The Tuesday Interview.
Credit: DH Illustration
Tufts University Professor Chris Miller’s Chip War: The Fight for the World’s Most Critical Technology is an insightful book into the history of how the semiconductor industry helped America leave the Soviet Union behind in military and commercial technology during the Cold War and how, post-pandemic, chip-making prowess is once again key to the new competition for global power between the US and China, drawing the entire global supply chain into the fray and, in the bargain, opening up opportunities for countries like India. DH’s E T B Sivapriyan spoke to Miller, on the sidelines of the Tamil Nadu Global Investors’ Meet, on India’s prospects in the chip-making ecosystem and whether the country can take advantage of the ‘China+1 strategy’ of western companies. Excerpts:
Semiconductors and chips have been in use for a long time. But they have become common concerns only in the past couple of years, especially during the Covid-19 pandemic. Why have people started to get interested in chips?
Three things have made chips more important than ever before. All types of manufactured devices, not just phones, computers and cars, now use more chips in them than ever before because we are putting more sensors and more communication into them. And when there is a disruption in the supply chain, it causes bigger issues now than it did 10 or 20 years ago. Second, chips are critical to AI. And the third reason is that the chip supply chain was very geographically concentrated. For a long time, the supply chains went from the US to Taiwan and to China. Now, it is becoming less viable to have supply intersect those countries when governments are demanding that technology be restricted.
Has India come late to the semiconductor party? Despite a policy in place, only one company (Micron) has started work on an Outsourced Semiconductor Assembly and Test (OSAT) plant. Where do you think India will be placed in the next five years in chip-making?
Usually, the first step on the ladder is device assembly, followed by testing and packaging, and then fabrication. What we are witnessing right now is the building of an ecosystem. There has been one big announcement, and I think there will be more in the future. But I wouldn’t underestimate the design side as well as it is a separate process. That’s a place countries like India have a lot of scope.
What should be done to get more design work done in India?
A lot of design happens in India, but they are mostly for foreign companies. I think the challenge is taking the expertise in design that already exists and building new products and new (Indian) brands around that expertise. I believe it is not a technical challenge but a business expertise challenge. When one looks at the growth in India’s manufacturing sector, there is a lot of scope for this (chipmaking) sector as well. There will be a time when Indian makers make chips for Indian brands. Take the growth of electric two-wheelers and three-wheelers in India. As the ecosystem grows, I think, we will see a lot of Indian manufacturers turning to Indian design.
As you said, Indian companies are investing big in EVs. Will this lead to a growth in the chip sector?
Well, I think it also depends a lot on the global dynamics, and right now things are quite favourable to India because of the China+1 strategy. We are still in the early stages of waiting for one or two Indian firms to make it big on their own, establish a brand, and develop a path that will attract other people. That’s the way forward.
India has a Semiconductor Policy and a production-linked incentive for the sector. Are these enough to attract investments?
It depends on what India wants. If the goal is to have a lot of new fabs, that’s a very expensive proposition. But most of the rest of the value chain is not as expensive, which means that the incentives can be lower. And so, I think there’s a choice to be made on where you exactly focus, and I think the Indian government at the central level and at the level of the states have been right to focus not so much on fabs but on OSAT, design, device assembly, and building the linkages, because I think that ultimately is probably a more cost-effective way to building a system.
Incentives that governments offer to the semiconductor industry are huge. At some point, it may become unaffordable. What is the way out of this?
Incentives matter for OSAT, and so does infrastructure and workforce. It is not solely about dollars being handed out. Incentives are much less important when infrastructure and workforce aren’t on board. Incentives are part of the story, but they’re not decisive on their own and simply offering lots of incentives is not going to solve the problem.
Do you see India gaining from the China+1 strategy? We have seen a lot of electronics companies coming to India and some domestic companies are also venturing into the sector.
There is very clearly a desire by the international supply chain to, at the very least, not invest more in China. Which means that new investments have to go somewhere else. India is one of the natural places, but there is competition from Vietnam, Thailand and Malaysia. But I think there is a lot that India has to offer, especially the workforce at different levels, most importantly a very highly skilled chip design manpower. Though a lot of Southeast Asian countries are good at certain segments of the workforce challenge, India has a very diverse workforce between different states and that may be to its advantage. States like Tamil Nadu, and Karnataka have an advantage as they can build on the experiences from assembling phones. That’s how China made it big, and India can do the same.
Taiwan reigns in chip-making. Do you see any country taking over the role in the next two decades?
Two decades is a long time. South Korea is trying hard, with Samsung attempting to win market share from Taiwan Semiconductor Manufacturing Company (TSMC), much like Intel in the US and SMIC in China are also doing. But I think TSMC has a very strong business model and track record which will ensure that it remains an absolutely central player for a very long time.