Future of the semiconductor industry: Key trends, tech, and strategies

Capgemini explores semiconductor industry trends, the future of the industry, and supply chain management challenges and innovations.

The global semiconductor industry is facing a new set of challenges that have impacted the industry and propelled it towards innovation.

According to global Capgemini research on semiconductor market trends, companies expect demand for semiconductors to increase by 15 percent by 2026. Downstream organizations – companies that rely on semiconductors for their products or services – expect demand to grow by 29 percent.

We’ve identified several major trends that are shaping the future of the semiconductor industry, and how semiconductor companies can develop the right tools, technologies, and business strategies to build resilience across the value chain.

At a glance: Top global semiconductor industry challenges

• Building semiconductor manufacturing supply chain resilience is becoming increasingly important as companies mitigate geopolitical risks and rising chip demand. This shift is sparking increased investment in digital tools and heightened reindustrialization efforts via domestic shoring and nearshoring.
• Generative AI adoption is on the rise, challenging semiconductor companies to effectively implement the emerging technology into their products and processes.
• Sustainability remains a critical consideration when developing new products and services amid sourcing and supplier uncertainty.

Semiconductor supply chain resilience becomes front and center

Semiconductors are among the most traded goods in the world, and any disruption in the semiconductor supply chain can significantly impact the global economy.

According to our research, the flow of components, materials, and completed semiconductor products has been hindered by uncertainty around international trade, export restrictions, and tariffs, with geopolitical tension (69 percent), fab capacity (65 percent), and reliance on a small number of semiconductor suppliers (52 percent) impacting perception around supply chain reliability.

While more than half of downstream organizations plan to prioritize chip sustainability, supply chain resilience, and cybersecurity features in the next two years, only two in five semiconductor organizations are confident in the resilience of their supply chains.

How are semiconductor companies building supply chain resilience?

In response, the semiconductor industry expects to increase its domestic sourcing from the current 40 percent to 47 percent to mitigate the risks associated with international logistics. To enhance stability, the industry also anticipates an increase of four percent in nearshoring. Seventy-four percent of semiconductor organizations surveyed expect to increase their US investments, compared to 59 percent increasing their investments in Europe.

How can semiconductor companies mitigate geopolitical risks to the supply chain?

For semiconductor companies, it is imperative to establish process maturity that will enable the ability to switch easily between industries and diversify through cooperation and strategic relationships.

Diversify the supplier base. Supplier base diversification helps reduce reliance on a smaller pool of providers, while expanding the partner ecosystem. According to our research, 74 percent of semiconductor companies are actively exploring diversification of their supplier base. Domestic sourcing is also anticipated to increase from the current 40 percent to 47 percent to mitigate the risks associated with international logistics.

Collaborate globally. Global semiconductor collaboration is an effective supply chain risk-mitigation strategy that allows semiconductor organizations to access new markets, navigate unfamiliar regulatory systems, access a wider range of technologies and expertise, and mitigate potential supply chain bottlenecks. For example, TSMC, Robert Bosch, Infineon, and NXP Semiconductors announced their European Semiconductor Manufacturing Company (ESMC) joint venture in Germany to provide advanced semiconductor manufacturing services within the EU.

Develop alternative materials. The limited availability of critical materials like silicon wafers, inert gases, and rare earth elements affects 67 percent of semiconductor supply chains. Finding viable alternative materials can mitigate such risks, and diversifying material sources can enhance resilience against market fluctuations and trade restrictions.

Implement semiconductor digital twin technology. Digital twins enable proactive simulation of various scenarios, allowing the anticipatory identification of vulnerabilities. By analyzing these simulations, organizations can develop mitigation strategies and optimize their operations, ensuring continuity of supply chain operations.

Here are some examples of where semiconductor companies are investing in digital twin technology.

• Device-scale twin: Detailed visualization of a device to reduce cycles of silicon learning, thus reducing waste and resources
• Process-scale twin: Using simulation to streamline process development, thus reducing chemical and electricity usage
• Equipment-scale twin: Improving the first time right from design through installation by finding issues before physical build or building equipment expertise faster and more effectively.

Strengthen cyber defenses and protect data integrity. The complexity of semiconductor supply chains attracts a critical threat landscape. Implementing robust security measures to every link of the semiconductor supply chain is important for enhancing cybersecurity and data integrity. As Gen AI continues to become more prevalent, organizations should continue to innovate to safeguard the integrity of both their products and data.

Generative AI sparks innovation across the semiconductor value chain

Gen AI is probably our generation’s most disruptive innovation, with the potential to shape the future of semiconductor manufacturing. According to Capgemini research, increased adoption of artificial intelligence and generative AI is driving the need for specialized neural processing units (NPUs) and high-performance graphics processing units (GPUs) that can handle massive computations and large datasets efficiently. Around 48 percent of downstream organizations say that Gen AI adoption is dependent on how well semiconductor suppliers can meet increased demand.

What are some top Gen AI use cases for semiconductor manufacturing?

From simple task automation to product development, the semiconductor industry is poised to accelerate Gen AI adoption in a number of ways.

• Automate semiconductor design processes. AI-led automation can accelerate development cycles, with machine learning algorithms and Gen AI optimizing various stages of the chip design workflow – from initial architecture to physical layout. Establishing digital continuity across the product lifecycle can help deliver the data visibility needed to accelerate efforts. Learn more about how digital continuity is reshaping semiconductor manufacturing here.
• Develop AI-optimized semiconductor products. As downstream industries integrate AI into their products and services, the semiconductor industry must focus on products optimized for AI workloads. These specialized chips are designed to deliver enhanced performance, energy efficiency, and scalability. Learn more about elevating semiconductor chip design with Gen AI here.
• Improve production efficiency with intelligent systems. Through intelligent operations such as AI and ML, semiconductor manufacturers can enhance production efficiency, optimize complex fabrication processes, reduce the incidence of defects, and accelerate time-to-market for advanced chips. Learn more about improving semiconduction production efficiency with Gen AI here.

Harnessing the power of semiconductor sustainability

As the Earth’s ability to provide what we need decreases, the need to act on sustainability is increasing. Semiconductor companies are launching initiatives focused on producing sustainable products that enable low-power consumption or reduce the carbon footprint of their customers.

How can the semiconductor industry develop more sustainable manufacturing practices?

• Lower environmental impact. Lowering the environmental impact of the chip manufacturing process is of the utmost importance. Semiconductor companies can do this by focusing on developing sustainable packaging, investing in green chemistry practices, and developing stronger supplier relationships. By shifting to environmentally friendly alternatives, organizations can reduce their ecological footprints.
• Minimize ecological footprint. Commitment to sustainability is not just a trend but an essential step in ensuring the industry’s long-term viability. This motivates organizations to balance technological advancement with environmental responsibility by switching to renewable energy sources and designing energy-efficient chips.
• Utilize renewable energy sources. Reducing reliance on fossil fuels and mitigating the impact of fluctuating energy prices can lead to long-term cost savings. Switching to renewable energy sources can also ensure a more stable and reliable energy supply, supporting the continuous operation of manufacturing processes.

Learn more about sustainability strategies for semiconductor companies here.

The future of the semiconductor industry 

The semiconductor industry is in a state of flux, with several major trends – including supply chain resiliency, generative AI, geopolitical tensions, and sustainability – emerging from this transition.

Semiconductors propel civilization forward and enable the creation of better societies. By investing in advanced technologies, strengthening supply chains, embracing sustainability, fostering collaboration, and harnessing AI, the semiconductor industry can overcome uncertainty and drive the next wave of global innovation.

Capgemini is at the forefront of the semiconductor revolution. Our comprehensive suite of services is designed to meet the unique challenges and opportunities of the semiconductor sector, ensuring your business stays ahead in a rapidly evolving market.