Silicon Isle Ireland’s semiconductor opportunity (via @KPMG_Ireland ):

Ireland already occupies a sizeable portion of advanced semiconductor manufacturing and research and development in a European context, however maintaining and growing this presence is fast becoming a national and European priority. To support and grow Ireland’s Silicon Isle reputation will require a collaborative focus from both industry and regional leaders.

Global semiconductor demand is surging as consumers and businesses adopt the latest offerings in generative artificial intelligence (Gen AI), cloud computing, data centres, electric vehicles, and aerospace. At the same time, semiconductor producers and governments are scrambling to diversify and protect supply chains from a historic low point of semiconductor manufacturing in Europe and the United States.

KPMG research shows increasing geographical diversity is the number one supply chain priority companies plan to achieve over the next three years, and 2023 saw the EU announce its commitment, via the EU CHIPS act, to produce 20% of global semiconductors by 2030. These ambitions are likely to drive compound European annual growth more than 6% in the coming two decades, tripling the European semiconductor market from today’s ~€55bn by 2040.

This sense of urgency is being felt by the Irish semiconductor sector through strategic investments in new wafer fabrication facilities, targeted FDI (Foreign Direct Investment) and the ongoing creation of a National Semiconductor Strategy for Ireland.

Exactly where this strategy will focus is yet to be determined, but key island wide strengths in leading edge chip manufacturing as well as specific developing expertise in photonics and semiconductor design is likely to play a role.

From an investor perspective, Ireland has a clear value proposition as a destination for capital. As a pivotal player in the European growth of semiconductor manufacturing and R&D in recent decades, Ireland is a credible player in R&D, foundry operations and can expand offerings in outsourced assembly and test services (OSAT) and advanced packaging.

Ireland has a proven track record of attracting foreign direct investment (FDI) and supporting indigenous technology research and development, including foreign acquisitions. Its workforce quality in both design and manufacturing functions is competitive with the US, Asia and the rest of Europe, and its openness to global trade and stability have made it attractive to many global operators seeking low-trade restrictions and access to Europe.

There is a significant interest in emerging technologies across Europe. Tyndall National Institute (Tyndall) in particular has a strong interest in the transition to the chiplet model, which could open an opportunity for Ireland to become one of the global locations of choice to develop and fabricate low to medium volume, high value, semiconductor-based SiP products.

“Such products do not easily fit into the existing supply chain as it is currently built for single large volume chips, and based primarily on silicon. As a result, there is a challenge to accommodate next generation products that require the integration of chiplets fabricated from different materials and where the product volumes can be modest when compared to those for which the current supply chain is designed around” notes Patrick Morrisey of Tyndall.

This may be an unexploited opportunity Ireland has yet to capture, where Ireland could leverage existing significant semiconductor sector, leading edge expertise and technology in areas such as heterogenous integration and advanced packaging, to establish one of the world’s leading locations to develop and manufacture high value SiP products for sectors such as MedTech, space and energy.

At the same time, Ireland faces challenges related to the availability of talent and the affordability of manufacturing. These constraints are a common theme across many global locations for semiconductor R&D and manufacturing, requiring specific government and industry collaboration to address.An area where there is particularly strong potential at a European level is backend processing, in particularly advanced packaging, assembly and test.

These steps in the semiconductor production process are less developed in Europe compared to Asian hubs, owing mainly to higher labour costs across Europe. This labour cost gap is being narrowed with targeted government supports across Europe and US. Other factors such as electricity, water and land availability are often cited by multinational companies as limiting growth potential.

MNCs are now working with governments to invest in enhanced process efficiencies, with a particular focus on water recovery and utlising greener energy sources. Ireland is proactive in this space with existing industry support for renewables and water restoration.

Energy and infrastructure are a concern on a global level, with many countries focusing on industry collaboration to collectively solve constraints. Many manufacturers of semiconductors are striving for elevated levels of water efficiency – which itself has resulted in significant R&D in the water treatment and processing sector. Equally semiconductor manufacturers are actively seeking locations which offer renewable energy and the ability to work alongside communities and other industries, rather than potentially competing for finite resources.⁵

Incentives may be necessary to unlock priority FDI, e.g., capital expenditure (capex) refund incentives are proving attractive at a global level. However, there is caution over balancing incentives (often running to billions of euros or dollars) with wider economic benefits. Such incentives may have a place in making the market more investable, not only for the major OEMs (Original Equipment Manufacturer) but for venture capital, private equity, and other investors, all of whom are taking a greater interest in the sector.

Investment firms including Brookfield, Apollo, and asset manager Ardian’s Europe-focused semiconductor fund, have all been active in co-investing in semiconductor R&D and manufacturing facilities in recent years.^{6 7 8} 

Semiconductor demand is predicted to grow steadily for the foreseeable future, and Ireland is well positioned to capitalise on this significant growth opportunity. Strategic initiatives such as incentivising R&D partnerships, cross-training programs, infrastructural investment, and targeted incentives can further bolster Ireland’s position to not only meet but exceed its share of European and global semiconductor growth in the coming decades.