Capgemini: Gen AI Driving Surge in Semiconductor Demand
The Capgemini Research Institute’s report, The semiconductor industry in the AI era: innovating for tomorrow’s demands, highlights how the rise of generative AI (Gen AI) is driving an increased demand for advanced semiconductor solutions.
In addition to other Industry 4.0 technologies such as 5G, IoT, autonomous vehicles, AR/VR, and edge computing, Gen AI is pushing the need for more powerful, efficient and customisable chips.
Chips which are essential to the modern supply chain.
Semiconductor manufacturers have recognised this shift, with nearly three in five indicating that Gen AI, 5G and other next-generation communication protocols are influencing their supply chain strategies and decisions.
This growing demand requires manufacturers to rethink their supply chain models to ensure they can meet future needs efficiently and reliably.
“We are at a pivotal moment for the semiconductor industry," says Brett Bonthron, Executive Vice President and Global High-tech Industry Leader at Capgemini.
"Gen AI is driving accelerated demand for chips and semiconductor companies face increasing demands from customers who want more personalised and software-centric experiences."
Despite this awareness and the industry's leadership in innovation, challenges lie ahead.
While technological breakthroughs in semiconductors have driven innovation in downstream industries and led to the creation of smarter products, fewer than three in ten downstream organisations deem chip supply to be adequate.
Moreover, confidence in semiconductor manufacturers' ability to meet rising demand has been undermined by geopolitical tensions, international trade restrictions and the pursuit of sovereignty.
Finding new strategies to navigate these challenges and meet demand must be a priority for the industry.
This is especially crucial as demand for AI chips, custom silicon chips and memory-intensive chips is expected to grow further over the next 12 months according to the report.
From external vendors to in-house design
Many semiconductor manufacturers are adopting new strategies to meet growing demand.
Their focus is on two key objectives: Mitigating supply chain disruption and ensuring a steady supply of advanced chips.
These strategies involve exploring in-house custom chip design, allowing them to tailor semiconductors to the specific needs of their clients.
This approach reduces dependence on external vendors, protects intellectual property (IP) and improves speed, efficiency and compatibility across hardware and software.
The semiconductor industry is also intensifying its focus on innovative design, pushing the limits of physics to better serve the needs of downstream organisations.
Key advancements include the development of extreme ultraviolet (EUV) lithography, smaller process nodes, 3D packaging, chiplet integration and chip architectures.
As highlighted in the report, the industry expects a 10% increase in R&D budgets over the next two years.
Brett agrees with this approach, adding that: “The industry should see this as an opportunity to ramp-up production and adopt a ‘chip-to-industry’ approach that supports a full stack, ’software-first’ set of capabilities.
"Investment in cutting-edge fabrication methods and design processes powered by AI and Gen AI will be key to meet the specialised needs of emerging applications.
"Equally, it is crucial that the industry further enhances sustainable manufacturing processes and uses advanced security to safeguard IP.”
Three priorities: supply chain, security & sustainability
Capgemini's report highlights that chip sustainability, supply chain resilience and security are the primary priorities for semiconductor manufacturers.
The report reveals that more than half of organisations plan to make substantial investments in these areas over the next two years.
In terms of supply chain resilience, semiconductor manufacturers are actively working to strengthen their operations.
Many are focusing on mitigating risks related to international logistics.
Domestic sourcing is expected to increase from 40% to 47%, while nearshoring is forecasted to rise by 4% over the next two years.
We’re also seeing that 75% of organisations in this industry plan to increase their investments in the US, while this figure drops to 59% when we focus on Europe.
In terms of security, nearly three in five semiconductor design organisations are placing a high priority on cryptographic protections to enhance their security measures.
On the sustainability front, manufacturers are responding to the growing emphasis on chip sustainability, which is becoming a key factor in the selection process.
The industry is making significant strides with eco-friendly initiatives such as energy conservation, water recycling and reuse systems, the use of less toxic chemicals, and waste minimisation.
With this approach, semiconductor manufacturers are better positioned to meet rising demand sustainably while driving innovation.
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