India advantage in the US-China semiconductor war

The vice president of the Indian Electronics and Semiconductor Association, Sunil G. Acharya, explains what the US-China war on semiconductors war could mean advantage India.


The US has banned exports of high end semiconductor chips which require American technology or manpower in china. In the short term we could see some disruption in the supply of high end chips as the supply chains adjust themselves to the change. In the long term this may offer opportunities for the Indian Electronics Systems Design and Manufacturing (ESDM) industry as companies who are looking at alternative locations might look at the Indian Industry as an alternative.

The global semiconductor supply chain is highly specialized and complex. Different countries and regions play a role in the overall supply chain depending upon their strengths and advantages. Broadly, the components of the semiconductor supply chain span - research and development, EDA Tools (Electronic Design Automation), semiconductor design and IP, semiconductor manufacturing equipment, semiconductor production (fab/foundry, ATMP/OSAT) and semiconductor manufacturing materials.

Semiconductors are amongst the top five most traded products in the world and the supply chain for semiconductors is complex. Based on their capabilities different countries lead in different parts of the semiconductor supply chain, for example while the US leads in the R&D and design space, Taiwan and Korea lead in the fab/foundry space and China leads in the assembly test and packaging areas. This makes countries dependent on each other for movement of semiconductor materials, semiconductor equipment and products. More than 70 per cent of semiconductor manufacturing capacity, as well as many suppliers of semiconductor manufacturing materials such as specialty chemicals and gases, minerals, wafers are located in China and other Asian countries. Therefore, geopolitics plays a critical role for ensuring a secure semiconductor supply chain.

The CHIPS ACT and the current technology embargo on China and the global geopolitical situation and the incentives announced by the government of India and states in India to promote semiconductor manufacturing, the design-led incentive scheme, and the PLI (Production-Linked Incentive scheme) and SPECS (Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors) schemes to promote electronics manufacturing will provide a potential opportunity for India.

Understanding the CHIPS and SCIENCE ACT 2022:


CHIPS stands for Creating Helpful Incentives to Produce Semiconductors.

Key Objective of the CHIPS and SCIENCE ACT 2002:

To keep the United States the leader in future technologies like nanotechnology, clean energy, quantum computing, and artificial intelligence and to secure the semiconductor supply chain. (As semiconductors are critical for all industries and hence play a critical role in national security).


The CHIPS and Science Act provides $52.7 billion to boost American semiconductor research, development, manufacturing, and workforce development. It also provides a 25 per cent investment tax credit for capital expenses for manufacturing of semiconductors and related equipment. These incentives are aimed at securing domestic supply of semiconductors, job creation and motivating private investment.


Total $52.7 billion provided:


  1. $39 billion in manufacturing incentives, including $2 billion for the legacy chips used in automobiles and defense systems,

2. $13.2 billion in R&D and workforce development

3. $500 million to provide for international information communications technology security and semiconductor supply chain activities.

The funds and incentives provided by the CHIPS act also come with strong guardrails, ensuring that recipients do not build certain facilities in China and other countries of concern.

The India Scenario

Design:

Most American semiconductor majors including Intel, TI, Micron and others already have a presence in India. The Indian units of these majors are involved in semiconductor design & validation and other support services. Additionally there are several established fabless domestic players who offer design services to global companies across industry segments. With the announcement of the Design-Led Incentives (DLI) by the government of India, it is expected that the Indian design ecosystem will develop significantly over the next two years. When American Semiconductor Companies incentivised by the CHIPS act look to expand or establish semiconductor manufacturing in the US, there is a good possibility that they will consider expanding their design, R&D and support services footprint in India.

Manufacturing:

Currently, India does not have any commercial semiconductor manufacturing facility. (SCL Chandigarh is an exception which operates at an older node and has been servicing the strategic needs of the country till now).

However, with the incentives announced by the government of India for establishing semiconductor manufacturing (FAB/Foundry) and packaging capabilities in India, several large players have expressed interest and we should see these manufacturing units operational over the next four-five years.


Understanding the Semiconductor Manufacturing Supply Chain:

Broadly semiconductor production involves FAB’s/Foundry’s and ATMP/OSAT’s (ATMP - Assembly Test Marking and Packing; OSAT - Outsource Assembly test).


The Semiconductor Production process include,

  1. Materials - (Chemicals, Gases, Minerals)

  2. Semiconductor Manufacturing Equipment

  3. Services

1. Semiconductor Manufacturing Materials:

Semiconductor manufacturing uses several chemicals, gases and minerals as inputs. Many of these chemicals, gases and minerals are available in India and are already being used in other industries such as automotive, pPharma etc. There is an opportunity for the Indian Industry to explore opportunities to become a materials supplier to the global FABs and ATMPs.

To secure their supply chains and as part for their China+1 policy, many Semiconductor majors are looking for alternative sources of supply to de risk their supply chain. The Indian Industry may benefit from this.

2. Semiconductor manufacturing equipment:

Semiconductor manufacturing equipment leaders like Applied Materials and LAM Research have a strong engineering presence in India and their Indian teams support the global Fab’s and ATMPs and are also involved in Research and Development. Additionally, there is an opportunity for the Indian MSME ecosystem to explore becoming a supplier of Sub components, Accessories, parts and services to the Semiconductor Manufacturing equipment ecosystem. Companies expanding their capabilities in the US may consider the Indian industry as service provider.

3. Manpower and Services:


The Indian government and industry has announced several initiatives for developing skilled manpower in the areas of semiconductor design and manufacturing. Indian manpower may be tapped in the areas of factory automation, operations management, logistics and other adjacent areas, in addition to semiconductor manufacturing talent by American majors who want to establish or expand semiconductor production capabilities in the USA and globally.


References:

1. https://www.semiconductors.org/wp-content/uploads/2021/05/BCG-x-SIA-Strengthening-the-Global-Semiconductor-Value-Chain-April-2021_1.pdf

2. https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/09/fact-sheet-chips-and-science-act-will-lower-costs-create-jobs-strengthen-supply-chains-and-counter-china/

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