Accenture’s first chip report.
Image Credit: Accenture
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Three in four (76%) semiconductor executives expect supply chain shortages should ease by 2024, according to a new report from Accenture.
Yet the big consulting and financial services firm said companies need to be prepared to withstand other market pressures by focusing on investments that will help drive future growth.
Accenture said the report is based on a global survey of 300 senior semiconductor executives who evaluate their companies’ supply chain outlooks and innovation roadmaps.
Syed Alam, global high-tech lead at Accenture, said in an interview with VentureBeat that the major issues include macroeconomic effects, lingering COVID-19 challenges, the talent pipeline, supply chain issues and a lack of sufficient investment.
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The report said semiconductor companies are at the center of technology innovation, finance, geopolitics, and human ingenuity, touching virtually every aspect of business and people’s lives. The past few years, however, have been far from smooth sailing. The industry is still reeling from the chip shortage crisis,
and manufacturers are being challenged to build greater resiliency due to continually increasing demands on the supply chain.
Semiconductor companies also face ongoing conflicts that are disrupting energy supplies and entire supply chains, record economic inflation and fears of recession, and a tight labor market that’s making
it difficult for companies to recruit and retain skilled talent.
“The industry executives believe that talent pipeline is a much bigger issue than the investment,” he said. “It’s also a bigger issue than geopolitics. That’s one of the findings I find very interesting.”
That shortage is a big issue in the U.S., where thanks to the Chips and Science Act — signed by President Joseph Biden into law in August to provide $280 billion for U.S. chip manufacturing, among other things — there is a big push to build domestic manufacturing, Alam said. The same challenge is true for Europe.
“You need all of these skilled manufacturing people,” he said.
The executives cited challenges that could affect their ability to innovate even as the lingering effects of COVID-19 on the supply chain lift.
The other challenges identified most often were geopolitics (cited by 48% of respondents), cybersecurity threats (42%), the changing competitive landscape (39%) and talent shortages (35%), among others.
Faced with a changing industry landscape, two-thirds (65%) of the executives said they believe that the rate of Moore’s law — in which the number of transistors in an integrated circuit double about every two years — will slow down by 2024. In addition, 56% believe that promoting strong intellectual property protection and enforcement is one of the best ways to enhance the industry’s resilience moving forward.
Executives also reported an expanding role for AI—both in the enterprise and in the semiconductor
development process. Just under half (49%) said they are either deploying or scaling AI’s use in
analytics, and just over half (52%) reported their company relies on an even balance between
humans and AI in development. And 21% indicated their companies rely mostly on AI in semiconductor
Top drivers impacting semiconductor innovation
The report identifies areas for investment that will drive future semiconductor growth, including:
- The Metaverse – Two-thirds (67%) of executives believe that semiconductors are the most critical technology to the development of the metaverse, and 44% of executives expect to allocate more than 20% of their semiconductor production budget to the metaverse by 2024. Thirty years since the metaverse term was coined by science fiction writer Neal Stephenson, gradual advancements in technology promise to turn the concept into reality. Tech enterprise companies are building the infrastructure to create an environment that’s ripe for access, engagement and consumption.
- Digital Health – Fitness trackers and smartwatches represent the biggest growth opportunity for the industry, as these popular devices will benefit most from improved connectivity enabled by semiconductors.
- Mobility – Extended chip shortages and cost concerns are cited as the biggest roadblocks to mobility’s future, leading 93% of executives to believe car manufacturers should partner with semiconductor and technology businesses to develop next-generation mobility technologies.
- Sustainability – More than nine in 10 executives (93%) believe that sustainability initiatives will have a positive impact on profitability and create more sustainable consumer products. Sustainability was also cited as the area most likely to play the largest role in the semiconductor value chain within the next five years.
“As the demand for chips slows down amid inflationary concerns and an easing of the chip shortage, semiconductor businesses face a new set of challenges driven by geopolitics and a growing talent shortage,” said Syed Alam, global lead of Accenture’s High Tech industry practice. “To succeed, companies need to balance being resilient in tough times with continued investments in innovation.”
Despite its current challenges, the metaverse has become too big to ignore for most companies.
However, many CXOs are still struggling to formulate a comprehensive metaverse strategy that will
convince their stakeholders of its long-term value.
For semiconductor companies, their place in the metaverse is still in its infancy. They make the chips that power the devices and technologies. However, some semiconductor companies are using the metaverse to focus on the value chain, enhancing their ability to do R&D.
AMD is a great example of the changes. In 2020, AMD didn’t mention the metaverse, fast forward two years and one acquisition later at its 2022 financial analyst day, the company highlighted its “deep involvement” in the metaverse and “being at the forefront of where [it’s] going.”
The report also said semiconductor companies need to work closely with each other on initiatives that can move the entire industry forward. A good start to that end is the Semiconductor Climate Consortium, which has been created to reduce greenhouse gas emissions across the semiconductor value chain, Accenture said.
As more and more digital technologies are integrated into autonomous versus driver-operated
vehicles, semiconductor companies need to be aware of trends in the space and the opportunities
they create. For example, traditional modes of transportation are being upended with drone delivery
and air taxis already on the horizon, and autonomous vehicles aren’t that far away.
Within three to five years, a large majority of executives expect autonomous vehicles to be common for
trucking and long-hauling, as well as mass transportation. Innovation in the sector continues to be driven
by several semiconductor-enabled technologies. The most prominent of these are artificial intelligence,
machine learning, and natural language processing.
Shortages and pent-up demand
As for the supply chain shortages, he said, “Depending upon the product, the shortage is already starting to ease. It’s helped by reduced demand, as there is a lack of consumer demand because of economic headwinds. We’re seeing inventory creeping up also. Most of the areas are in a stable situation, some of the areas may still be a little bit constrained.”
I asked him a question about pent-up demand. The game consoles such as the PlayStation 5 and Xbox Series X/S were in high demand for the past couple of years. But as the shortages ease up, I wonder if the demand is still there.”
He replied, “I think the pent-up demand is still there. The consumer demand was exaggerated or supported by the overall economic environment. Now as the overall economic headwinds are there, the consumer demand is getting tempered also. So the pent-up demand may not be as much.”
For chip makers, the demand for graphics processing units may also be lower because crypto mining isn’t as lucrative anymore or even possible.
The metaverse and Moore’s Law
At the same time, executives believe that the metaverse will lead to new business opportunities. I asked if the metaverse comes on strong and Moore’s Law slows down, then we could have an energy consumption problem created by excessive computing demand.
“I want to highlight that 67% of the survey respondents believe that semiconductors are the most critical to overall metaverse development,” Alam said. “They play the key role in form factor, battery power usage and things like that.”
He added, “I think it could be argued that Moore’s Law is coming to an end in terms of shrinking dice. But now people can translate Moore’s Law into overall efficiency, whether you’re doing die shrinkage, or you’re doing 3D stacking or other things. So [chip] packaging is resulting in a lot of innovation.”
Accenture surveyed 300 semiconductors executives at the C-suite and EVP/ VP levels. The majority of respondents were based primarily in The United States, China, Japan, The Netherlands, South Korea and The United Kingdom and are involved to an extent in their company’s product strategy, with most in roles aligning with manufacturing, design and enterprise strategy. The survey was conducted online in September and October 2022.
Geopolitics rears its head
Alam said geopolitics is playing a key role in the overall semiconductor ecosystem.
“We are seeing the industry shaping up because of the geopolitics factors. In the U.S. and Europe, you see a lot of fabs getting built,” he said. “In the past, the U.S. solved for cost and efficiency, enabled by globalization. Now, in addition to cost and efficiency, geopolitics and location are also a consideration.”
Chip factories cost around $10 billion to $15 billion to build now, and the U.S. wants to make sure they get built in the U.S., rather than in China or other places.
“We should keep in mind we need the skilled workers also to run the fabs. So one of the things that we should continue to highlight is the need first talent to enable the semiconductor ecosystem,” Alam said. “You need people on the manufacturing floor.”
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