India set up its first chip making unit in 1983 in Mohali but then made little progress in this segment, until the government launched a Rs 76,000 productivity linked incentive scheme for chip making last year.
Geopolitically, India’s improving relations with the US have garnered it global cheer in its ambitions. But a long, complex road lies ahead before it becomes a chip making hub
Chris Miller, author of the corporate bestseller Chip War spoke to ET about the fast evolving, powerful business of semiconductors and India’s prospects in it.
Edited excerpts:
India is a late starter in the highly complex world of semiconductors. What are its prospects?
India is a small player today, but the country has large ambitions across the electronics supply chain from the production of chips all the way through their assembly into devices like smartphones or computers. Indian industry and the Indian government are trying to play a much larger role in the industry.
How do you read India’s ambitions to become a significant player in this industry?
India wants to move up the electronics value chain, not only assembling devices, which is the lower value added portion of the electronics industry, but also making some of the higher value components inside of electric devices.
If you look at a typical phone, the assembly process only costs a handful of dollars, whereas the chips inside sell for up to hundreds of dollars. And so most of the money in a smartphone is made by the companies that produce the chips inside of them. So this economic rationale is a key driver of India’s interest in semiconductors.
There is an obvious geopolitical angle too…
Yes, the second facet is political because India doesn’t want to be reliant on China for the electronics that it uses. And developing independence and semiconductor capabilities is seen to be an important means of establishing India’s technological sovereignty vis-a-vis China and other countries. The Indian government has been pouring substantial incentives into the chip industry, trying to attract foreign companies to invest, as well as trying to support Indian firms. This comes at a moment when the entire electronics industry outside of China is looking to rebalance away from the current position of extensive reliance on China for the production of simpler components, as well as for the assembly of electronic devices.
And many companies are looking at India as a potential location for their packaging and assembly. Companies like Foxconn and Micron want to build up their electronics production in India, making India a larger player in their supply chains.
A new player will have a tough time embedding its operations in the global semiconductor supply chain. Can you please explain the complexities of the supply chain?
Manufacturing of advanced semiconductor requires cooperation from dozens of different companies in multiple countries From the earliest stage of a chip’s production, there is a series of choke points throughout the supply chain in which companies often have predominant market share or in some cases a complete monopoly of the know-how and machinery needed to make a chip.
The production, for example, of the most advanced lithography tools, is done by just one company, ASML in the Netherlands, which has 100% market share.
There’s one company, Taiwan’s TSMC (Taiwan Semiconductor Manufacturing Company) that produces around 90% of the most advanced processor chips that are in smartphones and computers, and advanced data centers.
If you dig deeper into the chemicals used in the process, you just have just a couple of companies capable of purifying materials to the requisite level. And they’re largely based in Japan as well as a handful in the US and in Europe. The design of semiconductors is also something where there’s, in many cases, highly concentrated markets.
One example of highly concentrated chip design markets is in the case of AI. Let’s talk about that…
To train an advanced AI system requires access to some of the most advanced semiconductors. Systems like ChatGPT are trained by reading vast amounts of text. They recognize patterns between the different words, and that’s how they’re able to produce languages
And this process requires an extraordinary amount of data processing. And only a couple of companies can produce chips with that kind of processing power. Across the world, there’s a deficit of the most advanced AI training chips above all the types of GPU graphics processor unit chips produced by Nvidia.
How are big tech firms trying to make it big in this segment?
The past several years have seen many big tech companies begin to design their own semiconductors. They’ve realized as they build out vast data centers, if they can have chips that are perfectly designed to optimally carry out the specific workloads they need, they can get major advantages in terms of speed. So today, almost every big tech firm, Facebook, Google, Amazon, are designing and in many cases, using, their own semiconductors for their own internal data center purposes.
And some of these chips have become quite important. Google’s TPU (tensor processing unit) is a really important and central chip in the training of artificial intelligence systems.
We are going to see over the coming years, even more tech companies bet on producing or at least designing their own semiconductors that are perfectly tuned to the types of computing they need to undertake.
