Chip giants are ramping up spending by the billions as semiconductor demand booms

As the worldwide chip shortage continues, semiconductor businesses throughout the world are planning to make significant expenditures in their research and development centers in order to fulfil rising demand. TSMC, the world’s largest contract chipmaker, has pledged to invest $100 billion over the next three years to increase manufacturing of its cutting-edge silicon wafers, which are used to create a wide range of processors.

Courtesy: The Indian Nation

It announced in January that its capital expenditures will increase by up to 47 percent by 2022, with plans to spend between $40 billion and $44 billion this year, up from $30 billion the previous year. To enhance capacity, the Taiwanese chipmaker, which is headquartered in Hsinchu and has a market capitalization of about $600 billion, is developing a $12 billion factory in Phoenix, Arizona, and another in Japan. It is working on a number of other fabrication plants, often known as fabs.

TSMC isn’t the only chipmaker pouring billions of dollars into high-tech factories that take three to four years to open. Rival Last March, Intel revealed plans to invest $20 billion in two new chip factories in Arizona. For nearly 40 years, Intel has had a presence in Arizona, and the state has a well-established semiconductor ecosystem. On Semiconductor, NXP, and Microchip are among the other prominent semiconductor makers having a presence in Arizona.

Samsung, South Korea’s largest corporation, has not provided advice for 2022, but it did reveal this month that the chip industry accounted for 90 percent of its 48.2 trillion won ($40.1 billion) annual capital spending in 2021.

According to research firm Gartner, semiconductor businesses spent $146 billion in 2021 on new production capacity and research. Sixty percent of the $146 billion was accounted for by TSMC, Samsung, and Intel, three of the world’s largest chipmakers.

“We expect capital [expenditure] substantially doubling during the 2021-2025 5 year timeframe compared to the 2016-2020 period,” said Peter Hanbury, a semiconductor analyst at Bain & Company.

“This increase is attributable to both the increased complexity of new leading-edge technologies, which require more expensive tools and have more process steps to make a wafer, as well as a response to the chip scarcity, with manufacturers expanding capacity across numerous technologies.” Many other major semiconductor companies, like as Nvidia, AMD, and Qualcomm, don’t need to invest as much money since they are “fabless,” according to Glenn O’Donnell, research director at analyst firm Forrester.

“They design the chips and then contract out the manufacturing to someone like TSMC,” he explained. Despite massive investments, the semiconductor sector continues to struggle to meet demand. “We just can’t create enough chips to satisfy society’s insatiable appetite for anything driven by semiconductors,” O’Donnell remarked.

Chips can be found in a wide range of products, including kettles, washing machines, headphones, and fighter jet missile systems. Hundreds of chips can be found in many things, like as automobiles.

Some have predicted a “chip glut” after all of the new fabs start producing more chips, but O’Donnell disagrees. He stated, “The human race is addicted to technology.” “Demand will not wane, but will continue to rise. In fact, I’m not convinced that all of this money will be enough.”

In the medium term, Hanbury forecasts a “choppy” recovery from the chip shortfall, noting that a shortage in one sector allows for the production of more end products (such as PCs). “However, this raises demand for all of the other chips needed to manufacture that end product,” he explained. “It’s like a whack-a-mole situation.” In the long run, Hanbury believes there will be no risk of oversupply in the next two to three years since the chip facilities that have lately been announced will take time to build.

“However, we are keeping an eye out for potential oversupply,” he added, adding that more facilities would likely be built once governments have fine-tuned and perfected their incentive program. This year, some of the lesser-known chipmakers are also expecting to raise their spending. Infineon Technologies AG, based in Munich, said Wednesday that it will invest an additional 2.4 billion euros ($2.7 billion) in expanding its operations to satisfy demand.

Meanwhile, ST Micro, a French-Italian chipmaker, announced last week that it planned to invest up to $3.6 billion this year to meet demand. Last year, the Geneva-based firm spent $1.8 billion on its clients, which included electric carmaker Tesla and iPhone maker Apple. The chipmakers’ efforts will assist a number of other companies in the semiconductor supply chain. “Keep an eye on ASML, Applied Materials, and Air Products,” added O’Donnell. “They’re essential suppliers to these chipmaking plants, so they’re about to go through a boom cycle of their own.”