With the announcement of a $10-billion Production Linked Incentive (PLI) scheme for semiconductors, India has expressed its intent to become a serious player in the annual $500-billion high technology semiconductor business.
Which parts of the semiconductor value chain should India focus on? A quick understanding of the semiconductors business will be apt in this context.
The semiconductor business’s core is the chip, also called a computer chip, an integrated circuit or IC. A chip contains transistors that help computations through a calibrated flow of electric current. Since more transistors on a chip mean a more powerful chip, chip-making firms are in a race to house as many transistors onto the small chip area.
In 1965, Intel’s Gordon Moore predicted that transistors on a chip would double every year. High R&D expenditure made this possible year after year. Today, a thumbnail-size chip contains billions of transistors. This led to a one trillion-fold increase in computing power while lowering the cost of the chip.
Powerful chips have become the heart of most devices leading to a race among the countries to control the semiconductor supply chain.
The semiconductor value chain has five broad segments. Let us understand each part’s technology and key players and how India should play its bets?
One, chip design. The chip-making process starts with designers developing circuitry for use in the latest devices. Three expertise areas are core IP, electronic design, and chip design.
The design captures 30 per cent revenue of the semiconductor business. The US has captured over half the share in core IP and chip design. While Intel and Samsung are present in most value chain parts, Qualcomm, Nvidia, and AMD focus on design. India plans to set up 20 semiconductor design companies to get a share in the design business. Also, it will invest in developing high-tech clusters and support over 85,000 researchers.
Two, manufacturing of silicon wafers. Silica sand is melted into large pieces called ‘ingots’. These are then sliced into ultra-purified thin wafers. Such wafers make the base for chips. Wafer manufacturing captures 3 per cent revenue of the semiconductor business. Japan produces about 60 per cent of wafers. Patented high technology prevents easy entry into this segment.
Three, chip fabrication tools. Chip-making requires specialised equipment, chemicals, and gases. Such tools convert the prototype designs into mass produce chips in the fabs. Only ASML (Advanced Semiconductor Material Lithography), a Dutch firm, makes the extreme ultraviolet (EUV) lithography devices that make advanced 3-5 nanometer chips.
A nanometer is one billionth of a meter. An EUV machine contains over 100,000 parts, is large and is shipped in 40 freight containers. Chip fabrication tools capture 15 per cent revenue of the semiconductor business. India like most countries may buy such machines for its use.
Four, chip fabrication units or fabs. Fabs mass-produce chips from a prototype. The base is prepared by depositing thin films of semiconductors and materials like boron and phosphorous on wafers which serve as the base of the chip.
The coated wafer then enters the lithography machine inside a fab. It’s a dust-free environment, a thousand times cleaner than a hospital ICU. What happens here is nothing less than a technology magic. A pump sprays molten tin droplets into the machine chamber. A LASER beam vaporises tin droplets into a plasma, emitting extreme ultraviolet (EUV) radiation.
The EUV radiation is narrowed into a beam and reflected through several scanners containing the optimised chip blueprint. It then falls on a silicon wafer causing chemical changes in the wafer, drawing transistors into it recreating the blueprint circuitry.
The wafer is taken out, cleaned to remove non-required materials, and baked to make changes permanent. Since advanced chips have up to 100 layers, the process is repeated to create an integrated circuit. Finally, the wafer is diced into chips, ready for use.
A lithography machine converts a wafer into a powerful chip containing billions of transistors. Such changes occur at the nano level, making the process most complicated to copy. Fabs capture 40 per cent of the revenue of the semiconductor business. Taiwanese firms TSMC (Taiwan Semiconductor Manufacturing Company), and UMC (United Microelectronics Corporation) make chips for others.
So does Global Foundries with plants in Singapore, Germany, the US and Malta. India plans to enter the fab space by providing support for the setting up of two greenfield semiconductor fabs and two display fabs. It would also help modernise the brownfield fab facility of the Semi-conductor Laboratory (SCL) through joint venture with a fab partner.
Five, ATMP (assembly, testing, marking, and packaging) operations. The fabricated chips need ATMP to weed out defects and package the chips. ATMP captures about 10 per cent revenue of the semiconductor business. Taiwan and China lead with 50 per cent value.
India hopes to capture this segment in a big way. It would support the setting up of 15 semiconductor ATMP units. The availability of a low cost skilled technical workforce will help capture part of the business in a few years.
The chip business is high technology and captured by few MNCs. According to the OECD, MNCs are good at extracting tax concessions and direct subsidies from the countries they operate.
The figures are staggering: Samsung ($8 billion), Intel ($7 billion), TSMC ($4 billion), Qualcomm ($3.8 billion), and Micron ($3.8 billion). While playing the game, our focus should be on technology transfer.
Due to the ongoing US-China trade and technology rivalry, many countries, led by the US, are setting up an alternative semiconductor supply chains. India’s window of opportunity lies in this space.
Success will rest on tie-ups with the supply-chain partners, developing the domestic ecosystem, and capturing business in a few critical parts of the supply chain. The Hindu BusinessLine