Deriving the Strategic Advantages of Semiconductors in 2023

Due to the global nature and development costs associated with the semiconductor industry, countries will adopt new strategies to derive strategic advantage from semiconductors.

FREMONT, CA:A company has a greater competitive advantage when it holds power over its suppliers, competitors, and customers due to its position in the supply chain. Such businesses will generate supra-normal profits. Companies competing within a free market imply an immediate investable future. Strategic advantage implies a longer-term perspective involving decisions in the short term to secure a longer-term benefit. This advantage applies to industries of critical national importance where profit is the primary motive, such as energy, healthcare, and defence.

Companies can take measures to secure a competitive advantage, but due to the timeframes and risks involved, they often require government intervention to secure a strategic advantage. The semiconductor industry is a perfect example of strategic and competitive advantage. Long-term investment by a few countries in silicon chip research has developed world-leading capabilities in silicon chip fabrication, particularly at leading-edge nodes. In response to this development, other companies have adapted by specialising in other parts of the semiconductor value chain.

Specialising in a particular function promotes innovation, improves productivity, and reduces costs. This approach has reduced PC costs massively and accelerated new product development, such as smartphones. As modern products increasingly rely on semiconductors, supply chain disruptions disproportionately impact economies, as witnessed during the recent chip shortage.

Generally, silicon chips run the software, and compound semiconductors with two or more elements offer specialist functions such as facial recognition and power management. A newer category of emerging semiconductors provides additional functions like displays. As economic security needs access to semiconductors, several countries have announced initiatives to improve supply chain resilience.

For example, a country with leadership and ownership of new development from discovery to large-scale manufacture and commercialisation will involve elements of collaboration and access. Few countries have significant capabilities within the main semiconductor groups, and in silicon, semiconductors are segmented by node size, including legacy, mainstream, and leading edge. At the same time, a lack of fabrication capability at strategically critical node sizes will require a collaborative or access strategy. Some countries also possess capabilities in compound semiconductors, which are segmented by application, including power, microwave, and photonics or quantum.

Such countries are excellent in R&D and design, resulting from significant organisational investments. It also indicated the strategic importance of compound semiconductors for applications such as electric vehicles, telecom, and defence. However, it also highlights a lack of scale-up capability.

Recent interventions to improve supply chain resilience will reverse globalisation, creating more localised supply chains. This will increase costs, regardless of building more capacity reducing costs in the medium term. In the longer term, there will be divergence in semiconductor standards based on geopolitical alignment.