Why Should India Not Manufacture Semiconductors?

FREMONT, CA:As there is a global shortage of semiconductors, several people have suggested that India build chip manufacture facilities (fabs). However, semiconductor politics and economics are simply too complicated for such a solution to be realistic.

Two countries, the United States and China, are at the forefront of this conflict. On the one hand, the United States controls intellectual property, design, and technology; on the other side, China is the world's largest chip customer, consuming 60% of all chips made internationally.

In 2019, the US used export control regulations to prevent American companies from assisting Huawei (a Chinese corporation) in restricting the transfer of design, fabrication, and other technologies.

Taiwan Semiconductor Manufacturing Company (TSMC) and others have been pressured by the US not to make chips for China. Because this action would devastate China's electronics and sophisticated technology industries, China retaliated by repeatedly violating Taiwanese airspace this year. Fabrication facilities (fabs) for semiconductors are not a one-time expenditure. Because electronics technology is rapidly changing, it necessitates a significant annual investment. Every year, chipmakers such as Intel and TSMC invest more than $20 billion in R&D, process enhancement, and new manufacturing technology. Fab technology is difficult to master and has a high failure rate. China is a perfect example of how even large investments can not ensure success.

The world's fab capacity will soon be oversupplied. The rivalry between the United States and China has prompted significant investment in new manufacturing facilities. The US government plans to invest $50 billion on chip production. Intel and TSMC are both investing heavily in new fabrication methods. There are a slew of additional ideas being discussed.

Apart from fabrication, India should concentrate on other aspects of the chip value chain. This accounts for 40% of the value chain's revenue. The two categories of relevance for India are chip design and assembly, testing, and packaging (ATP). Chip design entails simulating the mechanics of chip circuitry using software tools. This is a skill set that India could use.

The United States, a significant player in the semiconductor industry, is looking for partners to help establish a new supply chain that excludes China. India, as a Quad member, is required to participate in the fabless chip value chain.