Can you imagine it? The chip industry that will suffer the same fate as the steel industry, namely chronic overcapacity. That’s what GaveKal, one of the most prestigious research firms in the investment world, has written in its analysis ‘The Future of Chips is overcapacity’.
For now, the acute shortage of semiconductors is expected to persist for a long time, with increasing supply problems for numerous sectors, including the automotive industry. But in the longer term, the opposite problem looms. This is because more and more countries are investing in high-technology chip production. They are doing so for both economic and political-strategic reasons.
Opportunity seized
Producers and governments, for example, are seizing the opportunity of the lack of sufficient semiconductors to make major investments in the development of chip capacity. A factor here is that governments and administrations believe that the national interest of ‘self-sufficiency’ is at stake. Nation states want to reduce their vulnerability to third-party technology dependence and thereby strengthen national security.
Gina Raimondo, the U.S. Secretary of the Economy, recently stated that “the lack of domestic production of semiconductors creates both national security risks and economic security risks.”
Chinese efforts to speed up the construction of new chip factories mean that the country can now effectively compete with global semiconductor producers, much to the displeasure of the U.S. Under the leadership of President Biden, the U.S. is trying to stop the long-standing exodus of chip and semiconductor production to the Asian superpower. To that end, he has proposed a 52 billion federal injection over the next ten years, which was accepted by a Senate majority this week, according to Gavekal analysts (see attachment).
Reaching limits
In time, the overcapacity of chip production will be exacerbated by the fact that Moore’s Law (the observation that the number of transistors in a dense integrated circuit (IC) doubles about every two years) is effectively reaching its limits. The consensus in the global industry is “that one can no longer try to map out targets beyond 2030,” according to ‘The International Technology Roadmap for Semiconductors’, a set of documents produced by a group of semiconductor industry experts, representing organisations which include the Semiconductor Industry Associations of Taiwan, South Korea, the United States, Europe, Japan, and China.