Capgemini: Gen AI Cause of Spiking Semiconductor Demand

The Capgemini Research Institute’s report 'The semiconductor industry in the AI era: innovating for tomorrow’s demands' reveals that rising Generative AI adoption is behind a surge in demand for advanced semiconductor solutions. 

Along with other Industry 4.0 technologies including 5G, IoT, autonomous vehicles, AR/VR and edge computing, Gen AI is driving demand for more powerful, efficient and customisable chips. 

Semiconductor manufacturers have recognised this shift, with nearly three in five reporting that Gen AI, 5G or other next-generation communication protocols are influencing their strategies.

“We are at a pivotal moment for the semiconductor industry," says Brett Bonthron, Executive Vice President and Global High-tech Industry Leader at Capgemini.

"Gen AI is driving accelerated demand for chips and semiconductor companies face increasing demands from customers who want more personalised and software-centric experiences."

Despite this awareness and the industry's leadership in innovation challenges lie ahead.

While technological breakthroughs in semiconductors have spurred innovation in downstream industries and enabled the creation of smarter, more efficient products, fewer than three in ten downstream organisations consider chip supply to be adequate.

Additionally, confidence in semiconductor manufacturers ability to meet rising demand has been shaken by geopolitical tensions, international trade restrictions and the pursuit of sovereignty.

Seeking new strategies to navigate these challenges and meet demand should be an imperative for this industry.

Especially as demand for AI chips, custom silicon chips and memory-intensive chips is set to grow further over the next 12 months according to the report. 

Focusing on in-house custom design

Many semiconductor manufacturers are embracing new strategies to meet rising demand.

They seek to do two critical things: mitigate supply chain disruption and ensure a consistent supply of advanced chips. 

These strategies include exploring in-house custom chip design, which enables them to tailor semiconductors to the needs of specific clients. 

This approach reduces reliance on external vendors, safeguards control over intellectual property (IP), and enhances speed, efficiency and compatibility within hardware and software.

The semiconductor industry is also expanding its focus on innovative design, pushing the boundaries of physics to better meet the needs of downstream organisations. 

Advancements include the development of extreme ultraviolet (EUV) lithography and smaller process nodes, 3D packaging, chiplet integration and chip architectures. 

Due to this as indicated within the report, the industry anticipates a 10% increase in R&D budgets over the next two years.

Brett agrees with this approach, adding that: “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 Gen AI 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.”

Navigating the supply chain, security & sustainability

Capgemini's report indicates that chip sustainability, supply chain resilience and security are the top priorities for semiconductor manufacturers. 

According to the report more than half of organisations intend to invest heavily in these areas over the next two years.

When it comes to the supply chain, semiconductor manufacturers are working to shore up their resilience.

To do this, many are addressing the risks associated with international logistics.

Domestic sourcing is anticipated to rise from 40% to 47% and nearshoring to increase by 4% over the next two years.

We're also seeing 75% of organisations in this industry plan to expand investments in the US, a number that drops to 59% when we look at Europe.

When it comes to security, nearly three in five semiconductor design organisations are prioritising cryptographic protections to enhance their security. 

Finally on the sustainability front, manufacturers are responding to the prioritisation of chip sustainability by many as a key factor in their selection process.

The industry is advancing eco-friendly initiatives such as energy conservation, water recycling and reuse systems, the use of less toxic chemicals and waste minimisation.

With this strategy, semiconductor manufacturers will be better placed to sustainably meet rising demand and pursue innovation. 

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