Global Semiconductor Industry Trends: Key Players & Geopolitics

November 14 2024 Ahmad Helal

Technology

Navigating the Global Semiconductor Industry: Key Players, Geopolitics, and Future Trends

The global semiconductor industry is at the center of an escalating rivalry between major powers, primarily the United States and China. Semiconductors are essential components in modern technology, fueling everything from smartphones and laptops to artificial intelligence (AI) systems and autonomous vehicles. As demand for chips surges due to advancements in AI, 5G, and the Internet of Things (IoT), nations are fiercely competing to secure leadership in this critical sector. The U.S. has imposed stringent export controls on advanced chips and manufacturing equipment aimed at curbing China’s technological ambitions, viewing semiconductor superiority as vital for national security.

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In response, China is aggressively investing in its semiconductor capabilities through initiatives like the “Made in China 2025” roadmap and the establishment of a $47.5 billion state investment fund, which aims to enhance domestic capabilities and achieve self-sufficiency. Key players such as Nvidia, Intel, ASML, and Huawei are navigating this complex landscape, each vying for dominance within the sector. Nvidia has established itself as a leader in AI chips, while Intel is working to reclaim its competitive edge. ASML remains crucial as the sole supplier of advanced lithography equipment essential for chip fabrication. The choices made by these leading firms, alongside the geopolitical maneuvers of their respective governments, will significantly influence the future of technological innovation and economic growth worldwide.

Key Industry Players Driving Global Semiconductor Industry Trends

The semiconductor industry is characterized by a handful of key players that drive innovation and competitiveness. Companies like TSMC, Samsung, Nvidia, Intel, and ASML are at the forefront of this sector, each contributing unique strengths. Nvidia has made significant strides in artificial intelligence and high-performance computing, securing its position as a leader in the data center market. Despite facing challenges from U.S. export controls impacting its China business, Nvidia reported a remarkable 769% increase in profits for the first quarter of 2024, reflecting the company’s resilience and ability to pivot toward new markets.

However, it is important to note that Nvidia relies heavily on TSMC, the Taiwanese chip foundry, for its chip manufacturing. Nvidia does not produce the semiconductors used in its AI-focused products like the A100, H100, or B100—this task falls to TSMC. In the first quarter of 2024, TSMC held a dominant 62% revenue-based market share in the foundry sector. This dominance has allowed TSMC to meet the soaring demand for AI chips, even as Nvidia faces challenges with supply chain capacity.

Semiconductor foundries revenue share worldwide Q1 2024 Graph

Figure 1: Market share of semiconductors foundries by revenue % – Source Statista

Samsung, another major player, has faced setbacks in its efforts to challenge TSMC. In April, Samsung delayed the production schedule for one of its key projects from late 2024 to 2026 due to challenges with customer demand. This delay highlights the competitive struggles it faces in overtaking TSMC, which counts Apple and Nvidia among its key clients. Samsung’s foundry and System LSI businesses posted an operating loss of 3.18 trillion won ($2.4 billion) in 2023, and analysts project further losses in 2024. Concerns over Samsung’s ability to separate its chip design and manufacturing units have also raised issues of trust with foundry customers.

Geopolitical Dynamics Shaping the Semiconductor Industry

The semiconductor rivalry is primarily characterized by the strategic actions of the United States and China, two nations vying for technological supremacy. The U.S. government views the semiconductor industry as critical to national security and economic growth, prompting it to implement stringent export controls to limit China’s access to advanced technology. This strategic approach reflects the U.S.’s concerns about China’s ambitions to dominate key technological sectors, particularly in areas like artificial intelligence and 5G. Additionally, initiatives like the CHIPS and Science Act aim to bolster domestic manufacturing capabilities, encouraging American companies to invest in research and development to maintain a competitive edge.

Recent funding announcements highlight the U.S. government’s commitment to strengthening its semiconductor sector. In March, President Biden announced an $8.5 billion grant for Intel to build up chip production across four states. In early April, the Biden administration allocated $6.6 billion in direct funding and $5 billion in loans to Taiwan’s TSMC for a new manufacturing facility in Phoenix, Arizona. Similarly, Samsung received $6.4 billion to expand its facilities in Texas.

US Chip Act grants to Semiconductor Companies

Figure 2: Chip Act grants to Semiconductor companies – Source Gagadget.com

Meanwhile, China continues to build its domestic capabilities, as evidenced by its $47.5 billion state investment fund. While its ambition to achieve self-sufficiency is clear, China faces significant obstacles. The U.S.’s stringent export controls have impacted China’s access to advanced semiconductor technology. Despite these challenges, China’s SMIC has emerged as the third-largest foundry in global revenue, even with U.S.-imposed export restrictions. This rise demonstrates China’s determination to overcome technological barriers and secure its position in the global semiconductor race.

Escalating Conflict and Its Impact on Global Semiconductor Industry Trends

The semiconductor supply chain is deeply interconnected, making geopolitical tensions between the U.S. and China even more consequential. The U.S. export controls, aimed at limiting China’s access to advanced chips, reflect concerns over national security and technological superiority. China’s response has been to increase investment in domestic production, pushing initiatives like the Made in China 2025 roadmap to reduce dependence on foreign suppliers.

However, geopolitical tensions are not the only threats to the semiconductor supply chain. Natural disasters can also pose significant risks. In April, a 7.4-magnitude earthquake hit Taiwan, a crucial hub for global semiconductor manufacturing. TSMC, responsible for 92% of the world’s most advanced chips, reported that its major production lines had recovered within 24 hours. The earthquake served as a reminder of the vulnerability of the supply chain and underscored the U.S.’s need to reduce reliance on Taiwan’s chipmaking capabilities.

Major Industry Challenges Affecting Semiconductor Market Growth

Despite the robust demand for semiconductors and growing investments, significant challenges loom over the industry’s future. The global supply chain has been disrupted by geopolitical tensions, natural disasters, and the COVID-19 pandemic. Companies like Nvidia and Intel face ongoing uncertainties in sourcing materials, impacting production timelines and costs.

For Samsung, the challenges are both internal and external. Delays in production schedules and concerns about its foundry business raise questions about its ability to compete with TSMC. As noted by analysts, Samsung’s foundry unit faces trust issues with customers who fear their technology secrets might be shared with Samsung’s design unit. A potential separation of the foundry and design businesses might help resolve these concerns, but it could also limit the foundry’s financial support from Samsung’s memory chip business.

In addition, regulatory challenges remain a significant concern for American companies heavily reliant on the Chinese market. U.S. export controls are designed to limit technological transfers to China, but companies like Applied Materials and Lam Research derive a substantial portion of their sales from China. This creates a delicate balance between complying with regulations and maintaining business operations.

Conclusion

The semiconductor rivalry between the U.S. and China highlights the critical role of advanced technologies in national security and economic growth. While the U.S. enforces export controls to limit China’s technological advancements, China is investing heavily in self-sufficiency. Companies like Nvidia, Intel, and TSMC play key roles, with TSMC maintaining dominance in the foundry sector. Samsung faces setbacks, delays in projects, and struggles to compete with TSMC. Natural disasters, such as the Taiwan earthquake, have underscored the fragility of the global semiconductor supply chain, while U.S. funding initiatives aim to reduce reliance on foreign production. The outcome of this rivalry will shape the future of technology and global economic dynamics.

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