1About Boston Consulting Group (BCG)
Boston Consulting Group (BCG) is a leading global management consulting
firm, with offices in over 50 countries. BCG partners with leaders in business
and society to tackle their most important challenges and capture their greatest
opportunities. BCG was the pioneer in business strategy when it was founded in
1963. Today, we help clients with total transformation—inspiring complex change,
enabling organizations to grow, building competitive advantage, and driving
bottom-line impact.
About the Semiconductor Industry Association (SIA)
The Semiconductor Industry Association (SIA) is the voice of the semiconductor
industry in the US, one of America’s top export industries and a key driver of
America’s economic strength, national security, and global competitiveness. The
semiconductor industry directly employs nearly a quarter of a million workers in
the United States, and US semiconductor company sales totaled $208 billion in
2020. SIA represents 98 percent of the US semiconductor industry by revenue
and nearly two-thirds of non-US chip firms. Through this coalition, SIA seeks to
strengthen leadership of semiconductor manufacturing, design, and research by
working with Congress, the Administration, and key industry stakeholders around
the world to encourage policies that fuel innovation, propel business, and drive
international competition.
About the Authors
Antonio Varas is a Senior Partner and Managing Director in the Silicon Valley
office of Boston Consulting Group and is a core member of its Technology,
Media & Telecommunications practice. You may contact him by email at
varas.antonio@bcg.
Raj Varadarajan is a Senior Partner and Managing Director in the Dallas office
of Boston Consulting Group and leads its Global Advantage practice in North
America. You may contact him by email at varadarajan.raj@bcg.
Jimmy Goodrich is the Vice President, Global Policy at the Semiconductor
Industry Association. You may contact him at jgoodrich@semiconductors.
Falan Yinug is the Director, Industry Statistics and Economic Policy at the
Semiconductor Industry Association. You may contact him at fyinug@
semiconductors.
Acknowledgments
This report would not have been possible without the contributions of our BCG
colleagues Ramiro Palma, Anoop Shah, Zhenyu Bo, Kaitlyn Alsup, Sohini Kar,
Yeonsoo Lee, Ian Kleinman, and our SIA colleague Devi Keller.
2Contents
4 Executive Summary
7 Introduction
Overview of the
9
Semiconductor Supply Chain
A Global Integrated Structure based
27
on Geographic Specialization
39 Emerging Risks in the New Context
Strengthening the Supply Chain
51
for the Next Decade of Innovation
3Executive Summary
he widespread shortage of semiconductors An Integrated Global Supply Chain
that began in late 2020 highlighted how
indispensable these specialized componentsSemiconductors are highly complex products to
Tare in today’s economy. Semiconductors design and manufacture. No other industry has the
are used to power a vast array of electronic same high level of investment in both R&D (22%
devices—everything from smartphones and cloud of annual semiconductor sales to electronic device
servers to modern cars, industrial automation,makers) and capital expenditure (26%).
and critical infrastructure and defense systems.
The need for deep technical know-how and scale
The global structure of the semiconductor supply has resulted in a highly specialized global supply
chain, developed over the past three decades, chain, in which regions perform different roles
has enabled the industry to deliver continual leaps according to their comparative advantages. (See
in cost savings and performance enhancements Exhibit 1.) The US leads in the most R&D-intensive
that ultimately made possible the explosion inactivities—electronic design automation (EDA),
information technology and digital services. In the core intellectual property (IP), chip design, and
past few years, however, several new factors haveadvanced manufacturing equipment—owing to its
emerged that could put the successful continuation world-class universities, vast pool of engineering
of this global model at risk. Addressing thesetalent and market-driven innovation ecosystem.
vulnerabilities requires a combination of carefully East Asia is at the forefront in wafer fabrication,
designed actions from policymakers, including which requires massive capital investments
targeted incentives to encourage domestic supported by government incentives as well as
production in order to address strategic gaps.access to robust infrastructure and skilled workforce.
China is a leader in assembly, packaging and testing,
which is relatively less skill- and capital-intensive,
and is investing aggressively to expand throughout
the value chain.
All countries are interdependent in this integrated
global supply chain, relying on free trade to move
materials, equipment, IP, and products around the
world to the optimal location for performing each
activity. In fact, semiconductors are the world’s
fourth-most-traded product after only crude oil,
refined oil, and cars.
This global structure delivers enormous value.
A hypothetical alternative with parallel, fully “self-
sufficient” local supply chains in each region to meet
its current levels of semiconductor consumption
would have required at least $1 trillion in incremental
upfront investment, resulting in a 35% to 65% overall
increase in semiconductor prices and ultimately
higher costs of electronic devices for end users.
4 EXHIBIT 1
The global semiconductor supply chain based on geographic specialization has delivered enormous value for the industry
Semiconductor Supply Chain
Precompetitive ResearchShare by region (% of worldwide total, 2019)Cost savings vs.
fully localized
US China1 East Asia2 Europe Other “self-sufficient”
supply chains:
EDA and Core IP 74% 20%
EDADesign
Logic67%15% 8%
o Logic$0.9-1.2T
o DAO avoided upfront
Core IP
o MemoryDAO 37% 7% 33% 19% investment
Memory 29% 70%$45-125B
annual cost
efficiencies
EquipmentManufacturing Equipment41% 36% 18%
o Wafer fabrication
o Assembly, Materials 11% 13% 57%12%35-65%
Materials packaging
enabled reduction
and testing
Wafer fabrication 12% 16% 56% 9% in semiconductor
prices
Assembly, packaging
38% 43% 12%
and testing
Source: BCG analysis
Note: DAO = discrete, analog, and other (including optoelectronics and sensors); EDA = electronic design automation; OSAT = outsourced
assembly and test
1. Mainland China 2. East Asia includes South Korea, Japan, and Taiwan
Risks and Vulnerabilitiesmarket share, although the level of risk associated
with each of these varies. Manufacturing emerges as
Over the next ten years, the industry will need a major focal point when it comes to the resilience of
to invest about $3 trillion in R&D and capitalthe global semiconductor supply chain. About 75%
expenditure globally across the value chain in orderof semiconductor manufacturing capacity, as well
to meet the increasing demand for semiconductors.as many suppliers of key materials—such as silicon
Industry participants and governments must wafers, photoresist, and other specialty chemicals—
collaborate to continue facilitating worldwide access are concentrated in China and East Asia, a region
to markets, technologies, capital, and talent, and significantly exposed to high seismic activity and
make the supply chain more resilient.geopolitical tensions. Furthermore, all of the world’s
most advanced semiconductor manufacturing
While geographic specialization has served thecapacity—in nodes below 10 nanomete