Semiconductor Industry Flourishes with Record Investments in Manufacturing

Article originally posted on Globe St. on May 30, 2023

The semiconductor industry has experienced an unprecedented surge in investment in manufacturing over the past decade, with an average annual capex growth of 30%, reveals a recent report by JLL. The study highlights a substantial increase in capital expenditures (Capex) as a percentage of revenue, soaring from 13.4% in 2018 to 18.5% in 2022. This trend signifies a heightened emphasis on expanding production capacity, as semiconductor companies strive to meet the escalating demand.

JLL’s prepared release underlines the close correlation between this surge in investment and the growing need for physical space. Capex expenditures often involve acquiring new manufacturing facilities or state-of-the-art equipment, demonstrating a strategic commitment to augmenting operational capabilities.

While the demand for semiconductors in PC production experienced a decline following the pandemic boom, the report reveals an accelerating demand for semiconductors in the field of artificial intelligence, fueled by the widespread adoption of AI applications. JLL predicts that by 2025, automotive and edge AI semiconductors will surpass the demand for data center AI chips, registering an impressive growth rate of 30% in 2022 alone. Notably, the combined market size of these three categories alone exceeds a staggering $21 billion USD.

The report also sheds light on China’s ambitious plans to invest 1 trillion yuan ($141 billion USD) over the next five years in its semiconductor industry. This investment primarily focuses on establishing new fabrication facilities for advanced chips, in response to the CHIPS Act and the National Defense Authorization Act. These acts impose restrictions on the import of Chinese semiconductors into the United States. JLL highlights that SMIC, one of China’s largest semiconductor companies, allocated a substantial 85% of its 2022 revenue to capex, underscoring the nation’s commitment to bolstering its domestic semiconductor capabilities.

Additionally, Taiwan Semiconductor Manufacturing Company, a global industry leader, invested an astounding $36 billion in capex during 2022. This investment included expansions to a fab located in Arizona, solidifying TSMC’s position as a major player in the market. TSMC manufactures nearly half of the world’s most advanced chips.

Another prominent player, NVIDIA, the largest semiconductor company in the United States, partnered with TSMC for some of its manufacturing needs and invested close to $1 billion in capex during 2022. Recently, NVIDIA also announced new and groundbreaking partnerships in the field of AI.

As the semiconductor industry continues to flourish with unprecedented investments, driven by the demand for AI chips and fierce global competition, it is poised to shape the future of technology, enabling innovative advancements across various sectors.