Semiconductors’ future: Big growth, global risks

After overcoming supply chain disruptions caused by the covid-19 pandemic, and weathering a downturn in 2023, the semiconductor industry is on track for robust long-term growth, according to PwC’s State of the Semiconductor Industry report. Driven in part by AI and IOT technologies, automotive applications such as autonomous vehicles, and a massive demand for real-time data processing, the global semiconductor market is forecast to exceed US$1 trillion by the end of the decade. 

Players in the chip industry have made strides in securing so-called supply-chain sovereignty, partly by investing in local production, but the semiconductor ecosystem as a whole remains a global one, with ongoing dependence on transnational supply and distribution networks. In an era of escalating trade tensions and regional conflict, tech companies seeking to seize this growth opportunity will need to take concrete steps to build resilience against geopolitical risks. The PwC report suggests starting with four moves:

1. Diversify manufacturing and sourcing. Leading players are adopting multi-fab and multi-sourcing strategies to minimise operational and supply chain disruptions. By diversifying their production sites and suppliers, companies can eliminate choke points and reduce the risk that geopolitical events will affect their operations.
2. Develop an enhanced risk outlook. Insulating against geopolitical uncertainty starts with clearly identifying, assessing and mitigating the risks to which semiconductor components—including modules and subcomponents—are exposed throughout their life cycle. But assessment and mitigation are only as effective as the criteria on which such actions are based. Make sure your organisation’s risk outlook is far-reaching, encompassing export restrictions, imminent regulatory shifts, and political and societal instability in countries where the company operates or intends to. 
3. Respond nimbly to product-localisation pressures. Moves by governments to fully or partially localise chip production present a special challenge. Though some companies may be able to meet that challenge reactively, by adjusting their products only when necessary, other companies will need to develop a proactive strategy. That can include regionally differentiated products or using drop-in replacements for individual semiconductors to meet local requirements. 
4. Strengthen the talent pipeline. Localisation pressures aren’t just a production issue. According to a recent studyOpens in a new window by Strategy&, PwC’s global strategy consultancy, Europe’s semiconductor sector alone will need around 350,000 more professionals by 2030 to achieve the regional target set by the European Union of a 20% global market share. In the EU and beyond, players in the industry are going to have to build significant talent resources to meet soaring local demand spurred by such pressures. Doing so will require a robust talent pipeline tailored to highly specific skills and competencies.

Meaningful action in these four areas will be essential for companies in the semiconductor industry to innovate, compete and thrive.