The semiconductor industry in the AI era

Innovating for tomorrow’s demands

Semiconductors power the digital world. Virtually every electronic device in use today, including smartphones, computers, cars, and satellites, relies on semiconductors to operate. And as the world becomes increasingly digital, the demand for semiconductors continues to grow.

Companies in the semiconductor industry expect demand for semiconductors to increase by 15% by 2026. Downstream organisations – companies that rely on semiconductors for their products or services – expect demand to grow by 29%.

This anticipated growth is due, in no small part, to the increasing use of AI and generative AI (Gen AI). These technologies need special chips called neural processing units (NPUs) and high-performance graphics processing units (GPUs) to handle large amounts of data and complex calculations.

A new report from Capgemini Research Institute, based on a survey of 250 executives from the semiconductor industry across Asia–Pacific, Europe, and North America, and another survey of 800 downstream executives from ten sectors, examines the semiconductor industry today as well as looking toward the coming years.

The report, titled The Semiconductor Industry in the AI Era, has found that, due to the high demand for semiconductors, over half of all downstream organisations are concerned that the industry might not be able to meet their needs. These concerns often stem from uncertainties around supply chain reliability, especially due to geopolitical tensions and fab capacity and the need for enhanced customisation. Consequently, one in three downstream companies is designing their own chips or considering the option to gain better control over their supply chains.

The research has also found that only two in five semiconductor organisations are confident in the resilience of their supply chains. To improve stability and reduce reliance on single regions, semiconductor companies are focusing on onshoring and “friendshoring” (using supply chains in countries that are geopolitical allies). The industry expects domestic sourcing to increase by 17% in the next two years. Additionally, 74% of semiconductor companies plan to invest more in the US and 59% in the EU, largely supported by the recent government subsidies in multiple countries (through the U.S. CHIPS Act, the EU Chips Act).

However, technological advancements present new opportunities. To keep up with Moore’s law, the semiconductor industry continues to innovate in several areas, notably design, manufacturing, and packaging. The report also notes that hardware security remains a top priority, with significant investments in secure chip design, hardware-based encryption, and root of trust (RoT) technologies. There is also steady progress in integrating software and hardware to create more adaptable and programmable semiconductor solutions, referred to as the softwarisation of semiconductors, but the monetisation of this remains a challenge. While this innovation is crucial for expanding use cases, extending chip lifecycles, and enhancing customisation, the industry struggles to monetise its software effectively.

The industry is also becoming more eco-friendly by reducing energy consumption, implementing water recycling and reuse systems, using less toxic alternative chemicals, and minimising waste.

The Semiconductor Industry in the AI Era also highlights areas of emerging opportunities that semiconductor organisations should consider focusing on, including:

• Utilising AI and Gen AI;
• Investing in cutting-edge fabrication methods;
• Diversifying supplier networks;
• Coordinating strategies with governmental initiatives;
• Enhancing cybersecurity measures; and
• Adopting open standards and open-source collaboration.

Download the full report to find out more.