The semiconductor industry is still in a “transition year,” according to the CEO of the West’s sole producer of silicon wafers, as manufacturers navigate through the tail end of a prolonged slump in demand.
During the pandemic, chipmakers experienced significant profits due to a surge in consumer electronics purchases and supply shortages. However, the end of the pandemic brought a downturn, with manufacturers and retailers facing increased inventories and a decrease in consumer purchases as people returned to outdoor activities.
While chip companies hope the AI boom will boost demand, the CEO of a major German semiconductor firm believes the industry must wait a bit longer for a full recovery.
“We are still at the end of a down cycle,” stated Michael Heckmeier, CEO of German chip supplier Siltronic, following the opening of the company’s new wafer fab in Singapore. “2024 is a transition year.”
Heckmeier anticipates the industry will recover next year, driven by trends such as artificial intelligence, electromobility, and digitalization.
Some chip companies, like Nvidia and its suppliers, are already benefiting from the AI boom. Nvidia, whose GPUs are crucial for training large language models, reported a 126% revenue increase to $60.9 billion in 2023.
However, most of the industry warns that demand could remain subdued this year. In April, Taiwan Semiconductor Manufacturing Company, the world’s largest contract chipmaker, lowered its 2024 outlook due to weak smartphone and personal computer markets. Similarly, United Microelectronics Corporation reported “muted demand” in the automotive and industrial sectors because of slower-than-expected inventory reduction.
Another Chip Win for Singapore
Munich-based Siltronic manufactures silicon wafers used in chipmaking and is the only Western wafer manufacturer. In April, Siltronic revised its 2024 outlook downward, citing continued weak demand.
Despite this, Heckmeier emphasized in his opening speech that new technologies highlight the growing demand for semiconductors and wafers. He affirmed that Siltronic is “fully prepared” to meet this demand with its new $2.2 billion plant in Singapore, the largest investment in the company’s history. The plant is expected to produce 100,000 wafers per month by year’s end and could reach full capacity within five years. Siltronic opened its first fab in Singapore in 1999.
Singapore has attracted several significant chip-related investments in recent years. GlobalFoundries and UMC, two chipmakers partnered with Siltronic, announced investments of $4 billion and $5 billion in Singapore, respectively. Recently, TSMC-backed Vanguard International Semiconductor announced a $7.8 billion plant in a joint venture with the Netherlands’ NXP Semiconductors.
Amid fierce global competition for semiconductor investments, Heckmeier chose Singapore for Siltronic’s new plant due to its familiar and favorable environment.
“When deciding on a new investment, you analyze various factors like energy costs, personnel costs, and the overall environment. This led to the decision to expand where we are already established rather than choosing a new location,” he said.
Singapore has been involved in semiconductor manufacturing since 1968 and now hosts companies across the supply chain, including suppliers, designers, and chipmakers.
The semiconductor industry contributes nearly a quarter of Singapore’s manufacturing value, with manufacturing accounting for 20% of the country’s GDP. Singapore’s Deputy Prime Minister Heng Swee Keat announced the government’s commitment of $28 billion to the R&D ecosystem, with chip research being a key focus area.
