India accounted for 0.25% of the Manufacturing Industry Output in 2024 for semiconductors and components. While it might grow rapidly internally, its competitors are simply too far ahead in terms of level and volume of production for India to make much headway, says Tim Dawson, Vice President – Industrial Automation, Interact Analysis in an interview with Rakesh Rao.

Production of semiconductors over the last two years has been highly variable depending on the country. The nature of the semiconductor market means it is extremely cyclical, and this often results in extreme highs and lows. Years of high growth naturally bring about periods of the market pulling back and slower production. The primary cause of this is end users not knowing which semiconductor supplier will deliver to them first. As a result of this supply chain uncertainty, customers have been known to make multiple orders to different manufacturers. When they receive the required semiconductors, they will either cancel the outstanding orders (which leads to semiconductor manufacturers having a glut of chips that are no longer required) or the end user may accept the existing orders but reduce the scope of any future orders. This inventory stockpiling is what causes negative growth in some years, as semiconductor manufacturers can simply send out inventory instead of manufacturing new chips. 

 

The key end user sectors for the industry are primarily electronics and automotive. According to the WSTS (world semiconductor trade statistics) forecast, primary areas of growth are memory and logic integrated circuits. These categories cover chips used in everything from computers and smart phones to MRI machines and smart refrigerators. The primary growth is in both Americas regions (specifically the US as a direct result of the CHIPS act) and in APAC. 

 

As stated, the way the sector has been performing varies wildly from region to region. 2023 was particularly weak in APAC following particularly strong performance in 2021 and 2022. South Korea’s semiconductor industry, for instance, grew by 19% in 2021 and 3% in 2022. However, this was followed by a tough 2023, when the market shrank by 9.5%. 2024 marked a return to form, with growth of around 20% expected. Similarly, Taiwan’s semiconductor market grew 20.5% and 13.2% in 2021 and 22 respectively before shrinking by 13% in 2023 and bouncing back strongly in 2024 similar growth to South Korea of over 20%.

The picture in North and South America regions in general, is slightly different with fewer ups and downs. The sector has grown continuously due to heavy investment in the sector, as the US tries to make itself more self-sufficient and more competitive in the production of these key components. Europe has experienced tougher market conditions, and 2023 and 2024 growth is essentially flat, as the majority of semiconductors consumed in Europe are produced in Asia. This is the result of a range of factors, including lack of available key materials, intense competition from established manufacturers in Asia, and the high set up and maintenance cost of fabrication plants. To give you an idea of the scale, the whole of Europe produces around the same value of semiconductors as the US, which is the 6th largest producer globally. China is the world’s largest producer of semiconductors and seems to be far less cyclical than its neighbors in the region, with consistent growth of around 5% year-on-year.

The top 5 manufacturing regions for semiconductors in 2024 were China (43%), South Korea (13.5%), Taiwan (9%), Singapore (7.1%) and Japan (6.2%) and this split has been pretty consistent for almost the entirety of the MIO study (i.e. roughly the same split from the early 2010s onwards).  Therefore, I wouldn’t say production is necessarily shifting more towards the APAC region. Instead, I would suggest it has already shifted and those making big gains in recent years have been the smaller regions with a dedicated focus on the semiconductor market, namely Taiwan and Singapore. This focus on semiconductors has slowly enabled these territories to overtake Japan in the production of chips. Both Singapore and Taiwan have strong government support, well trained workforces, a focus on research and development and have received large amounts of investment in the sector from both domestic and international companies. Taiwan has TSMC, which is a global leader in advanced chips, while Singapore has carved out a niche for itself as a packaging and testing hub.

As the AI boom takes off, we expect to see even greater gains in the semiconductor industry. It is comparable to the space-race in a similar way to different countries aiming to reach the moon first. Now different countries want to reach artificial general intelligence first. Whether they will or not, and whether it is a good thing or not, is a different debate. The point is that this will drive more and more investment in the semiconductor industry, as technology evolves and the complexity and need for more chips continues. This is likely to drive more assembly and testing capacity at a global level. Another thing to consider is the geopolitics of semiconductor production. One of the key reasons the US is focusing so much of its resources on the semiconductor sector is that it does not want key infrastructure and supply chains to be reliant on Chinese-produced semiconductors. The US is not alone in this and I suspect we will see the smaller regions make inroads into China’s market share as exports switch to these regions.

Anything is possible, but realistically probably not any time soon unless there are significant changes to the current market. India accounted for just 0.25% of the Manufacturing Industry Output (MIO) value in 2024 for semiconductors and components. While it might grow rapidly internally, its competitors are simply too far ahead in terms of level and volume of production for India to make much headway. India does have strengths which could help it in the longer term, such as R&D centers for many the top semiconductor design companies and around 20% of the worlds semiconductor design engineers. On the other hand, India imports about 90% of its semiconductors and is reliant on other regions for growth in the sector.

Our outlook for the next two years is for high single-digit to low double-digit growth in 2025 and double-digit growth in 2026. The regular downturn is anticipated sometime after this but this will be highly dependent on how quickly the market for advanced semiconductors continues to grow over the next few years.