Myths around chip making- Where we are ?

 

Semiconductors, or Chips as we popularly call, is perhaps the most complicated and high-end technology product invented by the human civilization till date. Without chips inside it, every electronics device we use in our daily lives, whether it is for communication, defence, data processing/ storage etc will be reduced to a simple metallic or plastic box without any substantial use.

                                      TSMC Fab in Taiwan (PC- The Next platform )

However, such chips are not designed or manufactured everywhere. The entire value chain in the chip manufacturing is so complex and so costly that a handful of companies from selected countries enjoy the complete monopoly over its value chain.

 

Many of us would not have even heard about a company called TSMC, headquartered in Taiwan. Interestingly, this company, have a near monopoly on the fabrication of most advanced chip available in this earth, sub-10 nm chips.  It’s only near competitor is Korean headquartered Samsung, which too have significant, still marginal presence in advanced chip manufacturing.

 

However, there are a handful of firms that manufacture chips based on yesteryears technology, ie which are mostly used in household and consumer electronics, automobiles etc. Companies in China, Malaysia, etc does that. Interestingly, in India, Chandigarh based, Government owned, Semi-Conductor Laboratory or SCL, fabricates chips, mostly used in Indian space and defence programs and projects.

 

Even though, Chip fabrication or manufacture itself is a very complex engineering, more complex is the manufacturing of Machines that used in Chip fabrication. Here, a Dutch based company called ASML is an near absolute monopoly in that sector. It means, if anybody wants to start a chip manufacturing unit, it has to purchase the machinery from that company alone.

 

ASML is critically depend on a handful of firms in US and EU for manufacturing its advanced Chip fabrication machines. This machine called EUV (extreme Ultra violet) Lithography machines, was developed by 2012 after decades of research in different labs of US and EU. Its most critical component is supplied by Zeiss, which is a German based optical systems manufacturing company. Because it’s many other critical components and chemicals are manufactured in US, ASMC cannot go against the instructions and interest of US government and recently they refused to supply these EUV machines to China.  Thereafter, China’s dream for becoming a advanced Chip manufacturing powerhouse got completely shattered. Much of the Trade war between US and China was around restrictions imposed on Chip technology and in that China had to eat the humble pie.

                                       EUV machines by ASML (PC- New York Times )  

 

Another critical aspect of its entire value chain is Chip design. Here in this case, Intel is the industry leader even though it does not have a monopoly over it. Apart from Intel, there are a handful of companies in US, UK which includes, AMD, Qualcomm, Apple, Nvidia, Amazon etc and even Chinese companies like Huawei are leading chip designers.

 

Amongst these, apart from Intel, all others are Fabless Designers, ie they don’t own chip manufacturing facility, and get their chips manufactured at TSMC’s fabrication units in Taiwan. Even though Intel has its own fabrication unit in US, its struggling and lags far behind TSMC in terms of productivity and profit. Samsung is the only Asian company who is a key player in design as well as fabrication. It is also to be noted that TSMC don’t design their own chips. It’s a complete end to end fab company and does not compete with its customers like AMD, Huawei, Apple, Amazon etc.

 

Where India stands?

 

Answer is very simple. We are nowhere. All our critical requirements of Chips are sourced from TSMC / Taiwan. We may not be directly importing substantial number of chips because, we are importing the goods in finished format or in CKD wherein which chips are already embedded. But, like any other developing country, in case of any supply disruption of Chips, we will be a simply helpless bystander. In case, US wishes to imposes any sanction upon us, we will face critical shortages and will be very much vulnerable in our defence/communication/ data analysis requirements.

 

That’s why, India is pursuing an ambitious program for Chip manufacturing. It had announced $10 Billion subsidy for those who wishes to set up Fab units in India. The first one under this scheme was cornered by a joint venture between Vedanta and Foxconn. This unit is going to be on Dholera, Gujarat. The second one is also a Joint venture between Mumbai headquartered ISMC and one Israel chip design firm. The proposed location for this venture would be near Mysore in Karnataka.

 

However, there are a large number of challenges that India has to overcome to be a serious player and to become a part of global chip eco system. There is no way that India can build most advanced and cutting-edge chips at least in the near to medium term. It’s completely monopolised by TSMC and their US partners. Our next best possible option would be slow and steadily entry in to yesteryears technology where we will be able to build chips that are used in household items and low-end automobiles. (ie not in computing devices or smart phones, ie chips of 180 nm or more.). Here our challenge would be about manufacturing those products in an efficient and at globally competent price points, where we will be competing with firms in China and Malaysia which already have decades of experience in this arena.

 

Somebody might ask, why can’t we invite TSMC here in India and ask them to set up their fab units here? Let us not forget that, till date, apart one single fab unit in mainland China, TSMC had not built any Fab units outside Taiwan. This is because, TSMC is a crown jewel for Taiwan and Taiwan rightly believes that it offers a ‘Silicon shield’ for them in case Chinese attack their territory. If anything happens to Taiwan and TSMC get shut down, the entire Electronic and digital industry will come to a grinding halt. If no chips are churned out from TSMC, it will have devastating impact on global economy and hence nobody wants it to happen.

 

Under US CHIPS Act of 2022, and with multibillion subsidy (approx. 50 billion US $) both Intel and TSMC are building huge Chip fabrication unit in US which will start churning out most advanced chips by around 2025-26. However, TSMC will still keep its critical fab skills and most advanced technology in its own home Country, ie Taiwan and the fab in US will act as its subsidiary. Therefore, it would be naïve to think that one day, TSMC will be ready to invest in India and we will have TSMC Fabs here.

 

Chip making is not just an economic activity like any other manufacture. It’s criticality and high entry barrier ensures that State support is crucial for its viability. Nation who controls design, fabrication and supply of this crucial product can control how we can communicate, analyze our data, and secure our territory. Given this being a reality and constraint, we have to optimize our choices and priorities to tune with the way in which our Chip Nationalism will be promoted.