Semiconductor chips are no more an economic product but also have a geostrategic perspective, attached to it. Nations which control or develops the capabilities, will exercise a significant influence on the world affairs. US and Europe are revisiting the existing policies and given deep linkages of semiconductor with National Security, they are working on legislations, centric to promotion of domestic chip manufacturing. Future belongs to technology and chip is the brain behind technology. Moving the dependence from Asia will help in mitigating the geo-economic risk in Pacific and will help in minimising China’s influence in the critical technology related to semi-conductor.
EU is focussing on the need to strengthen the digital sovereignty and staying ahead in the tech race. Earlier in mid-September, European Commission President Von der Leyen, emphasised on EU priorities, whilst addressing her State of the Union Address. Her message conveyed that EU has prioritised tech sovereignty and this is evident from the growing investment in the tech space. Digital Transformation of EU will be according to its own rules and values. Her speech focussed on the need for manufacturing semiconductor chips in Europe as essential element of the Tech Sovereignty. Presently, EU is increasingly relying on the chips manufactured in Asia. EU is working on European Chips Act for decreasing dependence on Asia and increasing competitiveness of European Industry by creating ground breaking tech ecosystem.
Earlier, following the key findings in the review related to America’s supply chain, Biden administration provided dedicated funding of $50 billion for advance domestic manufacturing of critical semiconductors and for promoting semiconductor R&D. The Risk and vulnerabilities related to semiconductor supply chain highlighted that Semiconductors are essential for US national security and over the years, US has outsourced and offshored semiconductor manufacturing. Over the last two decades US production share in chips have felt from 37% to 12% and it lacks the production capability for the leading-edge logic chips. Taiwan produces 92 percent of such chips and U.S. and U.S. allies rely on Taiwan. Report recommends that US strategy must take defensive actions to protect technological advantages and engage with partners and allies to promote global resilience.
On September 24, in Quad summit, President Biden along with Prime Ministers of Australia, India, and Japan agreed on the common initiatives for meeting the challenges of the 21st Century. Semiconductor issue was one of the central items under critical and emerging technologies that requires co-operation amongst the Quad members. Briefing note issued by White House, highlights that co-operation will strengthen the security of semiconductor as well as component supply chain and partners will be supporting diverse and competitive market, that produces the critical technologies, needed for the digital economy and secures the related supply chain.
According to a joint research report of BCG and the Semiconductor Industry Association, an approximate ten-year cost of a state-of-the-art fab, ranges between $10 billion to $40 billion. Countries which have advanced in chip making facilities, have succeeded so because of their Government and sustained effort, which have resulted in IPR build over decades of knowledge and which are difficult to be copied.
Risk is worrisome due to the fact that, whether we use mobile phones or ride car or consume electricity distributed to our homes through grids, or the indirect services of satellite that enables our GPS navigation or are building hypersonic missile for strengthening country’s defence, everything involves semiconductor chips. Risk is giving rise to change in the thinking. Earlier supply chains were designed to win from the cost arbitrage. But today the product usage of chip is critical to ever days operation and impact economy and society all around the world. If a nation is cut from the chip supply, its industry and defence will be impacted significantly. These technologies have entry barriers and no amount of money can build it overnight.
As a result, the Geo-economic shift is evident. Additional investment in Chip capabilities are moving towards US and ally’s country. Intel has committed an investment of $20 billion in Arizona for setting up large-scale foundry operations. TSMC is also investing $120 billion in Arizona. GlobalFoundries which is controlled by Abu Dhabi sovereign fund will be invest $4bn in Singapore chip plant. On the other hand, China is working hard to acquire the technologies, needed for advancing design and manufacturing capabilities. Semiconductor Manufacturing International Corp (SMIC) is China’s largest foundry and has recently announced to invest $9bn in increasing its production capabilities. China’s capabilities significantly lag behind all the major chip manufacturer and it will take decade to advance, if organic route of development is adopted. China has a history of copying technology for bridging the time gap related to development. Earlier according to media reports, ASML the Dutch fab equipment maker has monopoly on extreme ultraviolet lithography equipment, which is used for making advance chips and was restricted for selling the equipment to China under export control, under the pressure of Washington.
India imports 100% of Semiconductor. India needs chips for its defence and industry usage. It need chip for electric car, 5G, white goods, data centres etc. Quad agreement will create an enabling environment but Government needs to act fast. Given the critical nature of evolving geopolitics, it becomes imperative for the Government to invest billions of dollars in the field for creating an enabling infrastructure. However, money alone will not be the solution, as the technology is not limited to hardware. It requires decades of expertise and huge investment and something more. Semiconductor capabilities are so crucial for the digital sovereignty, that Government has to take the lead and private players has to partner, for building the world-class cutting-edge infrastructure. India provides back-end design to global chip manufacturers, which is one of its kind, niche in progress. Government PLI scheme is a positive step in this direction. However more strategic push is required in this direction. Efforts taken today will shape the future of our coming generations. Sovereign Digital India needs the pillars of technological capabilities.
Bureau Galactik Views