Key Trends in the Semiconductor Industry in 2021

Every industry across the world has felt the ripples of the COVID-19 pandemic. But the relatively quick recovery of the global semiconductor industry is an encouraging sign. Despite the disruption of global supply chains, the worldwide semiconductor revenue rose to USD 442 billion in 2020, up by 5.4 per cent from 2019. In 2021, it is projected to touch USD 476 billion.

The recovery from the pandemic, combined with the rising adoption of Artificial Intelligence, Internet of Things and 5G technologies, hold great promise for semiconductor manufacturers. Hardware is the core that powers Industry 4.0 technology. It makes the semiconductor industry the cornerstone of digital transformation.

The Asia-Pacific remains the largest growing producer of semiconductors, with consumption rising in countries like Japan, China and South Korea. Further, emerging markets like India, with its highly skilled and experienced manpower and innovative tech capabilities, will play a key role in this growth.

Powering Artificial Intelligence

From online shopping to automobiles, smartphones to voice assistants, the role of Artificial Intelligence in everyday life is accelerating at breakneck speed. AI-driven technologies like Augmented Reality, Virtual Reality, voice and facial recognition technology, computer vision and Natural Language Processing (NLP) need high processing speeds and dedicated components to perform complex mathematical computations.

As these technologies become more ubiquitous, the market for AI chips will grow exponentially. According to a study by McKinsey, Artificial Intelligence could enable semiconductor manufacturers to capture up to 50 per cent of the total value from the technology stack. McKinsey describes this as the best opportunity the industry has had in decades. It also predicts that AI-related semiconductors could see a growth of 18 per cent in the coming years. It is five times that of semiconductors in non-AI related applications. Further, AI semiconductors will account for 20 per cent of all semiconductor demand.

Fueling the rise of IoT

Another technology gaining steady traction is the Internet of Things. Today, IoT has penetrated several industries – smart cities projects, supply chain management, healthcare, farming and manufacturing and consumer electronics. The increasing popularity of this technology has encouraged several tech companies to branch into the IoT ecosystem. Last year, there were an estimated 11.7 billion IoT devices worldwide. It is expected to rise to 30 billion by 2025.

The impact of this growth on the semiconductor industry will be significant. The global IoT semiconductor component market has been projected to grow at a CAGR of 19 per cent from $33 billion in 2020 to $80 billion in 2025. According to one report, the penetration of IoT semiconductor components is expected to grow from seven per cent in 2019 to 12 per cent by the next four years.

Driving the emergence of 5G

Finally, there is the long-awaited deployment of 5G technology. 5G provides speeds up to 100 times faster than 4G. And with remote working and online education becoming mainstream since the pandemic, such changes are likely to remain. But they need improved infrastructure and bandwidth to function seamlessly. 5G can enable this. After COVID-19 initially derailed the rollout of 5G, telecom companies are now gearing up for deployment. With this, the semiconductor industry will soon be booming.

According to a report by Strategy Analytics, 5G mobile sales were set to cross 250 million units in 2020. Gartner predicts that 5G smartphones will account for almost 30 per cent of smartphones by 2021 and jump to 71 per cent by 2024. With this, 5G semiconductor revenue is expected to increase from almost zero in 2018 to USD 31.5 billion in 2023, according to Accenture. In the long term, 5G will enable the enhancement and adoption of technologies beyond smartphones, like IoT, edge computing and automotive. Even semiconductors that are not directly part of the 5G value chain will benefit from this growth.

Given these developments, the semiconductor industry is poised for growth. However, the COVID-19 pandemic exposed fault lines in global supply chains. The industry will benefit from rethinking its existing supply chain models to future-proof business continuity. As we continue down the road to recovery, 2021 can be a turning point in the growth of the industry.

The author of the article is TS Shankar, Regional Sales Manager-India, Analog Devices