Semiconductor Foundry Market Trends

Growth Drivers

• Geopolitical reshoring and state subsidies: Among the principal drivers of expansion is the global push by governments to fortify regional semiconductor manufacturing, sparked by supply chain risk concerns and national security apprehensions. This has unleashed a tsunami of subsidies and strategic investment, spearheaded by the U.S. CHIPS and Science Act. In March 2024, the US administration announced a prospective agreement to provide Intel up to USD 8.5 billion in direct funding and $11 billion in lending to support its colossal growth plans in Arizona, Ohio, New Mexico, and Oregon, directly accelerating the construction of fresh, cutting-edge foundry capacity in American soil.
• Spike in AI and high-performance computing: The increasing demand for computer capacity driven by the AI explosion is forcing an increase in the production and manufacturing of the next-generation logic chips at a pace that is inducing foundries to invest in cutting-edge process nodes like 5nm, 3nm, and higher to produce the high-end GPUs, TPUs, and AI accelerators utilized for such purposes. Intel's official launch of Intel Foundry in February 2024 was geared to meet this demand, heralding itself as the globe's first systems foundry for the era of AI and emphasizing how AI has become a prominent aspect of industry-leading foundry technology.
• New centers for manufacturing: International efforts to de-risk supply chains are driving the unprecedented emergence of new semiconductor manufacturing clusters in geographies historically not known for advanced manufacturing. India is a particularly striking example, with government incentives attracting significant investment. For example, the Government of India sanctioned in February 2024 the establishment of three giant semiconductor facilities with a total investment of about $15.2 billion. This is India's first commercial semiconductor fab, a Tata Electronics and Powerchip Taiwan joint venture, which marks the entrance of a new significant player in the global foundry industry.

Challenges

• Enormous capital cost and execution risk: The semiconductor foundry industry is marked by huge capital cost and high execution risk, with one advanced fab costing tens of billions of dollars and years to construct. Such massive undertakings are prone to delays from the supply chain, build complexities, and sheer technical difficulty of ramping new process nodes to high-volume production. In August 2023, TSMC revealed a joint venture for the construction of a fab in Dresden, Germany, with total planned investment in excess of €10 billion, an amount that indicates the staggering capital outlay necessary to compete at the highest level.
• Managing export controls and international trade: The foundry industry operates in a complex and often hostile geopolitical environment, with access to markets and technology increasingly subject to national security-driven export regulation. Regulations pose massive compliance challenges and have the potential to dismantle established business relationships and supply chains, forcing businesses to operate in a challenging and unpredictable landscape.