The chips are down: Inside India’s technicoloured semi-conductor dreams

According to research firm Gartner, the global semiconductor supply chain was valued at $599.6 billion. It all starts at foundries that manufacture these semiconductors and supply them to chip manufacturers like Qualcomm, Nvidia and AMD, among others. These are then sent to various factories of tech companies to make different types of gadgets. For instance, Apple, Samsung, HP, Microsoft and Google buy chips made by Qualcomm; PC makers such as HP, Dell and Lenovo source chips for computing devices from AMD. Foxconn, well known for manufacturing Apple iPhones globally — and recently in the news for pulling out of a $19.5 billion partnership with Vedanta to build a semiconductor foundry in Gujarat — will use Nvidia’s Drive Orin processors for its future line-up of electric cars. These chips are already used by carmakers including Mercedes Benz and Volvo, to enable driver assistance systems and in-car smart infotainment.

Chips and cars

Not just consumer tech, smart home devices, wearables and electric appliances, but now, increasingly, cars with smart infotainment systems inside, too use microchips. Some connect to an app on your phone, for remote management – imagine switching on the AC on a warm summer day a few minutes before you enter the car.

According to forecasts by IHS Global and Deloitte, automotive electronics made up just 18% of the total cost of a car in the year 2000. That increased to 27% in 2021, around 40% in 2020 and is estimated to corner a share of 45% in cars manufactured and sold in 2030.

Driver assistance systems which are becoming commonplace in affordable cars as well, blend physical radars and cameras to work with intelligent software algorithms to serve as the wingman for a human driver.

“The number of car-mounted semiconductor devices has been increasing steadily, particularly for future ADAS or Advanced Driver Assistance Systems,” is how Hitachi’s semiconductor knowledgebase describes the changes unfolding.

When you think of silicon chips, what else do you visualise?

Consumer electronics, for one. Did you know, temperature sensors in air-conditioners in homes and offices need semiconductors, to do their complex monitoring? So do rice cookers. As do refrigerators, even the not-so-smart ones.

Smart devices too. Televisions, smartphones, computing devices in any form factor, graphics cards as well as memory and storage in computing devices, smartwatches and fitness trackers, battery-powered toys, connected lights, storage drives, and extension boards that sit beneath your workstation, are just some examples.

There’s more. Healthcare tech. Bank ATMs. Broadband lines. Mobile network towers. Television broadcasts. Everything needs silicon chips of some sort, in the chain, to work as they are designed to. They are the building blocks for any functionality in any piece of tech.

Also read: Searching for a chips industry

The shortage of semiconductor chips over the past couple of years thus, hit every possible tech and tech-adjacent industry hard. First, the coronavirus pandemic stalled supply chains. That was followed by draughts in Taiwan, snow in Texas and unfolding geo-political situations in many regions. China’s threats of aggression against Taiwan, put the world’s semiconductor supply at risk. Taiwan produces as much as 37% of all the world’s silicon chips.

Sony and Microsoft have been helpless in ramping up production for their gaming consoles, the PlayStation 5 and the Xbox Series X/S, which many a time remain out-of-stock even now. In India too. While shortages are slowly being alleviated, the impact of prolonged shortages, is still being felt.

Carmakers such as Hyundai and Skoda rejigged product lines in the last couple of years, to remove or modify accessories such as in-car entertainment systems and auto-retracting door mirrors from certain models – a temporary measure to ensure chip shortages don’t completely stall production lines and delay delivery schedules. Hyundai had launched the Creta in the SX Executive trim in June 2021, without a touchscreen infotainment system. In January last year, Volkswagen and Skoda Auto removed auto-folding outside rearview mirrors (ORVMs) from the Taigun and Kushaq respectively. Customers have the option of retrofits, in accessory markets.

German tech company Bosch announced in April that they’re acquiring US chipmaker TSI Semiconductors, amidst rising demand for silicon carbide (SiC) chips — these are slightly stiffer in composition and offer better conductive performance, compared with standard silicon chips. This gains significance as many countries, including India, increase their focus on greener mobility including electric vehicles (EVs) and hybrid powertrains.

“SiC chips are a key component for electrified mobility. By extending our semiconductor operations internationally, we are strengthening our local presence in an important electric vehicle market,” says Dr. Markus Heyn, member of the Bosch board of management and chairman of the Mobility Solutions business sector.

Also read: First Principles | On chips, Make in India may not be the way to go

While the availability of chips has been a constant struggle for manufacturing, so is the cost – these chips became more expensive to procure.

The need for ramping up production

Globally, there has been a concerted effort to ramp up semiconductor production. It doesn’t just mean more chips to go around, but a significant shift in self-reliance for the domestic market.

According to the latest data (released in June) from research firm IDC, the worldwide foundry market size grew by 27.9% in 2022, a new record, with plant expansions providing a dimension. TSMC leads with a 55.5% market share, while Samsung Foundry (16%) and UMC (6.8%) follow.

“The foundry industry plays a key role in the semiconductor supply chain,” says Galen Zeng, Senior Research Manager, Semiconductor Research, IDC Asia/Pacific. “There is still rigid demand for semiconductors in the market and it is expected that after the supply chain has experienced more than one year of de-inventory, subsequent order planning will turn from being negative to steady and conservative,” they add.

Dr. Siyoung Choi, President and Head of Samsung Electronics Foundry Business, points to an unfolding, and unignorable dimension too. Artificial intelligence, and everything it’ll touch.

“AI is creating a new market by widening and even converging applications into server, mobile, automotive and so on. In the era of AI, we think it’s crucial to share our vision for the future of Samsung Foundry,” he said at the Samsung Foundry Forum 2023 in June, in California.

“This includes our ongoing innovation in advanced technology and stabilizing our supply chain both domestically and internationally to meet future demand. Our vision also covers making our R&D capabilities stronger and working more closely with our partners on areas such as advanced packaging,” added Samsung Foundry’s Choi.

There is further impetus to shifting momentum.

In March this year, the CHIPS and Science Act went into force in the US, a $280 billion package that includes $52 billion in funding to boost its domestic semiconductor manufacturing.

Germany has investments lined up from TSMC, Intel, Infineon, and Bosch. But it hasn’t been easy. Intel’s Magdeburg project for which construction was supposed to begin this year, has been delayed following Russia’s invasion of Ukraine.

“Geopolitical challenges have become greater, semiconductor demand has declined, and disruptions in the global economy have resulted in increased costs, from construction materials to energy," Intel has said in an official statement.

EU and Japan are looking at a partnership. India too, has taken significant steps to kickstart fabrication facilities in the country. The India Semiconductor Mission supports with up to 50% of the project cost for a semiconductor fab, financial support for 50% of capital expenditure to Compound Semiconductors or Silicon Photonics or Sensors (including MEMS) Fabs and Semiconductor Packaging (ATMP / OSAT), as well as financial incentives as well as design infrastructure support across various stages of development and deployment of semiconductor designs.

There are two crucial elements here. First is the focus on compound semiconductors. Second, the incentives for designing and developing semiconductors here, aside from manufacturing.

Also read: Compound semiconductors dictate evolution of gadgets, EVs and quantum computing

Compound semiconductors

Compound semiconductors are made from two or more elements, unlike conventional ones made of just silicon. Sometimes germanium is used, but it is rarely available. The use cases, for now, revolve around its core strengths, and indeed the direction we are heading in – electric mobility, faster data networks and optical fibre communication systems.

For electric vehicles, compound semiconductors focus specifically on extending battery life without compromising performance. There is magnetism too, which is useful for sensor operations – the driver assistance systems we see in more and more cars, come to mind.

Then there is speed, also high electron mobility and generation of high-frequency signals, which are relevant for radio frequency for 5G networks, and indeed upcoming 6G services as well as RADAR use. Finally, light emission and sensitivity, which relate to photonics for optical fibre communications.

Andy G Sellars FIET, who is Strategic Development Director at CSA Catapult, a tech innovation centre in Wales, tells HT, “This proportion is very small at the moment it’s growing very rapidly.” He refers to the use of these silicon chips in smartphones and electric vehicles. In smartphones, for instance, these faster chips drive face recognition technology.

Outlook for India

India’s semiconductor and display fab ecosystem programme has an outlay of ₹76,000 crore. The fiscal support is tiered, based on the specifics of manufacturing – 28nm (nanometer, which is one billionth of a meter, and the measuring method for chips) or lower will be eligible for up to 50% of the project cost, whereas above 28 nm and up to 45nm (up to 40% of the project cost) while above 45 nm and up to 65nm (up to 30% of the project cost).

“It’s a sensible policy. It has a certain degree allocated towards midscale silicon fabrication,” says CSA Catapult’s Sellars. The policy has global relevance, but the scope is wider – India has a large domestic market. “Semiconductors is a volume industry. The higher the volume, the more robust your commercial offering,” he adds.

Research firm Deloitte’s ‘TMT Predictions Report’ 2023 – India Chapter’ report released in February, estimates the Indian semiconductor market to be worth $55 billion by the year 2026. They point to factors such as geopolitical threats, fluctuating demand from original equipment manufacturers (OEMs), natural disasters, and economic sanctions, as amplifiers for continued global chip shortage.

“These factors also present a unique opportunity for India, positioning it as the next big manufacturing destination. Driven by key factors including an increase in semiconductor content, the advent of 5G and IoT, and data storage requirements, the sector will also attract investment, talent, and bi-lateral relations focusing on supply chain, resilience, and localization setting in India,” says P. N. Sudarshan, who is Partner and TMT (Telecom, Media and Telecommunications) Industry Leader, Deloitte India.

Also read: A road map to propel US-India chips push 

This month, SBI Research’s latest ‘The Beginning of a New World Order of Collaborative Knowledge Economies’ study estimates India is well-placed to integrate within the global semiconductor supply chain.

“We need to do more to secure competitive access to design software, materials and chemicals for the companies which are interested in setting up fabrication facility and or assembly, test and packaging unit in India,” say the researchers, in the report.

The emphasis of this report is on the opportunities India has to create a semiconductor ecosystem which pushes chip designing, alongside manufacturing. This would include steps such as specification development (deciding physical size, performance requirement and design parameters), circuit design, physical design and design process export to the foundry.

India shouldn't remain solely focused on the latter, while ignoring the prior steps, which is the ecosystem of semiconductors and chips, in its entirety.

The outlook is brighter too. “We’re nearing the end of the supply crunch after more semiconductor capacity came online in 2022 … Looking ahead, we don’t predict any major constraints,” says Sandeep Deshpande, Head of European Technology at J.P. Morgan. They predict global car production to increase by 3%, as a result.