The Trillion-dollar future: A deep dive into the semiconductor industry’s growth prospects

By Yogesh Kansal, Co-founder & CMO, Appreciate
The semiconductor industry is the bedrock on which the modern, digitally-powered society functions. If our society is to accelerate the pace at which everyday tasks – be it in the shopping, communications or banking domain – are completed, it will be able to achieve this milestone by singularly relying on the exponential technological innovations in the semiconductor space.

Given the industry’s outsized impact on the global digital milieu, everyone is keen on grabbing a piece of the semiconductor pie. Naturally, the industry is poised for exponential growth in this decade. In 2021 alone, sales of semiconductor chips burst forth with over 20% sales growth to $600 billion. By 2029, it is expected to cross the high threshold of $1,380.79 billion.

No wonder, then, that a lot of developed and advanced economies are zeroing in on the opportunity, and doling out lucrative incentives and subsidies to firms that are taking the manufacturing lead in this segment. Taking a cue from the changing times, the Indian government has given a hint of the size and scope of its chip ambitions: In March, the central government laid the foundation of three semiconductor manufacturing and assembly facilities.

Growing at a steady clip
A McKinsey analysis indicates that the global semiconductor industry will pace ahead at a steady clip of 6 to 8% up to 2030 and will blossom into a $1trillion dollar industry provided
the average price of chips increases by a very conservative 2% and the supply and demand skew is overcome.

To prise out a growth rate of 6-8% from the semiconductor space, three discrete segments, namely, automotive, computation and data storage and wireless connectivity will have to keep growing. These three segments, taken together, will account for 70% of the
anticipated growth of the global semiconductor industry.

A close look at the boosters
The three industries that shoulder the responsibility of driving semiconductor sales growth merit a closer look. Take, for instance, the automotive space. This space is most likely to emerge as the strongest revenue-contributing segment, which as per several market predictions, will witness a three-fold rise in demand, thanks to technological innovations like e-mobility and autonomous driving.

The demand for semiconductors made by the automotive industry will also spring to higher levels by the end of the decade. In 2021, the automotive industry accounted for only 8% of the demand for semiconductors, which will leapfrog to the 13-15% range by 2030. The demand emanating from the automotive segment, alone, would account for 20% of the industry expansion in this decade.

The automotive industry is followed closely by the computation and data storage segment. This segment is projected to grow at 4-6% and will progressively demand more chips to power the aggressive growth spurts in the AI and cloud computing space. Last but not least comes the mobile telephony and wireless communication space. A gradual transition to the 5G era, and the rising affordability of smartphones in under-developed
countries will also ratchet demand for chips.

The technological evolution of society right from the days of telegram has hardly, if ever, been linear. New path-breaking technologies unveil new paradigms, and, in response, humanity collectively adapts to myriad possibilities offered by the technology. Semiconductors are the very medium through which a new, cutting-edge script for the society of tomorrow is being written. Despite the industry’s bright future, there could, of course, be some tremors and hitches in the short term. These could be in the avatar of supply disruptions or logistical log jams. However, for those, with a long-term perspective, the semiconductor space can deliver bountiful returns.

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