There are strengths and vulnerabilities in the global semiconductor supply chain. According to a report released by Boston Consulting Group and Semiconductor Industry Association (SIA) in April 2021, the globally integrated nature of the semiconductor supply chain has realised USD 45 billion–USD 125 billion in cost efficiencies each year, contributing to prices 35–65 per cent lower than they would otherwise be with fully localised supply chains, resulting in enhanced adoption of downstream products and services.
However, the industry has also become vulnerable to geographic concentration—with at least 50 points across the supply chain where one region held over 65 per cent of global market share. Disruptions, such as pandemics, natural disasters, materials shortages, or conflicts, could substantially impact the global chip supply chain.
Governments and companies are taking concerted action to increase resilience
The US CHIPS Act, signed into law in August 2022, committed USD 39 billion in grant incentives and a 25 per cent investment tax credit (ITC) for semiconductor manufacturing. The European Union (EU) unveiled the European Chips Act, Mainland China initiated the third phase of its Integrated Circuit (IC) Industry Investment Fund, and various other incentive programs emerged or expanded in Taiwan, South Korea, Japan, India, and other countries.
In parallel, companies have made significant investments, in both established and new regions. We project around USD 2.3 trillion in private sector investment in wafer fabrication in 2024–2032, compared with USD 720 billion in the 10 years prior to enactment of the CHIPS Act (2013–2022). The US is projected to capture 28 per cent of these capital expenditures, as opposed to the pre-CHIPS Act pace of investment, in which the US would have captured just 9 per cent of global capital expenditures.
Wafer fabrication will become more resilient
By 2032, we predict leading-edge wafer fabrication capacity to diversify beyond Taiwan and South Korea to include the US, Europe, and Japan. We expect the US to increase its fab capacity by 203% between 2022 and 2032, the largest increase in the world. As a result, the United States will reverse a decade’s long downward trajectory and raise its share of global aggregate fab capacity from 10 per cent today to 14 per cent in 2032. In the absence of action, the US share would have slipped further to 8 per cent by 2032.
New markets and innovative technology can support resilience in assembly, test, and packaging (ATP)
In ATP, Mainland China and Taiwan will continue to hold the largest share of global capacity. But with support from governments and foreign investors, we expect countries in Southeast Asia, Latin America, and Eastern Europe to expand ATP activity. The US State Department is supporting these efforts through International Technology Security and Innovation (ITSI) funding under the CHIPS Act.
Emerging market governments are actively pursuing their own strategies to attract ATP investment. In parallel, the development of advanced packaging— and associated innovations in chiplets—is also driving leading players to build ATP capacity in the United States and Europe, proximate to new wafer fabrication capacity
Other parts of the supply chain are also achieving a better balance
In design, core IP, and Electronic Design Automation (EDA), companies are diversifying where they hire, locate, and train talent. In semiconductor manufacturing equipment (“tools”), current industry leaders are establishing R&D and training centers in different regions. Although materials production remains concentrated in East Asia, we expect it to follow future fab capacity to the United States and Europe to realise cost and R&D benefits.
A strong global talent pipeline is as important as ever
As semiconductor companies pursue ambitious development plans in the context of a tight labour market, they rely on access to engineers and technicians to fill both high and mid-skill positions. Improving workforce development across established and emerging regions, while also advancing immigration policies to foster global talent flows, will be vital to the semiconductor industry’s future resilience.
Scale and openness are critical for resilience
To ensure new and diversified semiconductor facilities can operate at optimal capacity utilisation rates to generate a positive return on investment, it is vital for chip companies to maintain continued access to global customers and a global network of suppliers. Governments are increasingly imposing constraints on where chip companies can sell their products and services, or where they can source inputs and equipment. Fortunately, global trade in semiconductors continues to grow at a rapid pace, reflecting the global interconnectedness of the industry. The United States and allied governments need to maintain open trade and cooperation by recognising that extreme industrial policies, such as full country-level “self-sufficiency,” will undermine resilience, add cost, and stifle innovation.
Industrial policies have the potential to create additional bottlenecks that increase supply chain risk. Certain segments of the semiconductor supply chain are at risk if incentive programs and largescale industrial policies lead to non-market-based investment, which can result in overconcentration or oversupply. Government incentives should focus on enabling targeted, distributed, market-based investments. Sustained support for resilience is needed.
Over the coming decade, the semiconductor supply chain will continue to face challenges, including industry cyclicality and the rapid evolution of downstream demand (for example, in AI, EVs, industrial automation, and robotics). Supply-demand imbalances in mature node capacity could become more evident. It will be critical for policymakers in the United States and elsewhere to “stay the course” by extending current support as well as considering additional measures to strengthen resilience.
