Global semiconductor companies plan to invest roughly one trillion dollars in new plants through 2030, but the road to fully realize the benefits from these investments will be rough.
How companies can overcome the challenges are presented below in edited and abridged excerpts (520 words – with links vs. 3559 words) in a McKinsey article entitled Semiconductors have a big opportunity—but barriers to scale remain.
Barriers That Impede Advancement
The original article points out that “Beyond executing announced capital projects—which is proving to be a major challenge—five other barriers may impede advancements from newly invested capital over the long haul, particularly in the North American and European markets:
- underlying capital and operating cost dynamics,
- increasing material demands,
- offshore concentrations of raw materials and packaging,
- logistical and handling issues,
- and talent shortages.
The semiconductor industry will need to confront these barriers if it expects to fully realize the benefits from announced investments and others that may come.”
Each of the above 5 barriers are discussed at length in the article and concludes with a section on the path forward for the semiconductor industry which says, in part:
- “the long-term impact of fabs in the United States and Europe, with operations that cost up to 35 percent more than those in Asia, remains uncertain. Companies building facilities in the United States and Europe will need to adjust their cost structures, accepted margins, or portfolios to make these assets viable, especially without systemic financial assistance to equalize regional cost differences. Continued investments in the United States and Europe will heighten the urgency to address these issues.
- Manufacturers must find ways to manage rising costs, which are largely structural and difficult to change without significant shifts in cost composition. Innovations such as engineering design overhauls could reduce labor costs but require substantial R&D investment. The rising demand for labor, technology, and materials is driving up prices, making cost reduction difficult, especially given varying negotiation power for manufacturers. Manufacturers can use forward contracting and cost contingencies, such as indexing material costs to commodity prices, to manage often unpredictable price fluctuations.
- U.S. and European semiconductor stakeholders will want to look at how to increase material consumption needs to ensure the expansion of supply chain capacity is commensurate with the level of expansion in wafer manufacturing. Companies will also need to manage supply chains for growing consumption while recognizing that raw material production may be concentrated in a few countries, creating potential bottlenecks.
- For new innovations, it will be essential to expand existing manufacturing hubs or greenfield ecosystems to build a new talent ecosystem. Regional areas of semiconductor expertise can help provide a larger labor pool. Some large semiconductor companies are developing this expertise by training workers in existing centers and bringing knowledge back to new hubs. Improving job desirability in the semiconductor industry requires rethinking career paths, upskilling the workforce, and reaching untapped talent pools, including women and older adults. Retaining specialized talent will also necessitate prioritizing cultural elements such as workplace flexibility, skill-sharing resources, and inclusivity….”
Conclusion
How companies manage these issues will directly affect the industry’s ability to reach the projected $1 trillion or more in revenue by 2030.”
