It’s only March, but 2022 is already shaping up to be a transformative year for the semiconductor and electronic components industries. Here are some of the forces at work in the rapidly changing semiconductor market.
Fallout From Semiconductor Mergers
Mergers and acquisitions rolled in at a record pace in 2021. Companies sought to use cheap debt and bumper stock prices to emerge from the pandemic with transformative fusions. However, as late as December there were predictions that 2022 would look different. Some believed that mergers between publicly listed companies would be non-starters this year, in part due to Biden administration crackdowns on regulatory sign-offs.
This didn’t stop CMC Materials, a leading supplier of consumable materials primarily supplied to semiconductor manufacturers, from announcing the approval of its acquisition by Entegris in a cash and stock transaction valued at roughly $6.5 billion. This acquisition is expected to close in the second half of the year.
The FTC, meanwhile, has sued to block a much larger $40 billion vertical merger between Nvidia and U.K. chip design provider Arm, arguing that the combined firm would be able to stifle competing next-gen technologies. The commission has called it “the largest semiconductor chip merger in history” and insisted that they would act aggressively to protect the market from damaging effects on future innovation. Indeed, the deal that was originally announced in September 2020 had crumbled by February 2022. The regulatory issues had proven insurmountable.
Nonetheless, another market-shaking acquisition remains on the table. Intel has embarked on a foundry strategy it has dubbed IDM (integrated device manufacturing) 2.0, which will include a $5.4 billion acquisition of Tower Semiconductor, a provider of custom foundry services. Taking Tower into the Intel fold will enable the global company to advance its goal of becoming a major global provider of foundry capacity.
The Chips ACT Set to Rejuvenate Domestic Manufacturing
Semiconductor manufacturing capacity has been eroding in the U.S. for decades. In 1990, the share of total capacity located on U.S. soil was 37%. Today, it sits at 12%. While other governments have invested ambitiously in chip manufacturing and provided valuable incentives, the U.S. has neglected to take similar measures.
Not anymore. The CHIPS for America Act takes a major step towards reversing this trend by funding chip manufacturing and research, in addition to an investment tax credit, with the aim of strengthening America’s global leadership in chip tech. The House of Representatives further passed the America COMPETES Act on Feb. 4, 2022, including $52 billion in federal investments for domestic semiconductor research.
The next step will be for the House and Senate to reach a joint, bicameral agreement on CHIPS Act investments (the Senate passed the U.S. Innovation and Competition Act (USICA) act with its own $52 billion last summer). Once a combined bill is passed in both chambers, it can be signed into law and renew American leadership in semiconductors.
As Electronics Component Shortages Continue, Diversification Is Key
Deloitte expects electronics component shortages to continue in 2022, as described in their recent 2022 semiconductor industry outlook report. The research firm illustrates the severe impact of these shortages, explaining that “across multiple end markets, the absence of a single critical chip, often costing less than a dollar, can prevent the sale of a device worth tens of thousands of dollars.”
While semiconductor shortages and supply chain disruptions will remain at the center of the industry in the first half of 2022, Deloitte cautiously predicts that it will ease in the back half of the year. However, longer lead times for certain components could easily stretch well into 2023.
Current geopolitical events in Eastern Europe are sure to have an impact on these predictions as well. The White House had already warned the chip industry to diversify its supply chain back on February 11, 2022, in case of retaliatory Russian actions to interfere with the chip market. With more than 90% of semiconductor-grade neon coming to the U.S. from Ukraine and 35% of U.S. palladium coming from Russia, potential for disruption is extreme. In the wake of the invasion and increasingly stringent U.S. sanctions, risks of shortages involving these materials is substantially higher.
Stay up to date on these developments and more on the Sensible Micro blog. Don’t hesitate to get in touch with us if you have any questions or needs regarding hard-to-find components in this evolving market.
