Given you recently presented at Semicon West, what are the most important shifts and talking points happening in the semiconductor industry today?
Jean-Christophe: At Semicon West, we focused on two main topics. The first was understanding the value flow of the semiconductor part of AI. While companies like NVIDIA are at the forefront, there’s a vast network of companies worldwide—spanning Taiwan, Japan, Korea, the US, and Europe—that supports NVIDIA's growth. This ecosystem is vital, as each part of the supply chain must function smoothly to support these leaders. The second topic was the complexity of shifting production from Asia to the US. Although bringing TSMC to the US is a step forward, it is a small part of the puzzle. The entire supply chain involves hundreds of companies with specific skills that are not easily relocated. This situation highlights the intricate challenges of building a fully functional semiconductor industry in a new region.
Emilie: The industry is indeed evolving rapidly. Just five years ago, the semiconductor business was primarily driven by demand and supply dynamics. Today, however, geopolitics plays a significant role in decision-making processes, particularly in manufacturing and supply chain management.
Companies now have to consider geopolitical factors to ensure the security of their supply chains. Another important trend impacting the industry is sustainability, which is becoming increasingly integral to semiconductor operations.
Where does Europe stand in the future of the semiconductor industry, especially with emerging technologies like EVs and GenAI?
Jean-Christophe: Europe’s position in the semiconductor industry can be examined on three levels: device makers, equipment makers, and subsystems. At the device level, Europe holds a 7-8% market share, primarily in power electronics, image sensors, and microcontrollers—areas where it excels in older, yet crucial, technologies. For equipment and subsystems, Europe is much stronger, holding a 35% market share in equipment and nearly 40% in subsystems, making it a key player in the global supply chain. European companies supply critical components for semiconductor equipment worldwide, despite the limited direct impact on leading-edge AI technologies.
Emilie: New fabs are being established in Germany, advanced packaging solutions in Italy, and potential partnerships in France. Although Europe’s investments in this sector are smaller compared to other regions, the approach is thoughtful and deliberate, ensuring that knowledge and workforce development keep pace with industry growth.
With the success of the CHIPS Act in the U.S., do you think Europe might implement similar regulations to benefit its semiconductor industry, or is it more about taking a wait-and-see approach?
Emilie: The European Commission faces constraints that the U.S. federal government does not, which makes it challenging to implement regulations as swiftly as the U.S. did with the CHIPS Act. Reaching consensus among EU member states takes time, and so far, there has not been significant movement towards adopting similar legislation. However, Europe is gradually aligning its strategies with industry evolution rather than rushing into regulatory changes.
How is the advanced packaging sector evolving as a result of continuous innovation in chips?
Emilie: The advanced packaging sector really took off about ten years ago with the smartphone industry, which demanded thinner packages with lower power consumption. This demand spurred significant research and development in advanced packaging technologies like 2.5D and 3D integration, which stack components to achieve high performance with low power consumption. These advancements are now critical enablers for AI chips and data center PCs, driving significant interest in our reports.
Jean-Christophe: We have seen a clear need for advanced packaging as transistor sizes continue to shrink. The investment required to develop new transistor technologies is becoming prohibitively expensive for most foundries, leaving only a few players in the race. Advanced packaging offers a solution by enhancing performance without the massive investments needed for cutting-edge transistor development.
The semiconductor industry relies heavily on raw materials like silicon carbide and gallium nitride. How is the supply of these materials changing, especially in terms of localization in the US and Europe?
Jean-Christophe: The supply of key raw materials, such as gallium and rare earth elements, remains heavily concentrated in China, which controls about 70% of production and a significant portion of processing. Relocating these resources is not feasible, as they are geographically bound, and establishing new mines outside of China would take 5-10 years. While there is a push to explore new mining opportunities in Europe, the US, and Africa, China’s dominance in this area is unlikely to change soon. Regarding silicon wafers, their manufacturing is more globally distributed, with production spread across China, Taiwan, Europe, Japan, and the US. This is less of a concern in terms of supply chain localization. However, when it comes to chemical materials essential for semiconductor processes, Japan leads the industry with highly specialized companies. These chemicals often need to be produced close to semiconductor fabs, leading to a trend of companies relocating production to be near new fabs in the US. This trend is less pronounced in Europe due to fewer new fabs being established, but it is significant in the U.S. as companies strive to support big manufacturing sites like those of Samsung, TSMC, and Micron.
Are you bullish or bearish on the European semiconductor market?
Emilie: I am quite positive about the European semiconductor market, particularly in areas like electrification and the increasing electronic content in automotive. While the market faces challenges, especially for European car makers, the overall outlook is promising, particularly as automotive electronics continue to grow.
Jean-Christophe: There are certainly headwinds for companies like STMicroelectronics and Infineon, particularly due to China’s push to localize its power electronics production. However, European companies have a strong diversification across markets and product types, which helps mitigate risks. The equipment and systems segment in Europe is set for incredible growth, with European companies holding leadership positions worldwide. Although the European market faces challenges, particularly from Chinese competition, it is well-positioned for stable growth across multiple sectors.
Will the upcoming US elections affect the semiconductor industry, particularly in light of policies that are often bipartisan?
Emilie: The semiconductor industry is certainly a target for the White House, and regardless of who wins the election, there will be decisions that impact global relationships and export rules. These policies will likely continue to shape the industry, particularly in terms of international trade and export restrictions.
Jean-Christophe: What began under Trump has continued with Biden, and it is expected to persist under the next administration. The U.S. Department of Commerce is preparing new export restrictions aimed at limiting China’s access to semiconductor devices and equipment. This trend will continue to put pressure on Chinese companies and influence the global semiconductor market, regardless of the election outcome. The ongoing push against China will likely intensify, affecting the industry on a broad scale.
As you look forward, which segments of the industry are you most excited to cover, particularly with the megatrends like GenAI and electrification?
Jean-Christophe: There are three key trends that excite me. First, AI and the data processing required to support it are critical, as is the supply chain that backs it up. Second, electrification is another obvious driver of growth. But what's particularly interesting is the widespread integration of intelligence into various products, driven by sensors and data processing. This trend is evident in everyday items like washing machines, and it’s spreading across various industries and regions. This diffusion of intelligent sensors and processors is enhancing the value of semiconductors in all sorts of products, making it a significant growth area.
Additionally, while Gen AI and electrification are leading the market's expansion, the growing use of microcontrollers, power devices, and sensors in electronic systems is also noteworthy. This aspect of the industry is independent of the major trends like EVs or data centers and represents a stable, long-term growth opportunity. As these technologies integrate into everyday life and manufacturing globally, they will remain critical for the next 50 years or more.
With Yole Group’s significant growth, how do you see the company expanding, especially in the US market, where the semiconductor industry is booming?
Jean-Christophe: Yole Group has been experiencing substantial growth, doubling in size over the past three years, and we anticipate similar growth in the next three years. Our key strength lies in understanding market evolution from multiple perspectives: market demand, supply chain dynamics, and technological advancements. This comprehensive approach allows us to provide valuable insights to our customers, helping them navigate the complexities of the semiconductor industry.
