How is the global semiconductor chip industry massively growing? How potential is Indonesia’s semiconductor chip industry for the next investment destination?

Global semiconductor chip sales in 2021 reached USD 555.89 billion, an increased from last year’s total sales of USD 470.89 billion. In 2022, the global semiconductor chip industry is expected to grow to USD 676 billion and USD 1,380.79 billion in 2029. Global semiconductor chip sales in April 2022 successfully reached USD 50.92 billion, compared to March 2022 sales was USD 50.58 billion.

 The semiconductor industry is highly competitive and a critical component of most electronic devices. Semiconductors enable us to use the systems and electronic products for work, communicate, play games, travel, heal disease, create new scientific discoveries and utilize energy. Semiconductors are the key component of modern electronic devices and form a key part of many commonly used electronic devices such as smartphones, tablets, and personal computers.

 These are all the modern gadgets that many of us have come to rely on in our daily lives. As expected from its central importance, the semiconductor industry is large and competitive. Notable global semiconductor chip makers are Intel and Samsung Electronics, with Intel generating USD 73.1 billion and Samsung generating USD 575.95 billion in 2021 semiconductor revenue, making it one of the largest companies in terms of profitability in the semiconductor industry.

How is the scarcity of the semiconductor chip industry globally happen? Which opportunity from the semiconductor chip industry has successfully expanded its market in Indonesia? Read this article to know more!

The Potential and Growth of the Semiconductor Chip Industry in the World

Taking a closer look at the sub-segments, it is projected to be driven by the automotive, computing and data storage, smartphone, wireless, server, and data center industries. The fastest growing segment is likely to be automotive, with applications such as autonomous driving and e-mobility likely to triple the demand. The automotive industry, which accounts for just 8% of semiconductor demand in 2021, could account for 13-15% of demand by the end of the decade.

On this basis, this segment will be responsible for up to 20% of industry expansion in the coming years. Another potential is smartphones will play an important role in the semiconductor market in the future, especially as these devices become more advanced and capable of supporting technologies such as 5G, virtual reality (VR), augmented reality (AR), and artificial intelligence (AI).

Semiconductors chip used in servers and data centers will become an even more significant opportunity as semiconductor innovation is required to support the rise of cloud data and edge computing. Therefore, an increase in capital expenditure (CAPEX) is required across the semiconductor value chain to meet semiconductor demand from all economic sectors.

As a result, CAPEX is considered a key indicator of growth in the semiconductor industry. Semiconductor investment in 2010 was USD 54 billion, and more than a decade later, that amount has nearly tripled to over USD 150 billion. The market is segmented into several regions which are North America, Europe, Asia Pacific, Latin America, Middle East, and Africa.

Asia-Pacific is leading the market with the highest market share in 2021 which is driven by high-end technology-based devices adoption and increasing demand for consumer electronic devices with low prices. Asia Pacific is followed by North America in terms of growth rate due to heavy investment in R&D activities. Latin America, the Middle East, and Africa should see healthy market growth owing to increased consumption of home electronics and the presence of a skilled workforce. Meanwhile, sales of semiconductor chips in Europe are lower than in other regions.

Highly Demanded, Scarcity of Semiconductor Chips Makes Prices Rise

The coronavirus pandemic has hit most of the industry including semiconductor chips, with the first disruptions seen in the dominant regions of chip production, China and Taiwan, where factories were forced to shut down by the government when the pandemic first hit. Although production recovered and semiconductor revenues increased in 2020, a surge in demand due to changing consumer habits combined with challenges in chip capacity allocation led to a global chip shortage in 2021.

Shortages (referred to as allocation) are nothing new to semiconductor industry professionals. Shortages can be caused by fluctuations in the supply of semiconductor materials, natural disasters, changes in economic conditions, or even geographical and political events. Historically, the allocation period for these electronic components has typically been short-lived (around 6 months to 1 year), but the current chip shortage is an unprecedented departure from this trend. 

A series of problems led to nowadays shortage of semiconductors. In addition to long-standing problems in the industry, such as capacity shortages in semiconductor factories, the COVID-19 pandemic has brought unprecedented challenges. When the pandemic began in 2020, automakers drastically cut orders for semiconductor chips in anticipation of a sharp drop in sales.

For example, the automaker cut its chip orders in early 2020 as car sales crashed. But as production declined, online teaching and training took place, and large numbers of employees began working from home, accelerating the need for digital transformation. Sales of home IT equipment that enables web conferencing and video conferencing surged, and demand for leisure products such as smartphones, video game consoles, and VR headsets increased to adapt to the lockdown era.

When demand recovered faster than expected in late 2020, the semiconductor industry was already shifting production lines to meet the demand for other applications. End markets that were served by mature providers were hit by the semiconductor supply shortage as manufacturers slowed production lines or delayed the introduction of new products and features.

The things that happen now, as demand for consumer products increased, but semiconductor chip production lines have switched from producing cheap automotive chips to producing more expensive processors and other devices from the pending orders. By the time the automotive industry noticed customer demand increased and started ordering chips again, foundry space was already filling up with other products.

Most of the microcontroller inventory has already been sold into phones, leisure equipment, and IT products. This paved the way for a chip shortage in the automotive industry. Semiconductor fabs boosted the utilization rates to over 95% to maximize the number of chips produced but were still unable to meet the increasing demand. These shortages are pushing up the Average Selling Price (ASP) as demand for most device applications has increased in recent years.

The Opportunities of Indonesia’s Semiconductor Chip Industry

Semiconductor chips are an important component in the automotive and technology fields in the assembly process or industrial operations. Although semiconductor chips are small in size, they play a large role in supporting various features found in motor vehicles and electronic devices. According to a source from Good News from Indonesia, Indonesia will develop its own Semiconductor Chip Factory.

In accelerating the digital transformation of the semiconductor industry playing an important role, the need for semiconductor chips continues to increase in the development of the industrial era 4.0. The Indonesian Minister of Industry, Agus Gumiwang Kartasasmitra, said that Indonesia needs to see opportunities for strategic investments where there is an increase in demand for semiconductors.

According to the Indonesian Ministry of Industry (Kemenperin), Indonesia is a large market for electronic products. spur the growth of the semiconductor industry. This step is believed to strengthen the domestic manufacturing structure so that it can be more competitive. Opportunities for the semiconductor industry are also increasingly open due to digitalization in many sectors, the development of automotive, especially electric vehicles (EV), as well as the development of telecommunication equipment.

Acceleration in the development of the semiconductor industry in Indonesia can be done through cooperation with global chip player countries, one of which is Germany. This is supported by a German company located in Batam, namely PT Infineon Technologies Batam which will provide an investment of a total of IDR 1.8 trillion. Indonesia and Germany have agreed to open up opportunities for the development of semiconductor factories and increase investment in the high-tech industry so that this industry can support the global Chip supply chain during the state visit of the President of the Federal Republic of Germany Frank-Walter Steinmeier.

Through the company, this agreement makes Germany commit to increasing its investment by EUR 35.37 million, or equivalent to IDR 569.3 billion, to increase capacity by 65 million per week by 2025. Then the investment will increase to EUR 83.57 million or equivalent to IDR 1.3 trillion to increase capacity by 150 million per week until 2030. There are three famous brands in the semiconductor industry in Indonesia likes Samsung Corporation, NVIDIA Corporation, and Intel Corporation which will be discussed further below:

1. Samsung Corporation

Samsung produces memory chips, semiconductor nodes, MOSFET transistors, and integrated circuits. Samsung generating USD 575.95 billion in semiconductor revenue in 2021, placing them among the largest companies in terms of semiconductor industry revenues.  Samsung is headquartered in South Korea while the rest reside in the US.

According to the data from Idc, Samsung took the top semiconductor spot from Intel as memory sales grew considerably faster in 2021, reaching USD 75.8 billion compared to USD 57.7 billion in 2020 in semiconductor company revenues, a 31.1% year-over-year increase.

2. NVIDIA Corporation

Nvidia is a leading developer of graphics processors for personal computers and enterprise servers.  A US company headquartered in Santa Clara, California, NVIDIA also provides system-on-a-chip semiconductor products for the computing and automotive markets, as well as mobile processors for the smartphone industry. 

These graphics processing units, or GPUs, provide high-end performance sought by cryptocurrency miners, computer gamers, and those who work with computer-aided design. According to the data from Investopedia, Nvidia had a revenue in of USD 29.5 billion.

3. Intel Corporation

According to Investopedia, Intel primarily develops processors for the personal computer (PC) and enterprise server markets. Its Client Computing Group segment supplying PC processors and Data Center Group segment serving enterprise customers including cloud services providers accounted for 51% and 33% of the fiscal year 2021 revenue, respectively.

Intel generating USD 73.1 billion in semiconductor revenue in 2021, placing them among the largest companies in terms of semiconductor industry revenues. The company produces motherboard chipsets, network interface controllers, and integrated circuits.

Enter The Indonesian Semiconductor Chip Market with BRIGHT Indonesia

Because of the huge impact of the semiconductor chip industry in Indonesia, of course, it takes a lot of in-depth research about the semiconductor chip market in Indonesia. So, to enter the Indonesian market, you need the right local partner to assist you.

BRIGHT Indonesia is an ideal business partner for you. We will assist you on the ground, including virtual assistants during the mission, logistical planning, and detailed communication. It can cause your company to focus on developing partnership cooperation rather than the hassles of the business trip.

BRIGHT Indonesia provides several services such as Market Insight Research, Business Partnership Engagement, Management and Strategy Consulting, and Foreign Direct Investment. The services will help your business to:

1. Provide assistance for you in expanding and developing your business by identification of potential partners.
2. Secure the agreement between client companies and future Indonesian business partners by providing a list of potentially suitable partners, arrange business meetings, and act as a liaison.
3. Supporting our foreign client companies from the private sector with developing corporate or business unit strategies or helping your company from public sector organizations with public policy.
4. Link client companies both from the private and public sectors in global foreign direct investment (FDI) through training and assisting your company in entering FDI source countries to gather investment for your company’s local markets.

For more information, email info@brightindonesia.net