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What is the Future of the Semiconductor Industry? Semiconductor Industry Outlook

What is the Future of the Semiconductor Industry? Semiconductor Industry Outlook

Technology Research & News

According to research from McKinsey, the semiconductor industry is poised for a decade of growth and as a result is projected to become a trillion-dollar industry by 2030.

The Covid-19 pandemic accelerated our dependence on technology across the globe. With that increased need for technology comes the increased need for semiconductors: foundational pieces to cars, computers, military equipment, and much more. 

Over the past few years, supply shortages in the semiconductor industry have created bottlenecks in the production of everything from cars to computers, highlighting the importance of these chips in the functionality of the global economy. In many ways, our world is completely dependent on semiconductors.

With our reliance on technology, the semiconductor markets have boomed, with sales growing to about $600 billion in 2021. According to analysis from McKinsey, the industry is poised for annual growth rates from 6 to 8 percent a year up to 2030, leading to a $1 trillion industry. Furthermore, many see semiconductor memory market trends growing by double digits over the next few years!

Remote working, growth of AI, and increasing EV demand have all served as catalysts for the semiconductor industry. Furthermore, about 70 percent of the anticipated growth is projected to be driven by just three industries: automotive, computation and data storage, and wireless.

Analyzing the Supply Chain Shortage

With the end of the supply chain bottleneck in sight, the road to recovery will be uneven, with some subsegments improving more rapidly than others.

Bain & Co. predicts that the automotive and industrial sectors will be the fastest to recover, as soon as late 2022 and early 2023. These products rely on specific 12-inch wafers and 6-inch and 8-inch wafers. Moreover, that will see manufacturing capacity meaningfully increase over the next 9 to 12 months.

Consumer electronics, such as smartphones and tablets, are also expected to rebound over the next year or so.

However, gaming consoles and computer servers will likely be hampered through 2024, as suppliers lack the financial resources to build their substrate factories fast enough to meet the demand.

This chart above illustrates the dynamics of recovery depending on the sub industry.

What it Means for M&A

The semiconductor industry is in the midst of a consolidation phase. Global demand for semiconductors increased significantly due to Covid and the government’s promotion of sustainable initiatives like electric vehicles. Additionally, Russia’s invasion of Ukraine has cut off supplies of Neon from Ukraine, an essential component to the chip making process. The additional stress has placed more urgency on the search for more diverse and resilient supply chains. 

Research and development is becoming increasingly important for companies to establish and maintain a leading position in the market. So, semiconductor companies are turning towards acquisitions through which production capacity can be expanded, and chips can be made more affordable. 

According to GlobalData Deals, the semiconductor industry reported 354 M&A deals valued at $354 billion in 2021, with 115 of these deals having “increasing scale” as their rationales. 

Thus, the capital inflows into the semiconductor industry will drive M&A and break supply chain bottlenecks.

The House recently passed a $280 billion bill aimed at boosting U.S. semiconductor manufacturing to remain competitive with China. The Chips and Science Act of 2022 will spend $52.7 billion on direct financial assistance for the construction and expansion of semiconductor manufacturing facilities, as well as other programs. The bill will also allocate $39 billion for semiconductor manufacturing. However, also includes $11 billion to advance semiconductor manufacturing research and workforce training. 

Additionally, there are expectations for increased M&A activity by non-semiconductor companies. As a result, that want direct access to hard-to-find chip designers. In addition, better control over their designs. 

Apple set the precedent for this, by bringing their chip design capabilities in-house through numerous acquisitions. Microsoft, Amazon, and Google also design chips for their own products and may follow in the footsteps of Apple.

Automakers are also beginning to bring their design capabilities in-house. Tesla has historically designed many of its chips in-house, allowing it to better navigate the supply chain disruptions. Moreover, the expectation is that other automakers will pursue semiconductor M&A to take advantage of in-house capability. 

The main headwind for semiconductor M&A is antitrust scrutiny.

For example, earlier in 2022, NVIDIA’s $40 billion deal to acquire Arm Limited became terminated. 

Between 2017 and 2020, large deals over $1 billion increased annually as a proportion of total M&A transactions from 2% in 2017 to 8% in 2020. However, regulatory, economic, and geopolitical issues have caused a reverse in this trend. According to Accenture, only 5% of overall semiconductor M&A transactions were over $1 billion. 

The rise in small deals can be attributed to the bottleneck, as companies are transforming the way that they work. They are using M&A to acquire physical assets that can help them optimize their current operations to become more competitive. 

Case Study

On February 14, 2022, Advanced Micro Devices (NASDAQ: AMD) announced the completion of its acquisition of Xilinx in an all-stock transaction. In the deal, Xilinx shareholders received around 1.72 AMD shares for each of their Xilinx shares. Representing a premium of almost 25% over the company’s current value. The deal has a value of $49 billion, and became the largest chip deal in history.

The deal enables AMD to expand beyond its scope of product offerings, which will allow it to expand into opportunities in data centers, embedded computing, and telecommunications. Xilinx also has a footprint in other markets, like defense, broadcast, and consumer electronics, which will help expand its total market to $135 billion from $80 billion.

The acquisition was a necessity for AMD, as it continues to fight for market share in the data center against Intel and Nvidia.

“The acquisition of Xilinx brings together a highly complementary set of products, customers and markets combined with differentiated IP and world-class talent to create the industry’s high-performance and adaptive computing leader,” said AMD President and CEO Dr. Lisa Su. “Xilinx offers industry-leading FPGAs, adaptive SoCs, AI engines and software expertise that enable AMD to offer the strongest portfolio of high-performance and adaptive computing solutions in the industry and capture a larger share of the approximately $135 billion market opportunity we see across cloud, edge and intelligent devices.”

In conclusion, the semiconductor industry has increasingly been a function of size. Improvements depend on the ability to squeeze more into the chips. However, the costs associated with these improvements have been exceptionally high, leading to more consolidation.

We are seeing the big chip makers like Intel, Nvidia, and AMD all pursue M&A deals in order to solidify their standing as the top chip makers. Lastly, with an increasingly consolidated market, the smaller firms will likely be forced to consolidate to avoid being wiped out by these larger firms.  

What is the Future of the Semiconductor Industry? Semiconductor Industry Outlook

Written by Andrew Bernstein

What is the Future of the Semiconductor Industry? Semiconductor Industry Outlook by Andrew Bernstein

“A Chip Shortage Recovery Guide.” Bain, 25 Mar. 2022,

Andrews, Natalie. “House Passes Chips Act to Boost U.S. Semiconductor Production.” Wall Street Journal, 28 July 2022, Accessed 1 Aug. 2022.

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Fitch, Asa. “AMD Agrees to Buy Rival Chip Maker Xilinx for $35 Billion.” Wall Street Journal, 27 Oct. 2020, Accessed 1 Aug. 2022.

Munoz, Stefani, and Stefani Munoz. “The Value of Small M&a Deals for Chipmakers.” EETimes, 26 May 2022,

“Semiconductors: Supply-Chain Shortages Will Spur M&A.”, Accessed 1 Aug. 2022.

“The Semiconductor Decade: A Trillion-Dollar Industry | McKinsey.”,

What is the Future of the Semiconductor Industry? Semiconductor Industry Outlook

Technology Research & News