Demand for microchips is rising rapidly, in part because of interest in AI. Customers but also manufacturers themselves fear that the current supply chain will not be able to meet the full demand.
Both microchip manufacturers and their customers are predicting an increase in demand for semiconductors over the next two years. That’s according to a Capgemini survey in which the company surveyed 250 manufacturing executives worldwide, in addition to 800 executives within customer companies.
An increase, but how much?
That there will be an increase, everyone agrees. How big that increase will be is less clear. Manufacturers expect demand to increase by about 15 percent, but customers think the increase in two years is more likely to be 29 percent.
GenAI is a major driver in the rising trend. NPUs are in high demand, as are powerful GPUs that enable LLM training. On top of that, workloads are increasingly memory-intensive. Large amounts of HBM and GDDR6 (and 7) memory will be needed. 79 percent of chip-dependent companies expect an increase in memory demand.
81 percent of downstream respondents also believe there will be more demand for custom chips. Among those surveyed, 34 percent are developing their own chips, or are at least considering the option.
AI is not the only driver behind the increasing demand. Data-intensive workloads, both in data centers and at the edge, require specialized chips that are preferably still as economical as possible. Energy efficiency, coupled with high but focused performance, are high on everyone’s wish list.
Geopolitical tensions
Along the customer side, 69 percent see geopolitical tensions as a major threat to supply chain reliability. Tensions between the U.S. and China play a major role in this regard. The trade war waged by the U.S. affects the availability of technology and materials.
52 percent of downstream organizations also see dependence on a limited number of suppliers as a downside. The report cites some examples of bottle necks: ASML in the Netherlands is the only supplier of EUV lithography machines, and rare materials come from regions with geopolitical disruptions. China, for example, has a lot of rare metals in its territory, and neon comes largely from Ukraine.
75 percent of organizations report that they are actively diversifying their suppliers. There are, of course, inherent limitations to what is possible. Consequently, only 40 percent indicate that their own supply chain is effectively resilient.
Complex challenge
The semiconductor industry faces significant challenges in meeting growing demand. Geopolitical tensions, dependence on a limited number of suppliers, and limitations in production capacity are the main obstacles.
Companies are trying to overcome this by investing in regional production capacity, supplier diversification, and innovative technologies, but that is easier said than done. Indeed, access to industry is limited, in part because of the immense cost. One EUV machine, for example, costs $150 million. That it will be difficult to match supply and demand over the next two years therefore seems a given.
Moreover, tightness in the chip industry is nothing new. Ever since the Corona pandemic , the industry has been struggling with shortages. The worst constraints have since been eliminated, but the pain points remain.