Understanding how the semiconductor supply chain works is crucial for appreciating its power in modern technologies. Semiconductors are essential components for various items, including smartphones, household appliances, cars and satellites.
A multi-billion-dollar industry, semiconductor companies are expected to see global sales of US$588 billion ($794.15 billion) for this year, according to Deloitte’s global semiconductor industry outlook for the year. The figure represents a 13% growth on a y-o-y basis and is 2.5% higher than the record industry revenues of US$574 billion seen in 2022.
Deloitte’s report adds that semiconductor stocks — usually a leading indicator of the industry’s performance — have steadily risen. As of mid-December 2023, the combined market capitalisation of the top 10 global chip companies stood at US$3.4 trillion, up 74% from US$1.9 trillion in November 2022. According to Statista, the market capitalisation of the top 10 global semiconductor companies as of June 5 is US$6.31 trillion.
What is the semiconductor industry, exactly? It refers to the companies that design and fabricate semiconductors and devices such as transistors and integrated circuits. These companies are also part of the network that makes up the industry’s supply chain.
The supply chain can be split into three main phases — upstream, midstream and downstream.
Upstream refers to companies involved in the R&D and design stage. Some examples include Apple, Arm Holdings, Advanced Micro Devices (AMD), Broadcom and Nvidia.
See also: Hunting for value in semiconductor stocks
Midstream, which refers to the manufacturing and fabrication of chips, includes Taiwan Semiconductor Manufacturing Company (TSMC), Intel, Samsung, GlobalFoundries, Micron Technology, Seagate Technology Holdings and SK Hynix. Several Singapore-listed companies, such as Avi-Tech Holdings , Frencken Group and UMS Holdings , are also part of the midstream supply chain.
Downstream companies, which are in the business of the assembly, testing and packaging of the chips, include Singapore-listed AEM Holdings , Amkor Technology, Advanced Semiconductor Engineering (ASE), Intel, Jiangsu Changjiang Electronics Tech Co (JCET), Samsung and TSMC. Bursa-listed Inari Amertron, which does wafer processing, chip fabrication, system-in-package assembly and test and other services, belongs to this part of the supply chain.
According to an article published by the Center for Strategic & International Studies on May 30, 2023, the Indo-Pacific region — particularly Taiwan, Japan, China and South Korea — plays a key role in the semiconductor supply chain. In 2021, these four countries, apart from the US, made up the bulk of semiconductor sales in the world. During that year, total semiconductor sales stood at US$555.9 million, of which the US accounted for 46%. Sales in South Korea stood at 21%, while Japan, Taiwan and China’s sales accounted for 9%, 8% and 7% respectively.
In 2023, sales of semiconductors in the Asia Pacific region made up about 55% of the world’s total sales of US$526.8 billion, at US$289.99 billion, according to Statista.
Beyond understanding the industry’s supply chain, it is key to note that the industry is cyclical due to the short-lived nature of semiconductors. A downcycle refers to the slowing demand while an upcycle means the opposite in demand for semiconductor chips.
While consultancies like Semiconductor Intelligence, KPMG and Deloitte expect an upcycle this year, Siltronic CEO Michael Heckmeier notes that the industry is probably still in a “transition year” and “on the way to profitable growth”. Heckmeier’s remarks came from Siltronic’s earnings announcement for 1QFY2024 ended March 31. When he was in Singapore to launch a EUR2 billion ($2.9 billion) wafer plant on June 12, he noted that the industry is “still at the end of a downcycle”.
