The semiconductor industry has experienced a remarkable demand surge over recent years, driven by innovation within advanced computing and AI, 5G communications, electric vehicles (EVs) and healthcare.
As the world embarks on its sustainability transformation, the role of semiconductors as a crucial enabler of an increasingly green and digital economy should not be underestimated. The future of the ‘smart everything’ model requires chips to run faster, progressively fit into smaller devices, integrate more capabilities, and process even more data reliably.
See also: Semiconductors in the spotlight
The EV space is a good demonstration of the accelerating surge in semiconductor demand. Current forecasts suggest the EV share of global new passenger vehicle sales, which was 14% in 2022, will jump to 30% in 2026 and 44% in 2030. More and more semiconductors will be required to produce EVs and the power semiconductor content per vehicle will continue to expand dramatically.
Future of semiconductors
At Nordea, we are acutely aware of the importance of resource efficiency, which is one of the three pillars within our Global Climate and Environment strategy – the largest Article 9 vehicle in Europe. While the increased use of technology in our lives today is leading to higher overall global energy consumption, the semiconductor supply chain is continuing to implement solutions to improve productivity and greatly reduce power usage. Here, automation is proving critical.
As semiconductor chips become more complex, it is common for these state-of-the-art devices to contain more than one billion circuit elements. In the past, hardware architects were sketching chip designs by hand, while utilising numerous isolated tools. Electronic Design Automation (EDA) enables tools to work together, enabling chip designers to design and examine chips before they make it to the real world.
This innovative technology also plays a critical role in achieving global decarbonisation goals, such as those outlined in the Paris Agreement. As a key enabler of the green transition, the EDA industry is expected to display a compound annual growth rate of 10% until 2032, with revenues expected to hit $19bn by the end of 2028.
Sustainability-focused investors have become increasingly aware of the role EDA will play in the green revolution. where the largest provider of EDA technology is US-based multinational Cadence Design Systems. Cadence delivers the software, hardware, and intellectual property needed for its customers to turn design concepts into reality. Its clients operate across a broad spectrum of industries – including hyperscale computing, 5G communications, automotive, mobile, aerospace, consumer, industrial, and life sciences, Cadence is instrumental in advancing technology across industries.
Current chip contradiction
However, as is always the case, there is no free sustainability lunch with semiconductors. While crucial in the fight against climate change, there are concerns about the industry’s resource-intensive manufacturing practices. Without intervention, carbon emissions from semiconductor production are tipped to increase by upwards of 8% annually over the coming years.
TSMC, the world’s largest chipmaker, understands the need to improve ESG practises and has targeted net-zero emissions by 2050, with annual progress reviews planned to dynamically adjust and set even more ambitious carbon reduction pathways. While manufacturers like TSMC still need to make significant strides forward, EDA innovation from is unquestionably improving resource efficiency.
Reducing the power consumption of chips, as well as significantly cutting the time it takes to design them, will increasingly play a pivotal role in reducing greenhouse gas emissions. Optimising semiconductor chip design can lead to 10x higher productivity, a 50% reduction of power usage and up to 40% diminished loss in leakage. As we look to accelerate the global economy’s green transition, more efficient and higher-capacity computer chips will be needed to facilitate the upgrade of infrastructure and help retrofit today’s unsustainable industries.
In this way, resource efficiency providers within the semiconductor space, such as Cadence, are key enablers of progress in terms of the global sustainability transformation. And while indirect contributions like this often fail to be accounted for by mechanical and less analysis-driven ESG strategies, we remain steadfast in the belief that semiconductor innovation is a vital part of the puzzle in paving the way towards a more sustainable future.
Finally, as for the financial case, the market still materially underestimates the longer-term growth outlook for this niche segment of the semiconductor value chain, where the leading companies have the potential to double in size by 2030.
