Amid the global uptick in demand for semiconductor chips, it may seem that every sector with a “digital presence” will need these pieces of silicon but some areas of the industry could benefit more than others.
Management consultancy McKinsey has identified three subsectors that will grow more than others, generating 70% of the industry’s overall growth up to 2030.
These are the automotive, computation and data storage, and wireless sectors. Among the three, automotive is likely to be the strongest subsector and could see a trebling of demand, fuelled by applications like autonomous driving and e-mobility.
However, the growth will be coming from a relatively low base. In 2020, automotive accounted for just 8% of semiconductor demand. McKinsey estimates that this proportion may hit 13%–15% by the end of the decade and be responsible for as much as 20% of the industry’s growth come 2030.
McKinsey also expects 4%–6% growth in the computation and data storage market, possibly fuelled by demand for servers to support applications such as AI and cloud computing.
Meanwhile, in the wireless segment, smartphones could account for the majority of expansion amid a shift from lower- to mid-tier segments in emerging markets and backed by growth in 5G.
The McKinsey report also notes that sales in the semiconductor industry grew by more than 20% to about US$600 billion ($817.7 billion) in 2021 and studies suggest the industry’s aggregate annual growth could average from 6%–8% per year up to 2030.
Assuming ebitda margins of 25%–30%, McKinsey’s analysis of 48 listed companies shows that current equity valuations support average revenue growth of 6%–10% up to 2030 across the industry.
This would mean a US$1 trillion industry by the end of the decade, assuming average price increases of about 2% a year and a return to balanced supply and demand after current volatility.
The consulting firm writes that “manufacturers and designers should now take stock and ensure they are best placed to reap the rewards” amid worldwide “megatrends” like remote working, the growth of AI, and soaring demand for electric vehicles.
Despite potential short-term volatility due to supply-demand mismatches and a changing global economic and geopolitical outlook, McKinsey also echoes the view that the outlook for the semiconductor industry looks bright.
Furthermore, with growth set to continue in the longer term, the task for industry leaders will be to focus strategically on R&D, factories, and sourcing to unlock areas of opportunity, they highlight.
