2024, That’s a Wrap!

This year has been a transformative one for the semiconductor industry, defined by geopolitical tensions, groundbreaking investments and strategic shifts. Leading companies like TSMC, Samsung and Intel faced challenges from U.S.-China trade restrictions, project delays, to fluctuating market demands. Nations like China, the Kingdom of Saudi Arabia, Turkey and the UAE are ramping up efforts to localize semiconductor production, announcing investments totaling hundreds of billions to secure technological independence. Meanwhile, the U.S. and allied nations pushed forward with initiatives like the CHIPS Act to strengthen domestic manufacturing.

Here are the biggest stories of 2024:

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1. TSMC's Shipment Suspension to China

In November 2024, Taiwan Semiconductor Manufacturing Company (TSMC) suspended shipments to the Chinese chip designer Sophgo after discovering that its chips were used in a Huawei microprocessor, potentially violating U.S. export controls. Huawei has been under strict U.S. restrictions that prohibit the use of foreign-made chips created with U.S. technology. These restrictions aim to limit Huawei's access to advanced technologies for national security reasons.

The situation escalated when tech researchers identified a TSMC-manufactured chip within Huawei's Ascend 910B AI processor. This prompted TSMC to halt shipments and notify both Taiwanese and U.S. authorities. The U.S. Department of Commerce has launched an investigation into potential violations of export controls. Sophgo, an affiliate of cryptocurrency mining hardware firm Bitmain, denied any business relationship with Huawei and submitted a report to TSMC to clarify its position.

This incident underscores the growing complexity of U.S.-China trade tensions and highlights the scrutiny faced by companies like TSMC in managing compliance with export restrictions. The case also reflects broader geopolitical challenges in the semiconductor industry, where firms must navigate conflicting regulations and global supply chain dependencies.

2. China's $47.5 Billion Investment Fund

China has unveiled its third state-backed semiconductor investment fund, valued at $47.5 billion, under the China Integrated Circuit Industry Investment Fund, also known as the "Big Fund." This initiative aims to accelerate the country’s efforts to achieve self-sufficiency in semiconductor production amidst tightening U.S. export controls. The fund will focus on areas such as chip manufacturing equipment, reflecting China's emphasis on reducing reliance on foreign technologies.

The new fund is the largest in a series of three, following earlier investments of $21.7 billion in 2014 and $28.7 billion in 2019. The Ministry of Finance holds a 17% stake as the largest shareholder, with contributions from entities like China Development Bank Capital and several major Chinese banks. Previous phases of the fund supported significant players like Semiconductor Manufacturing International Corporation (SMIC) and Yangtze Memory Technologies.

This investment underscores the urgency of China’s semiconductor strategy, particularly as U.S. sanctions have limited Chinese access to advanced chip technologies that could bolster its military and technological capabilities.

3. Intel's Strategic Restructuring and Delays

Intel is currently implementing significant restructuring measures to enhance its competitiveness against rivals such as AMD and NVIDIA. In September 2024, the company announced a two-year delay in its advanced packaging factory project in Poland and its wafer fabrication plant in Germany, citing a reassessment of market demand and strategic priorities. These delays follow extensive negotiations with the German government, which had increased subsidies for Intel's planned $33 billion project to almost €10 billion in June 2023. Similarly, Intel had received $1.8 billion in subsidies for a factory near Wroclaw, Poland.

These delays are part of a broader strategy to optimize operations and reduce costs amid challenging financial conditions, including a reported $1.6 billion loss in the second quarter of 2024 and plans to cut approximately 15,000 jobs, aiming to save $10 billion by 2025. Despite these challenges, Intel is focusing on its U.S. projects, including new fabs in Arizona, Oregon, New Mexico, and Ohio, which remain on schedule. Additionally, the company is restructuring its Foundry Services division into an independent subsidiary to attract external customers and strengthen its position in the contract chip manufacturing market.

These strategic adjustments reflect Intel's efforts to navigate a competitive semiconductor landscape and address financial pressures while responding to geopolitical shifts and market demand.

4. STMicroelectronics Adjusts Sales Targets Amid Market Challenges

STMicroelectronics has delayed its target of achieving $20 billion in sales until the end of the decade, citing a chip inventory glut affecting the industry. The European chip maker now forecasts sales of approximately $18 billion in 2027-2028, reaching over $20 billion by 2030. This revision is a result of inconsistent orders, particularly within the electric vehicles and personal electronics sectors, despite strong demand for AI-related chips. Major auto manufacturers, struggling with excess chip inventories procured during the pandemic, are contributing to this sluggish demand.

5. China's Semiconductor Advancements and Taiwan's AI Investments

The recent reelection of Donald Trump has caused concerns among Asian tech suppliers, with many bracing for potential higher tariffs on Chinese imports and increased pressure to invest in the US. However, these suppliers feel better prepared this time due to contingency plans and a shift in manufacturing capacity from China to Southeast Asia, India and North America. In the semiconductor industry, eyes are on how US-China tensions will unfold. The Biden administration has hastily allocated $6.6 billion in Chips Act funds to Taiwan's TSMC, which will also start producing advanced chips in Arizona. Chinese companies are making moves to recruit US-based AI talent, including individuals from OpenAI and major tech firms, despite challenges posed by ongoing geopolitical tensions and restrictions on high-end AI chip imports. China aims to boost its semiconductor production amidst expected increased US pressure, supported by substantial investments from its state-backed China Integrated Circuit Industry Investment Fund. Taiwan plans to invest around $3 billion in AI data centers and applications over the next three years, aiming to significantly enhance its AI capabilities and computing performance, while promoting cooperation with the US and other democratic countries.

6. Saudi Arabia's Strategic Moves in Semiconductor Localization

Saudi Arabia is actively pursuing the localization of semiconductor manufacturing to reduce dependency on foreign technology and bolster its domestic capabilities. In March 2024, the Public Investment Fund-owned company Alat entered into a partnership aimed at driving the localization of semiconductor manufacturing within the Kingdom. This collaboration is part of Saudi Arabia's broader strategy to enhance its technological infrastructure and support the development of a robust semiconductor industry.

7. UAE's Ambitious Semiconductor Manufacturing Plans

The United Arab Emirates is making significant strides in the semiconductor industry, with reports indicating that leading global chip manufacturers, including Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung Electronics Co., are considering establishing large-scale chip fabrication facilities within the country. These potential projects, collectively estimated to exceed $100 billion, aim to meet the escalating demand for artificial intelligence chips and position the UAE as a pivotal player in the global semiconductor supply chain. The funding for these initiatives is expected to come from the UAE and its Abu Dhabi-based sovereign investment fund, Mubadala.

8. Turkey's $30 Billion High-Tech Investment Initiative

In July 2024, President Recep Tayyip Erdoğan announced a comprehensive investment package totaling $30 billion to bolster Turkey's high-tech sectors. This initiative includes a $5 billion allocation for establishing a semiconductor chip factory, aiming to enhance the nation's capabilities in advanced technology manufacturing. Additionally, $5 billion is dedicated to increasing annual electric vehicle production to one million units, with a notable agreement involving China's BYD to set up a $1 billion EV plant in Turkey. Further investments encompass $4.5 billion for battery production, $2.5 billion for solar cell facilities, and $1.7 billion for wind energy components, underscoring Turkey's commitment to diversifying its technological and energy sectors.

9. TSMC's Arizona Facility Success

Despite challenges, TSMC reported that its new Arizona facility is performing exceptionally well, achieving a yield rate higher than comparable fabs in Taiwan. This success is seen as a positive sign for U.S.-based semiconductor manufacturing initiatives under the CHIPS Act, although it comes amid scrutiny over compliance issues related to shipments to China.

The semiconductor industry in 2024 showcased resilience, innovation and transformative shifts, setting the stage for even greater developments ahead – but hey, who knows what 2025 has up its sleeves? Subscribe to our newsletter for the latest updates, insights and news shaping the future of semiconductors in 2025!

Happy New Year from the team at McKinsey Electronics.