The semiconductor market - France

1.2 Global market

The semiconductor market has seen ups and downs in recent years, including the Covid-** crisis and the trade war between China and the United States. However, the market growth is a strong trend, which is expected to be accelerated by the digitization of companies, the transition to *G or even the electrification of vehicles.

In ****, the sector will generate US$***bn. In ****, the World Semiconductor Trade Statistics(***) forecasts a decline of -*.*%, after a **.*% increase between **** and ****. This slowdown can be explained by the effect of inflation, which weakens demand. The market is driven in particular by sensors, while the memory chip segment is taking a hit.

Global Semiconductor Market World, ****-****, US$ billion Source: ****

the Asia-Pacific region, which has been ahead of the market until now, is expected to experience a downturn over the next few years, while by **** the United States, Europe, and Japan will show double-digit growth.

1.3 Size of the French semiconductor market

Although the majority of current production capacity is located in the Asia-Pacific region, notably in China and South Korea, France remains a major player in the semiconductor market.

Data on revenues generated by the French semiconductor sector are collected by INSEE under NAF code **.**: "Manufacture of electronic components", which includes the production of diodes, transistors, or integrated circuits. In ****, sales will exceed * billion euros.

evolution of the turnover of the electronic components manufacturing France, ****-****, in billions of euros Source: ****

1.4 Trends and cyclicity

The semiconductor industry is a cyclical industry that follows the course of the global economy. Indeed, this industry is strongly influenced by the demand for personal computers smartphones and more generally, by the electronics industry.

France is an exception in that **% of its sales are in the industrial and automotive sectors, according to Acsiel data, but this demand is nonetheless cyclical.

As the following chart shows, there has been a real geographic shift in semiconductor production around the world. While Europe and the United States enjoyed a strong technological advantage in the ****s, accounting together for **% of the world's production capacity, this ratio has reversed over the years. Today, they account for less than **% of the global total, less than Taiwan alone. The preponderance of Asian players is expected to continue at least until ****.

change in share of semiconductor production by region World, ****-****, % Source: ****

Electronic innovations are numerous (***) and often require a large number of components to operate. Technological developments therefore indirectly benefit manufacturers and distributors of electronic components.

1.5 International trade

To quantify global semiconductor trade, the Semiconductors Industry Association(***) relies on UN Comtrade data collected under HS codes:

****: Diodes, transistors and semiconductor-like devices; ****: Electronic integrated circuits.

This allows us to establish France's trade balance, as well as its main suppliers and buyers for this product.

Trade balance

Aggregating the data for codes **** and ****, we see that the value of imported and exported semiconductors is in the billions of dollars. The value of exports exceeds that of imports, and both flows are growing every year, from US$*.* billion in imports in **** to US$*.** billion in ****, and from US$*.** billion to US$*.** billion in exports over the same period, i.e., growth of +**% and +**% respectively.

Trade balance in the semiconductor market France, ****-****, in US$ billion Source: ****

Import/export of diodes, transistors and others

More than **% of French imports of this product come from China, Germany and the Netherlands. At the same time, just under **% of French exports are concentrated in three countries: Germany, Singapore and China. We can therefore observe that the flows related to this strategic and high value-added product are mainly in a Euro-Asian corridor.

Origin of imports - HS code **** France, ****, % Source: ****

Import destination - HS code **** France, ...

2.1 Final destination of semiconductors

Semiconductors are intermediate manufactured products, which are needed in the realization of a wide variety of finished products. The SIA's annual report gives an idea of the markets and their proportions. The demand from car manufacturers has grown by **.*% per year, overtaking consumer products and other industrial sectors. Governments are using it in their defense strategy. The "Communications" category includes smartphones.

Percentage of total semiconductor demand by value by sector World, ****, US$ billion Source: ****

2.2 Demand driven mainly by cell phones

Mobile telephony is a major market for the semiconductor industry. Estimated to be worth nearly $** billion in ****, this segment could grow by *.**% through ****. Asia-Pacific is the driving region in this segment.

This growth is fueled by the introduction of *G, but also by the development of technologies such as cloud computing or virtual reality. The market is driven by higher value-added chips, such as dynamic random access memory(***) and NAND flash chips.

Cell phone semiconductor market size World, ****-****, US$ billion Source: ****

2.3 Demand driven by the automotive industry

Vehicle electrification is a growth driver for the semiconductor industry. globally, China has the largest electrified fleet in the world, accounting for **% of the global fleet. In Europe, **% of the fleet is electric.

evolution of the share of electric car sales in the automotive market France, ****-****, % Source: ****

Strategy Analytics predicts a market size of $*** billion in **** for automotive chip consumption, a threefold increase over **** figures. From **** to ****, growth would reach **.*%. Beyond electrification, it is the digitalization of cars that is driving this increase.

Market size of chips for the automotive industry World, ****-****, in billions of dollars Source: ****

3.1 Industry characteristics

The main differentiating factor in the semiconductor industry is the quantity of transistors that can be placed on a chip. The market is characterized by tough competition, which pushes manufacturers to constantly improve the quality of their products. Thus, the industry has generated the theorization of " Moore's Law ", which states that the amount of transistors on a chip doubles every two years.

To implement this differentiation, operators must invest in innovation through R&D spending. Reaching $**.* billion in ****, this spending is expected to grow by *.*% until **** [***].

evolution of R&D spending by semiconductor manufacturers World, ****-****, US$ billion Source: ****

Although competition within the semiconductor industry is fierce, there is relatively little threat from outside forces.indeed, the high cost required to build a semiconductor design and manufacturing operation is a natural barrier that prevents new players from entering the market, although the development of new business models (***) may partially disrupt the market in the medium term.

Secondly, neither the suppliers nor the buyers have any real negotiating power. There are many suppliers and the small number of players dominating the market means that buyers cannot play them off against each other.

Finally, there are few or no substitutes for semiconductors, so ...

3.2 Production

The production of electronic components is particularly meticulous. Indeed, because of their size and functions, no error is allowed

Producing electronic components therefore requires a significant basic investment in order to benefit from the best infrastructure. The quality of an electronic component will determine the success of its manufacturers.

The complexity of manufacturing makes it particularly difficult for newcomers to enter. The market is therefore dominated by major players such as ST Microelectronics or Thales.

The value chain can be broken down into four stages:

Suppliers: suppliers provide raw materials to manufacturers. The most used is certainly silicon. They can either supply the raw material or offer it in the form of processed products such as a fine disk; The research and development(***): it is necessary to pass by this stage to conceive innovative and powerful products; Manufacturing: some manufacturers, also called integrated manufacturers, will ensure the production of electronic components without suppliers. Other manufacturers will choose to delegate to suppliers; Distribution: manufacturers can distribute themselves or delegate to specialized distributors.

The manufacturing market is highly concentrated, with the top ten global players holding **.*% of the market share. Samsung Electronics, which will make US$** billion in this segment in **** [***], took the ...

3.3 Distribution

Because semiconductors are so fragile, good distribution is crucial, and manufacturers have a choice between going through distributors or selling directly.

According to Acsiel, sales through distributors will be more popular in ****, while the market is still suffering from shortages. This choice of the distribution answers the will of diversification of the supply of the big manufacturers as well as the development of the "industrial" segment, which tends more to be supplied via this channel.

state of the semiconductor distribution system France, ****, % Source: ****

4.1 Products

Semiconductors are mainly divided into two main product categories: discrete semiconductors and integrated circuits. Sensors and optoelectronic devices can also be distinguished.

Breakdown of global sales by product type World, ****, % Source: ****

The role of discrete semiconductors is to perform a single function. They differ from integrated circuits, which integrate several functions, hence their name.

The main discrete semiconductors are :

Diodes: Semiconductor with two terminals allowing the passage of current in one direction. Transistors: Semiconductor allowing to amplify or to prevent an electric signal. Capacitors: Semiconductor allowing to store small electric charges.

The integrated circuits are numerous and varied. The main ones are: analog integrated circuits, memories, microcomponents and logic gates.

Breakdown of integrated circuit sales by product type World, ****, % Source: ****

4.2 Prices

The prices shown in Table * are price ranges for the four main semiconductor categories: Discrete, Analog ICs, Logic ICs and Memory ICs. These prices are obtained through Mouser Electronics, a U.S. online distributor of electronic components.

The table compares the semiconductor prices of the two European market leaders: the French company STMicroelectronics and the Dutch company NXP.

These prices have soared due to inflation and the scarcity of these components [***]. While until ****, the import and producer price indices for electronic components (***), they exceeded them during ****.

Evolution of the import price index for electronic components France, ****, base *** in **** Source: ****

Change in the production price index for electronic components France, ****, base *** in **** Source: ****

4.3 A highly competitive market in perpetual change: examples of two French start-ups

The shortage of semiconductors caused by the Covid-** pandemic has accelerated the upheaval in the industry. One of the major current innovations is that of reprogrammable semiconductors, which make it possible to assemble all the components of the finished product on a single chip. Another research avenue is the exploitation of photons contained in light to disrupt telecommunications.

Below are two examples of French start-ups that are contributing to the sector's dynamism:

Source: ****

5.1 A regulatory framework implemented by the EU

In the context of the trade war between China and the United States, products manufactured in the EU are receiving increased attention from Chinese actors. [***] However, the sale of chips and semiconductors, as dual-use exports that can be applied for military purposes, is protected. The sale therefore requires authorization and is subject to controls. It is managed by Regulation (***) ****/***, which entered into force in ****, and is concerned in particular with: Protecting human rights; Harmonize control procedures within the EU; Controlling cyber-surveillance technologies. Chips and semiconductors are included in the list of sensitive goods of the EU. In addition, faced with the shortage of semiconductors, the EU has planned a legislative package to increase production on European soil, in a concern for technological sovereignty. The European Chips Act includes an investment plan of ** billion euros, including ** billion in public investments and * billion for start-ups. Thanks to an amendment to Regulation (***) ****/****, semiconductors are included within "Key Digital Technologies."

6.1 Segmentation

• Elkem
• Soitec
• Murata Manufacturing
• STMicroelectronics
• NXP Semiconductors
• Qualcomm
• Intel
• Avnet
• Arrow Electronics France
• Samsung Group
• ASML
• Apple
• Icape
• JSR
• Hua Hong Semiconductor
• UpMem
• Linxens
• XFAB
• Wise Integration
• Air Liquide
• Samsung Electronics France
• UnitySC