Chip Demand Requires $3T Of Investment And R&D In 10 Years

While the global chip supply problem, which started in automotive and spread to the electronics sector, is growing, it is expected that approximately $3 trillion of investment is required in research and development (R&D) and capital expenditures in the next ten years to meet the chip demand.

With the effect of the pandemic measures, starting from the automotive sector, chips are standing out as indispensable elements of today's economies.

Chips are printing electronic circuits printed on semiconductor material by using high technology. They are used in almost all electric devices, such as phones, home electronics, tablets, computers and automobiles.

While the global problem in chip supply, which is the "backbone" of the digital economy, continues, manufacturers are working hard to meet the increasing demand.

While the chip shortage is expected to create billions of dollars in damage by causing disruptions in production, industry representatives stated that the chip shortage could not be solved in a short time.

Chip production needs R&D and capital expenditure

Chips, also known as "semiconductors," are seen as one of the competitive factors between countries, chip manufacturers focused on their investments to meet the increasing demand.

While auto factories in many countries are shutting down due to "chip scarcity," several countries want to establish modern chip factories to meet local industries' requirements.

Semiconductors, which are highly complex to design and manufacture, require a high amount of expenditure in both R&D and capital.

The report of the Semiconductor Industry Association (SIA) and Boston Consulting Group reveals that an investment of approximately $3 trillion will be required globally in R&D and capital expenditures to meet the growing demand for semiconductors in the next ten years.

According to the report, the US leads in R&D-intensive activities such as electronic design automation, chip design and advanced manufacturing equipment, while East Asia stands out in chip manufacturing, which requires access to solid infrastructure and skilled workforce, as well as significant capital investments supported by government incentives.

On the other hand, China is a leader in assembly, packaging and testing, which requires relatively fewer skills and more capital while investing strongly in expanding the value chain.

Fourth most traded goods

Chips are the fourth most traded goods after crude oil, refine petroleum and automobiles, while the US and China, which account for 25% of global consumption, are the largest markets in this area.

Experts underline the need for collaboration between industry representatives and governments to ease global access to markets, technologies, capital and capabilities, and to make the supply chain more resilient.

Approximately 75% of chip production capacity is in China and East Asia, a region that is significantly subject to high seismic activity and geopolitical stresses. Also, most of the world's leading semiconductor manufacturing capacity is located in South Korea and Taiwan.

Natural disasters, infrastructure problems, or global conflicts occur in these regions, it may cause severe interruptions in chip supply.

Fully "self-contained" localized supply chains are also predicted to create significantly higher costs and lead to a 35-65% increase in semiconductor prices.

Firms look for support

Semiconductor companies must continue to invest more than $90 billion annually in R&D to develop increasingly sophisticated chips to power applications such as artificial intelligence, the internet of things or autonomous vehicles. And this amount corresponds to about 20% of global semiconductor sales.

Companies such as TSMC, Samsung and Intel produce advanced semiconductors in the world. Intel is seeking $10 billion in support from policymakers to set up factories in Europe. Intel is expected to agree with European countries on the new factory.

Demand for chips is expected to grow tremendously in the next few years.

Chip sector may see personnel problems

On the other hand, highly skilled employees are critical for an R&D-intensive industry such as chips. However, the industry faces a risk of a shortage of highly skilled employees that may limit the pace of innovation in the coming years.

It is noted that the shortage of skilled employees may significantly undermine the industry's ability to sustain rapid and uninterrupted innovation for coming years, although it does not threaten large-scale disruption to chip production.

It is emphasized that governments should implement market-oriented incentive programs against the risks of global supply cuts.

Steps should be taken to encourage more global trade and international cooperation on R&D and technology standards.

*Writing by Gokhan Ergocun from Istanbul -