In this article, we will talk about the top 12 semiconductor R&D spending by country. If you wish to skip our detailed analysis, you can go directly to Semiconductor R&D Spending By Country: Top 5.
The Global Semiconductor Industry
Semiconductors are at the core of our digital economy and have numerous applications in many industries, including communication, healthcare, automotive, and military systems.
According to a report by Fortune Business Insights, the global semiconductor market was valued at $573.44 billion in 2022 and is projected to grow to $ 1.3 trillion by 2029 at a compound annual growth rate (CAGR) of 12.2%. China currently holds the largest share of the semiconductor market. However, North America has been estimated to grow the most during the forecast period, and R&D will be the key driver for this growth.
The communication and networking segment currently has the largest share of the semiconductor market. It will contribute significantly to the growth of the semiconductor industry in Europe during the forecast period. The surge in demand has also shifted the attention of Europe towards semiconductor innovation and R&D, which could fuel the market’s growth in the future.
Some of the largest companies in the semiconductor industry are expanding their research and entering new markets to keep up with the booming demand. On September 12, Reuters reported that IQE plc (LON:IQE) intends to penetrate new markets and is exploring growth opportunities, especially in the artificial intelligence space. The CEO of the company mentioned that they will be delivering new ‘wireless and WiFi’ products to the Chinese and Indian markets. AI has catalyzed the demand for semiconductors globally. GaN Power Electronics by the company is an energy-efficient product that can be used in a variety of AI applications. The surge in demand combined with technological advancement has formed the perfect amalgamation that can fuel the growth of IQE plc (LON:IQE) in the future.
The Semiconductor Tug Of War
The surge in demand in the past few years has triggered a global semiconductor shortage crisis. Many countries and governments have been stepping up to encounter this challenge. In August 2022, the American government enacted the CHIPS and Science Act to facilitate the semiconductor industry, cater to global challenges, and reinforce the country’s national security. According to a report by the Semiconductor Industry Association (SIA), the CHIPS and Science Act brought almost $200 billion in private investments for the semiconductor ecosystem.
The rising geopolitical tensions have also made countries and governments more conscious of the future of their semiconductor industries. The US and China have been the epicenter of these rising tensions. The strain is impacting the global semiconductor supply chain as the US government started regulating the sales of semiconductor chips to China. The tug-of-war between the two superpowers over semiconductors has been very persistent. On September 15, Reuters reported that the US House Republicans are pressing for a crackdown on the Chinese companies Huawei Technologies and Semiconductor Manufacturing International Corporation (HKG:0981). The lawmakers are urging the Biden administration and Commerce Department to halt the issuance of licenses to the Chinese government and impose stricter control on exports to Chinese companies. The letter from the House urges the Commerce Department to revoke all existing licenses the two companies have as well.
The US Department of Commerce has catalyzed the process for the implementation of the CHIPS and Science Act to protect its interests. The first notice of funding (NOFO) was released by the e CHIPS Program Office (CPO) in March 2023. The NOFO was directed at companies elaborating on the necessary procedure to receive semiconductor incentives to help them construct and expand commercial fabrication facilities (fabs). Another opportunity was released in June, especially targeting the semiconductor manufacturing projects over $300 million. According to the report by SIA, more funding opportunities and a targeted prospect for R&D facilities are expected to be announced in the coming months.
Semiconductor Race Of The Governments
Governments across the world have become active participants in the semiconductor race. The semiconductor market development is on the Chinese government’s agenda, especially considering the rising geopolitical tensions. The Chinese government has income tax exemptions for advanced technology process nodes to stimulate the integrated circuits industry’s development locally. The government also has a dedicated chip fund named China Integrated Circuit Industry Investment Fund, or the ‘big fund,’ adding almost $50 billion. The Chinese government is poised to tackle all challenges and achieve its goal of a flourishing local chip market.
On September 5, Reuters reported that the Chinese government is setting up another investment fund to raise $40 billion for the semiconductor sector. It will be the third and largest fund launched by the government under the big fund. The fund will bring China closer to achieving self-sufficiency in the semiconductor market.
The European Commission passed the EU Chips Act in April 2023, intended to double Europe’s share in global chip production by 2030. This goal will be achieved by mobilizing almost $47 billion in public and private investment. The EU Chips Act will cover everything from old chips to new advanced chips and R&D.
The Japanese government is also investing heavily in chip manufacturing, as evidenced by its funding to Rapidus, a state-organized joint chip venture. The Japanese government wants to achieve the commercial production of semiconductor chips in the country. According to the report by SIA, the Japanese government added a supplement of $2.8 billion to the annual budget to facilitate private chipmaking.
The South Korean government passed the K-Chips Act in March 2023. The Act provides tax credits to companies working on industries of national strategic importance, including semiconductors. In April, the South Korean Ministry of Trade, Industry, and Enterprise announced allocating almost 70% of its budget to R&D. The 70% budget allocation corresponds to $4.7 billion, which will help many core industries enhance their R&D in the coming years. In January, the Taiwanese government also approved amendments to the Taiwan Chips Act. The Taiwan Chips Act offers a 25% tax reduction for R&D.
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Our Methodology
To make our list of top countries spending the most money on semiconductor R&D, we initially sifted through reports from SIA. We found the R&D expenditure as a percentage of sales for the countries that contribute the most. However, the data we found did not give the exact expenditure breakdowns for each country. We continued our research building on the hypothesis that the countries that export the most semiconductors spend the most on semiconductors R&D.
We have sourced our data for a percentage share of global semiconductor sales from OEC World. However, the latest data available for this metric was for 2021; therefore, we have considered the 2021 values for R&D expenditure as a percentage of sales as well, according to the Semiconductor Industry Association. We have used R&D expenditure as a percentage of sales as our primary metric and percentage share of global semiconductor exports as our secondary metric. The list has been arranged in ascending order of our primary metric.
Semiconductor R&D Spending By Country: Top 12
12. China
R&D Expenditure as a Percentage of Sales in 2021: 7.6%
Percentage Share of Global Semiconductor Exports in 2021: 39%
China is one of the largest countries in the semiconductor market. The country has been persistently investing 7.6% of sales into R&D and invested the same percentage in 2022. The geopolitical tensions with the US had the semiconductor industry at its center. China is focused on moving towards self-sufficiency and, therefore, is investing heavily in R&D as well.
11. Japan
R&D Expenditure as a Percentage of Sales in 2021: 8.3%
Percentage Share of Global Semiconductor Exports in 2021: 8.77%
Japan is one of the top semiconductor-producing countries in the world. The country invested 8.3% of the total sales in R&D in 2021 and 2022. It is one of the biggest players in the Asia Pacific region, and semiconductor R&D plays a vital role in maintaining this position.
10. South Korea
R&D Expenditure as a Percentage of Sales in 2021: 9.1%
Percentage Share of Global Semiconductor Exports in 2021: 3.93%
South Korea has one of the highest semiconductor R&D spending by country. South Korea spent 9.1% of sales on R&D in both 2021 and 2022. The country has a notable standing in the semiconductor market in Asia Pacific, and R&D would contribute to sustaining this position long term.
9. Taiwan
R&D Expenditure as a Percentage of Sales in 2021: 11%
Percentage Share of Global Semiconductor Exports in 2021: 5.42%
Taiwan is one of the biggest semiconductor producers in the world. In 2021 and 2022, Taiwan spent 11% of sales on R&D. The country has a strong foundation in semiconductor technology and a skilled workforce. Taiwan is well-positioned to sustain its position as a giant in the semiconductor industry.
IQE plc (LON:IQE), Synopsys, Inc. (NASDAQ:SNPS), NVIDIA Corporation (NASDAQ:NVDA), and Intel Corporation (NASDAQ:INTC) are some of the most noteworthy companies in the semiconductor industry.
8. Hungary
R&D Expenditure as a Percentage of Sales in 2021: 15%
Percentage Share of Global Semiconductor Exports in 2021: 0.43%
Hungary is located in Europe and spends a significant amount on semiconductor R&D. The semiconductor industry in Hungary is growing under government support and the presence of large companies in the region.
7. United Kingdom
R&D Expenditure as a Percentage of Sales in 2021: 15%
Percentage Share of Global Semiconductor Exports in 2021: 0.5%
The United Kingdom has one of the highest semiconductor R&D spending by country. The United Kingdom government is investing heavily in the sector. In May 2023, the government announced it would invest almost GBP 1 billion in the semiconductor industry in the coming decade. It is one of the top semiconductor manufacturing countries in the world.
6. Italy
R&D Expenditure as a Percentage of Sales in 2021: 15%
Percentage Share of Global Semiconductor Exports in 2021: 0.77%
Italy is a European country with a significant global semiconductor export market share. It is one of the most significant players in the European semiconductor arena and contributed 0.77% to global semiconductor exports in 2021.
For investors looking to increase their exposure to the global semiconductor industry, some stocks to consider researching include IQE plc (LON:IQE), Synopsys, Inc. (NASDAQ:SNPS), NVIDIA Corporation (NASDAQ:NVDA), and Intel Corporation (NASDAQ:INTC).
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Disclosure: None. Semiconductor R&D Spending By Country: Top 12 is originally published on Insider Monkey.