A report from Capgemini Research Institute has found that due to the high demand for semiconductors, over half of all downstream organisations are concerned that the industry might not be able to meet their needs.

In our increasingly digital world, the demand for semiconductors is growing exponentially. The most advanced chips are considered crucial to stay at the forefront of technological innovation – not least of all the rise of AI and GenAI adoption, which requires vast amounts of processing power.

A report from the Capgemini Research Institute titled The semiconductor industry in the AI era has found that, due to the high demand for semiconductors, over half of all downstream organisations reliant on semiconductor supply are concerned that the industry might not be able to meet their needs.

The report reveals that while semiconductor companies expect demand for semiconductors to increase by 15% by 2026, most downstream organisations expect demand to grow by 29% in this period.

Capgemini’s research, which is based on a survey of 250 executives from the semiconductor industry and 800 downstream executives from 10 sectors, reveals that the concern about chip supply stems from uncertainties around supply chain reliability, especially due to geopolitical tensions, international trade restrictions and the need for enhanced customisation.

As a result, one in three downstream organisations and tech giants are looking to design their own custom chips in-house or are considering the option to gain better control over their supply chains.

The research also found that only two in five semiconductor organisations are confident in the resilience of their supply chains. As a result, the industry expects domestic sourcing to increase by 17% in the next two years.

Additionally, 74% of semiconductor companies plan to invest more in the US and 59% in the EU, largely supported by the recent government subsidies in multiple countries (through the US CHIPS Act and the EU Chips Act).

However, the report also finds that to meet demand from downstream organisations and to keep up with Moore’s law (the observation that the number of transistors in an integrated circuit doubles roughly every two years), semiconductor manufacturers are continuing to innovate in several areas including design, manufacturing and packaging. According to the report, the industry is expecting its R&D budget to increase by around 10% over the next two years.

Brett Bonthron, global high-tech industry leader at Capgemini, said: “We are at a pivotal moment for the semiconductor industry. GenAI is driving accelerated demand for chips and semiconductor companies face increasing demands from customers who want more personalised and software-centric experiences.  

“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 GenAI 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.”