August 5, 2025 AI Can Help Semiconductor Companies with Tariffs

For semiconductor companies, tariffs are supply chain-rattling events. Controlling the chaos starts with sound digital fundamentals.

By Helena Chong & Corey Hughes, SAP

It’s a VUCA (volatile, unpredictable, complex and ambiguous) world, and few sectors are feeling it more than the semiconductor industry and the high-tech companies that depend on them.

For companies in the semiconductor value chain, tariffs and trade restrictions on semiconductor components, raw materials and finished products are yet another in a seemingly endless series of supply chain-rattling events. In this perpetually VUCA environment, the edge goes to high-tech companies and semiconductor industry companies that can consistently make timelier, better-informed supply chain and production investment decisions.

This decision-making advantage is especially critical when it comes to long-term manufacturing investments, where the stakes are high, timelines are long, and the implications of trade policy are hard to ignore. Amid this fluid trade policy situation, many companies are recognizing how and where to expand manufacturing capacity. But near-term stabilization remains a challenge. Some companies are eyeing India for investments in new production as a result of incentives from the Indian government’s Semicon India program that cover 50% of the project cost for new semiconductor and display fabs and related facilities. Six projects had been approved through the program as of this spring, bringing investments from HCL, Foxconn, Applied Materials and Lam Research. However, these projects are still at least four years from completion, according to the Indian government.

Meanwhile, similarly long lead times and high capital costs to develop new manufacturing capacity and ecosystems in the U.S. weaken the purported premise behind the Trump tariffs: to reshore jobs and key segments of the semiconductor supply chain to the U.S. What’s more, the reach of today’s tariffs and trade restrictions leave few safe havens for accessing supply and developing capacity. Even high-tech companies that took solid steps to diversify their supply chains into places other than China in response to tariff volleys during the first Trump administration tell us candidly that the latest round of tariffs have undermined those efforts and left them scrambling to maintain margins and reliability.

As difficult as decision-making for companies in the semiconductor value chain can be amid often cloudy or conflicting market signals and fluid trade policies, the best way to manage the impact of unpredictable, disruptive events and conditions is to focus on controlling the things they can control, internally and within their supply chains and business relationships. That in turn will better position companies to capitalize on opportunities when they do arise.

Mastering the Tariff Mayhem

Controlling the controllables starts with sound digital and data fundamentals, augmented by intelligent capabilities. Here, based on our work with high-tech companies and their suppliers during the tariff era, are some of the key strategic questions that they’re better able to answer with those fundamentals and capabilities in place:

Q. Should we invest to build new capacity? If so, where and how much?
Intelligent modeling tools can support companies in their capacity expansion decision-making, helping them determine whether, and where to invest in new manufacturing capacity in light of developments on the trade policy front, labor and equipment availability, capital cost, and other factors. Would developing a fab facility in India, for example, make more sense than building one in the U.S.? AI-driven modeling capabilities can provide an answer based on a broad range of data from internal and external sources. Or, maybe they’ll tell you the least costly option for the moment is not building new capacity but rather investing in larger buffer stocks to keep inventory flowing, paying the requisite tariffs, and then focusing on capturing new operational efficiencies to help offset tariff-related costs.

Q. Which suppliers should I use for X component, Y service or Z material?
As fluid as tariffs and trade restrictions have been, and as uncertain as the outcome of talks between the U.S. and China remains as of early July, the priority for high-tech companies and the various segments of the semiconductor value chain should be to build as much flexibility and resilience as possible into their supply chains. Doing so entails shifting from a single-source supply chain approach to one that gives them multiple practical options for accessing a particular material, component or finished product.

The best way to gain the flexibility to quickly pivot from one supplier to another is by building business networks/supplier ecosystems that enable them to connect with and share data with multiple tiers of suppliers in real time. Then, by applying predictive modeling tools to the information they collect from the supply network, they can gain insight into optimal pathways (in terms of cost, volume, reliability, etc., factoring in tariffs and export controls) to secure the components and materials they need and deliver their products and/or services in the timeliest and most cost-effective way.

Q. A supply disruption is looming with multiple suppliers in X region. What options do I have for fulfilling pending orders and how will that impact timing, margins and more?
An AI agent, working with data from your own operations and your supply network, plus information it gathers about developments that could impact your supply chain (an extreme weather-related disruption to shipping routes or manufacturing, for example, or implementation of a new tariff) can tell you it’s time to pivot from certain suppliers in specific regions, show you how much of a certain material or component will be available, when, and at what cost from alternative suppliers, and suggest the best alternatives based on predetermined parameters. So if a disruption or development makes sourcing from a certain region or country difficult or prohibitively expensive, you can query the system, and its generative AI capabilities then can respond with recommendations about which contract manufacturers or component suppliers to choose based on prevailing conditions. Then, once human beings have reviewed the AI agent’s recommendations and decided on the best option, another AI agent can promptly execute the pivot to a new supplier by updating contracts and logistics plans.

This use of agentic AI is one reason high-tech companies land among Gartner’s recently released rankings of the best-managed supply chain organizations in the world.

All this is predicated on a company having an integrated digital software environment in which information from suppliers, manufacturing, customers, warehouses, distributors and other sources flows unimpeded across various planning and execution systems and processes, enabling production and logistics to coordinate activities and deliver orders on time and as required.

Q. How will this latest tariff or disruptive event impact demand?
Responding to unpredictable trade policies and market conditions becomes a more straightforward proposition with intelligent demand-sensing and demand-forecasting capabilities, enabling companies to collect customer demand data, overlay it with other market and policy information, then use intelligent scenario planning tools to forecast expected demand within specific regions and customer segments. They can then adjust their supplier, manufacturing and logistics planning accordingly.

In a VUCA world, companies that can leverage fresh data to act proactively and flexibly will be the ones best positioned to turn tariffs and other flashpoints into a competitive advantage.

About the Authors:

Helena is a director within the high-tech industry at SAP, specializing in the semiconductor segment. She leads go-to-market strategies that align SAP’s portfolio of advanced technologies, including AI, ERP, and cloud innovation. Helena identifies and develops industry-specific use cases, and collaborates with customers in accelerating digital transformation and unlocking new value through data-driven insights, innovation, and strategic engagement.

Corey Hughes is a network executive with the SAP Business Network for Supply Chain global advisory practice, working with supply chain companies to optimize their source-to-pay value streams in the Western United States, as well as providing guidance to high-tech companies globally. Prior to joining SAP, as an IT program owner he led transformation initiatives within plan-to-procure at a leading software and devices company, including the implementation of integrated business planning and supply chain collaboration platforms.

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