The Semiconductor Opportunity

In the 21^st Century, the Great Game is being played out digitally, in Cyberspace. There are two major manufacturers that control its cutting-edge semiconductor heartbeat, namely Taiwan and South Korea.

 In the context of the Indian Cabinet approval for a Rs. 76,000 crore incentive for the desired Aatmanirbhar Semiconductor market, a vast new opportunity is  about to be unleashed.  India has an import bill of nearly $100 billion in semiconductors for scores of industries.

The effort is to establish a comprehensive capability, inclusive of indigenous design, fabrication, testing and packaging. A very sophisticated R&D infrastructure will need to be established, to not only replicate what is being made at present, but to develop even more sophisticated products in future. And vast amounts of clean water and cheap electricity needed in the manufacturing process.

Semiconductors are an expensive business. Start-Ups need a government push, and large corporates too look to policy clarity before venturing into something investment- intensive like this. So now, this lacuna has begun to be addressed at the right time. High technology companies in the field are keen to relocate the outsourced electronic manufacturing from China.

They are fearful of intellectual property theft, especially as China has not been very good at semiconductor manufacture. This outweighs the benefits of low-cost manufacturing incorporating imported semiconductors. Taiwan cannot sell the technology and plant. Its government has already placed restrictions. Collectively, along with Japan, the US, Europe must reduce dependencies or perhaps uproot lock stock and barrel. It’s that, or be vulnerable to future pressures, shortages in the supply chain, and possible Chinese sanctions. 

India’s modest policy formulation presently aims to take the Indian electronic manufacturing industry, consisting mainly of Smart Phones, at $ 75 billion currently, to an impressive $ 300 billion by 2027.

With its vast numbers, India is a major consumer of imported electronic chips in automobiles, defence equipment, appliances, white goods, medical devices, in addition to phones and computers. It has a veritable IT army of young, technologically savvy innovators. With government incentives and backing, there is every reason to expect a new and vibrant Semiconductor ecosystem mushrooming here. The Tata Group is reportedly already in talks with Taiwan manufacturers. Other major corporates in addition to the Unicorns and Start- Up universe is readying to enter the fray.

China is the world’s biggest manufacturer of Silicon. Eight million metric tonnes was manufactured globally in 2020, of which China produced 5.4 million tonnes of this metalloid. Other producers are Norway and Brazil.  This raw material accounted for a value of $6.3 billion in 2019. Silicon is obtained in a reduction process in which Quartz and Coke is smelted in blast furnaces. But the massive value addition, it is seen, is in the subsequent processes to make Silicon Wafers and Semiconductors. Some Silicon is also used in the manufacture of solar panels, aluminium and other materials.

The world demand for Silicon Wafers is upwards of 21.9 billion square centimetres for mobile and smart phones alone. Another 11.3 billion square centimetres was snapped up by desktop, notebook, and server PCs, in 2018.

Ready to use Semiconductors, the heart of the matter, are a $ 552.9 billion global market, growing at 25.6 % year-on-year. That means it is expected to double in four years, and keep doing so  every four years for the medium-term future. It implies there is enough of the pie to go around beyond the current manufacturers - Taiwan, South Korea, Japan, China, some specialist producers in Europe, and of course, the US.

The bulk of these Semiconductors at present go into Mobiles and Smart Phones because every adult on earth wants one. The rest go into everything else electronic, some of it not high-end chip. Almost every device nowadays, major to minor, has electronic circuitry.

But Artificial Intelligence (AI), built into hardware, and robotics, are the future of automation. It alone will consume about $ 65 billion worth of semiconductors by 2025. Indian Start-Ups are busy designing AI architecture already. These young people could well break fresh ground in this field.  All of this may contribute substantially towards India’s ambition to become a $5 trillion economy by 2025.

A large number of English-speaking,  qualified and professional IT manpower at a reasonable cost is something that countries such as Vietnam, Bangladesh and others in  similarly low-cost Asia-Pacific cannot compete with. They can, of course, try and replicate the labour-intensive Chinese assembly model. But India is going for the semiconductors now. Well begun is half done.

The present leaders in the high-end semiconductor producing market are Intel  at $72.8 billion revenue in 2020, and Samsung at $57.7 billion. Samsung already manufactures millions of Android smartphones in India, and has a head start in terms of its knowledge of the Indian environment. Other South Korean companies such as Hyundai and Kia are prominent in the automotive sector. Apple manufactures and sources substantially in Taiwan (semiconductors) and China ( lesser components, assembly), but has started an India plant too.

Taiwan today has a $115 billion contract chip-making and Semiconductor industry, with OEM wafer manufacturing and complete industry supply chain. It is vulnerable because Red China is both threatening and only 100 km. away. It began its semiconductor industry in 1974. In 1987 it pioneered the fabless foundry model. By 2002, it had 40 fabs in operation. In 2007, its semiconductor industry stood second only to Japan. In 2020, Taiwan became the market leader.

Today it supplies 63% of the semiconductor market. South Korea is next with 17%. India is actively wooing Taiwan as it dilutes its own commitment to the One China Policy.  The time has come when Taiwan could well collaborate with India, as America’s storied RCA did with it, in 1974.

And later when Morris Chang, now worth $3 billion at 90 years old, was passed over for the top job in Texas Instruments. He returned to Taiwan in 1987. Chang established Taiwan as a semiconductor super power, using the contract manufacturing route based on design only ‘fabless’ establishments. He started in his mid-fifties and it has only been 34 years since. India won’t have to reinvent the wheel. It will grow a lot faster.

(1,026 words)

December 17^th, 2021

For: Firstpost

Gautam Mukherjee