AI DEMAND REMAINS CENTER STAGE
Increasingly, semiconductor companies have reached out to ATREG in a bid to secure more facility space to meet escalating AI demand. As these inquiries arise, the word we’re hearing more than any other related to companies’ artificial intelligence (AI) roadmaps is acceleration. This is no surprise, as revenue growth in the semiconductor industry has been predominantly powered by growing demand for AI chips over the past few years and average sale prices are almost entirely due to NVIDIA’s pricey GPUs and HBM from SK Hynix.
ATREG’s perspective – In 2025, AI demand and its related applications will continue to take center stage as AI foundation models get closer to commercialization. DeepSeek’s disruption may put a keener eye on chip CapEx, but it is likely to broaden the applications of AI to edge devices, increasing demand for chips over the long run by lowering the cost to enter into AI applications. Purchasing and installing AI hardware will still be imperative for leading technology firms, barring a market collapse.
MATURE NODES UTILIZATION HOLDS STEADY
Brownfield fab transactions slowed down in 2024 as companies largely relied on government subsidies for internal modernization plans or greenfield projects, and others waited patiently through an uncertain economy and political climate. The consistent story we heard at ATREG was that fab utilization levels across the industry – barring AI – were holding in place and not moving quickly. None of consumer electronics, industrials, or automotive excited chip makers in 2024. Inventory levels have yet to fully reset after the pandemic spending spree and consumer markets seem to be depressed everywhere but the United States.
ATREG’s perspective – In 2025, fab utilization levels look to continue to hold steady around the 70% mark, ticking slightly upwards towards the end of the year as inventory levels reduce. Many companies are looking towards consolidation as revenue in mixed analog companies appears to have bottomed after a slow inventory burndown has run its course. Sell-through from these companies should begin to increase in 2025, leading to steadily increasing utilization throughout the year.
SECOND-SOURCE URGENCY HEATS UP
The need to diversify manufacturing operations has been a rapidly growing theme among ATREG’s client engagements in 2024 and we expect it to accelerate further in 2025. Companies are driven both by geopolitical expediency as well as concerns about supply chain redundancy, leading chip makers with a second source to examine closely their facilities’ needs and companies without a second source to seek one out as quickly as possible. Illustrating how strange these times are, the threat of new tariffs under President Trump and continued supply chain uncertainties due to the U.S.-China tech war are pushing semiconductor companies to branch out globally, even at a potential cost to their margins.
ATREG’s perspective – In 2025, two regions in particular will be the beneficiaries of new fab construction and expansion – the United States and Southeast Asia. The U.S. will see significant semiconductor investment from abroad, with manufacturers, suppliers, and packaging firms looking to win over Trump’s affections and secure relief from trade pressure. Reshoring has its limitations, however, and many companies will look to diversify supply chains in cheaper areas such as Southeast Asia, which has established itself as an indispensable region to semiconductor manufacturing. Advanced packaging is another driver with multi-billion dollar fabs going into New Mexico and Malaysia to support advanced packaging applications that resemble legacy front-end fab capabilities more than traditional back-end processes.
JOINT-VENTURES AND PARTNERSHIPS INCREASE IN POPULARITY
For those who want greater control over their manufacturing footprint, one of the most common obstacles we have seen in our clients’ fab transaction assignments is the financial outlook. Much of the industry continues to go fabless as TSMC has made foundry a viable and dependable option for chip production and the reality is that taking over a capital-intensive asset is a calculated decision, no matter how well established the company. In response to financial pressures, however, the last couple of years have seen some exciting announcements regarding fab collaborations – NXP and VIS in Singapore, PSMC and Tata in India, or Tower and Intel in New Mexico, to name just a few. Given the exorbitant capital required to build and operate modern-day fabs, partnerships increasingly hold great appeal for cash-strapped IDMs and foundries.
ATREG’s perspective – In 2025, companies will continue to seek strategic opportunities to maximize fab efficiencies and reduce operational costs via partnership. Financial sponsors will look to get further into the world of fab and tool financing, following the mold of Apollo and Brookfield.
COMPOUND SEMICONDUCTORS PRESS ON
Compound semiconductors, spearheaded by silicon carbide (SiC) and gallium nitride (GaN), have been a driving force in ATREG’s fab transaction assignments for the better part of the last 15 years. Notable examples include Wolfspeed’s greenfield gambit in New York’s Mohawk Valley in 2019 as well as Vishay’s 2024 acquisition of Nexperia’s Newport, UK wafer fab to accelerate their SiC and GaN processes. Compound semiconductor development has been steady throughout this period, but perhaps oversold in its cost feasibility based on the big bets of the Covid pandemic era. Though SiC and GaN chips have a wide variety of applications, production of both has been hampered by slower electric vehicle (EV) growth and challenges in bringing down the cost curve. In addition, oversupply from China has put significant pricing pressure on Western SiC suppliers.
ATREG’s perspective – In 2025, cost reductions in SiC could finally spur commercialization of devices that were previously cost-prohibitive as many SiC fabs come online globally. Though GaN remains slightly further behind in development, GaN investment will remain high in 2025 as savvy IDMs and foundries look to build out their capabilities for explosive growth later this decade. Electric vehicle demand will crawl forward, leaving AI data center use cases to fuel investment.
CHINA’S SEMICONDUCTOR AMBITIONS PROVE DISRUPTIVE
Disruption related to China has been a continued theme in ATREG’s engagements over the past few years, whether it be Western pressure on Chinese ownership such as with Silex and Nexperia, Chinese investment in Europe such as in BelGaN, or the expansion of China’s mature nodes and SiC fabs putting pricing pressure on Western fabs. As much as the United States tries to minimize the capabilities of China’s advanced manufacturing industries, the country’s government, entrepreneurs, and investors continue to press on. Among their achievements are Huawei’s 7nm chip, the recent burst of surprising innovation out of AI start-up DeepSeek, a growing presence in the DRAM market, and the expansion in compound semiconductor manufacturing.
ATREG’s perspective – In 2025, China will continue to be a major semiconductor force, despite geopolitical headwinds. China’s drive for semiconductor self-sufficiency will dovetail with many suppliers’ needs for cheaper chips. Continued U.S. pressure may even be a net positive for the Chinese chip industry, pushing the country to cut deals with regional partners such as Malaysia as well as incentivizing innovation in unexpected areas such as in the case of DeepSeek.