s largest memory chipmakers, experienced a combined $12 billion first-half operating loss due to the oversupply.

On top of these issues, there has been a significant shortage of skilled technical workers. American semiconductor firms take twice as long to hire technicians and mechanical engineers compared to other industries. With funding from the CHIPs Act, fabs have the ability to invest in new employees, but long hiring processes will still slow down production. To fill positions, companies are partnering with trade schools and other institutions to create training programs, introducing an 80% increase in applications for full-time entry-level jobs, and a 40% increase in internships. Though applications have surged and firms plan to add 115,000 jobs by 2030, about three-fifths of the jobs may stay unfilled.

Expert Takes on 2024’s Outlook

Despite the significant semiconductor revenue decrease of $67.4 billion from 2022 to 2023, 2024 is expected to experience a $98.7 billion increase from this year. But when this revenue truly begins to turn upward is up for debate.

Many market analysts agree that the supply chain should be restored to normal capacity and production by the end of 2023 and continue for the next three to five years, with the shortage of AI chip supplies alleviated by the end of 2024. Intel’s CEO, Pat Gelsinger, expects the supply shortage to continue into 2024 due to inadequate manufacturing equipment—yet Intel’s major competitor, Qualcomm, disagrees. CEO Cristiano Amon believes the shortage would end before 2024 by diversifying the supply chain to meet demand. While taking advantage of COWOS packaging, Taiwan Semiconductor Manufacturing Company predicts AI chip production constraints will end in 1.5 years.

Despite the disagreements, companies are pressing on and building new facilities, mainly in China and Taiwan, to keep up with the production capacity and working towards moving past the shortage altogether.

The Right Partnership to Navigate Uncertain Times

With continuous semiconductor supply and demand issues, it is more important than ever to keep up with industry changes and have a plan for your own organization to maintain efficient operations. But to continually address complex challenges, it’s crucial to partner with an expert that understands evolving issues and how to solve them.

AES is your ideal partner with a breadth of knowledge spanning four decades of gas delivery systems for the semiconductor industry. With high-quality equipment, systems, and services, our team can help you transition to normalcy, and combat any challenges that shortages may bring.

Contact us to learn more about how our expert team can help you achieve success throughout times of change.


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