A computer microchip is a closed unit containing computer circuitry which may be used for logical or memory related functions in an electronic device. The market growth may be attributed to factors including increasing demand and continuous product innovations. However, the set-up cost for manufacturing facilities is high, which may continue to act as a challenge to the industry. The increasing use of microchips in smartphones is also expected to drive demand over the next seven years. Modern day devices such as smart televisions and health monitors also make use of microprocessors, and may positively impact growth.
Innovation is anticipated to be one of the strongest growth points for this industry. Mobile phone manufacturers make extensive use of these semiconductor chips in their products and with their healthy sales these companies keep an active pressure on chip manufacturers to supply them with quality components which lead to innovative offerings from various manufacturers who aim to achieve supply contracts from such tech giants. The ongoing reduction in the size of electronic components is another factor which may fuel industry growth owing to rise in demand for compact and light-weight devices.
Key industry participants such as Intel and Samsung have begun collaborating with various device designers to understand the involvement a semiconductor chip have on different devices. These companies create market opportunities fabricating new systems which make use of microchips.
Semiconductor chips manufacturing plants called Fabs (fabrication plants), require state-of-the-art facilities which come with substantial investments coupled with rapidly changing production technology creates a challenging situation for the market and allows a few well-established manufacturers to penetrate into the market successfully, making the power of new entrants low. Further, any innovation in design calls for changes in the manufacturing process regarding updating the existing machinery and poses an economic challenge. The industry is identified by intense competition and technology development which creates uncertainty in regards to the launch of new product, which results in firms developing core competencies in specific domains, which leads to a bifurcation of technologies and subsequently challenges industry growth.
The industry comprises three company types; integrated device manufacturers (IDM) such as Intel, Samsung, and Texas Instruments; fabless manufacturers such as Qualcomm, Advanced Micro Devices (AMD), NVIDIA; and foundry companies including United Microelectronics and Taiwan Semiconductor Manufacturing Company (TSMC) and Corporation (UMC). Microchips find applications in consumer electronics, automotive and military & civil aerospace industries. Data processing and communications are anticipated to exhibit substantial share in the current market owing to extensive use of chips in computers and mobile phones for processing. The industry is also projected to foresee a surge in demand due to the advent of smart consumer electronics and to increase the involvement of computers in the automobile and military applications.
The industry is moving towards a consolidated model since only a few companies can compete owning to rapidly changing technology and high capital investments. Key players in microchip designing and manufacturing are Samsung, Intel, Broadcom, Qualcomm, AMD, and TSMC. The participants mentioned above exhibit strong footholds leaving smaller companies struggling to turn profitable due to lack of economies of scale. Larger firms keep acquiring new smaller enterprises that give rise to new competencies and new markets and at the same time gives rise to a more consolidated structure to the industry.
Semiconductor chip architecture and design often correspond to Moore’s law (the number of transistors in a microchip doubles almost every two years), which may lead to more integrated device manufacturers opting out of production and focusing on designing the chips for better profitability. Leading brands such as Intel are realizing the limitations of this industry and are reluctant to invest into fabrication plants until the company observes a healthy demand for their products. Manufacturing companies face challenges in their supply chain integration and production because customers are not sure of the technology they want; anticipating orders and demand thus becomes a tedious task for such production firms.
Global microchip market continues to grow despite the challenges; however key companies are gradually reducing in number to the point where only a handful of manufacturers will continue to stay in the business. On account of limited manufacturers, various firms which supply support equipment, or services may have to battle among themselves to reach their economic forefronts.
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