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Global chip shortage galvanizes local investment

The global semiconductor shortage has served as an abrupt awakening to governments around the world, which are now racing to futureproof supply chains through strategic local investments.

South Korea, which is the second-largest global manufacturer of semiconductors, became the latest country to announce large-scale chip investment last week. The government said it will commit $452 billion to be invested in chips by 2030, with the bulk of that coming from the two biggest local chip firms: Samsung Electronics and SK Hynix.

Across the sea, President Xi Jinping has pledged massive investment into local startups, hoping to help China become self-sufficient in semiconductors. But the country has a long way to go to catch up with Taiwan, where the world’s largest foundry Taiwan Semiconductor Manufacturing Company is planning to pump $100 billion over the next three years to meet soaring demand.

The US, which lags in third place behind Taiwan and South Korea in manufacturing capacity, is seeking to disentangle supply chains from Asia and Europe with yet more internal investment. Biden has made a $50 billion plan to develop chip making and research, while the EU, which represented less than 10% of the global production in 2020, wants to manufacture 20% of the world’s semiconductors in Europe by 2030.

Geopolitically, the individual motivations behind each government’s investment are different. But beneath them lies the same realization; that the fate of their digital sovereignty – and national security – depends on delicate international supply chains and fewer than a dozen semiconductor firms.

Upping local investment means governments can hope to avoid production lines grinding to a halt in the event of a future pandemic, or similar disruption. But the timeline for such investment is long-term, and the outlay is considerable: each chip manufacturing plant takes about two years to build at a cost of more than $10 billion.

This suggests we could be entering an extended period of state-encouraged M&A and investment in the semiconductor industry as nations around the world race to fund the creation of more resilient supply chains.

“Governments across the world are realising the strategic importance of the semiconductor industry. Investment in US, China, Europe and now SE Asia is all very encouraging but it also illustrates how capital intensive chip production has become. Expect to see aggressive, state-encouraged M&A over the next few years too, as part of a new arms race.”

Matthew Byatt | Managing Partner

Matthew is a Co-Founder and Managing Partner at Acuity and leads the Acuity Advisors’ Deeptech practice.

Matthew has held senior leadership and corporate finance positions with some of the UK’s most successful and influential technology and consultancy companies. Roles with ARM, McKinsey and Cadence have given Matthew an exceptional insight into the world’s most successful businesses and a number of the UK’s eminent start-ups, underpinning his success at Acuity.

Matthew has considerable experience across a broad range of technology sectors throughout the UK, US and Asia, ranging from nanotechnology, semiconductor and cleantech to digital media and internet businesses. It’s experience that has given him a robust, well-developed and international network. Having also run and successfully exited his own business, Matthew has a deep understanding of the financial and emotional aspects of this demanding process, bringing a unique and authoritative perspective to each business sale.

One of Matthew’s strengths is understanding complex technical value propositions, one of the benefits of training as an electronic engineer. He gets to the heart of what drives a company’s value and communicates this persuasively to potential buyers and investors. Matthew understands a buyer’s motivation intuitively and delivers a compelling rationale for why a business sale should be of strategic interest. His insight consistently yields higher deal values and results in great successes for his clients.

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