Dynamic India: Would you like chips with your order?
A Dynamic India has sought semiconductor making for decades. Chip making is a cyclic industry with each up predicting “no more downs”. Each down predicting “rapid recovery”. Make-in-India advocates for building an entire industry on the basic fabrication of chips. Now, deal-making is showing the limits of global competitions for large scale chip production in India.
India has pursued local chip production over multiple cycles in the industry. The lack of success points to a need to do things differently to come closer to their goal.
Make-in-India (“Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors”) sees attracting chip manufacturing to India. Global manufacturing enterprises have looked to multi-billions$ in monies to attract new locations. The USA, Germany, Japan, South Korea, Italy, and Israel can all claim plants at global-scales of production using tens-of-billions$ in monies to attract global enterprises. The competition to expand production occurs even as global production shortages ease from the depths of Covid-19 recovery and a glut in commodity chips for personal tech products and smartphones. The top global producers of chips are cutting production even as plans for huge production expansions are dangled before governments.
The large and growing India market for semiconductors has structural manufacturing weaknesses causing difficulties with local production. The TSMC expansion in Arizona, USA, has run into problems with staff and talent shortages even as planning is completed and implementation begins. Working-water, manufacturing supply chain shortages, specialized talents, difficult logistics, and lack of incumbent enterprises all combine to slow initial operations from becoming established in India. In the USA, Korea, Japan, and Germany existing incumbent factories lowered the risks of competing for expansion. The subsidized costs-per-permanent-job were still extremely high in all cases. The Indian financing is likely insufficient even at this scale to incentivize full ‘fabs’.
Tower Semiconductor, whose merger with Intel was cancelled in China, was to lead a consortium (ISMC) at USD$3B to construct a new plant in India. The new plant was killed as uncertainty was too much for ISMC to bear. This points to the limits of incentives to attract global manufacturers when the fully loaded costs are much higher. Foxconn attempted a deal as well without success. The costs, and risks, of transplanting entire supply chains is echoed in the negotiations to attract a top electric car (EV/NEV) to India. Reducing risks throughout an entire supply chain is likely not economical.
The Government seeks to use ‘clout’ of revenues in the local semiconductor markets as the key advantage in a new facility. In analysis actual devices use elements created from many enterprises from design centers to stocking distributors. Smartphone manufacturing should be simpler as the current generation of labor-intensive assembly ticks several Government preferences. The experiences of smartphone manufacturing from components hasn’t proven that supply chains can be lifted from foreign countries and dropped into India. Global slowdowns in production make supply chain vendors even less likely to run up investment for the peaks of the next cycle.
A Dynamic India needs to pick segments where Indian-based supply chain manufacturers will excel. Specialty reagents, production chemicals, and low-water usage technologies might be a start. AMD’s technical center is another good start. Hosting fabless designers like Tower Semiconductor is another possibility. A less 'fab' future can still work for a Dynamic India.
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