It is almost impossible to imagine our life without technology. From devices which we use in our day-to-day life to heavy machinery used in industries, from cars, buses, planes, laptops, T.V’s we are surrounded by them. These gadgets and machines have likely become the backbone of the modern society. We are so dependent on them that it is tough to imagine our life without these devices. However these devices , too, are dependent on something, their backbone, the ‘semiconductor chips’.
The world is currently facing a semiconductor chip shortage. The impact of the shortage can be seen in every sector where these chips are required. Gartner Analysts said that this global shortage can last until the 2nd quarter of 2022. Glenn O’Donnell, a vice president research director at advisory firm Forrester, believes the shortage could last until 2023. The shortage seems to have no near end. This has resulted in causing major problems to the industries related to these chips. This impact can be seen in many major sectors including Industrial Heavy Machinery Industries, Aerospace and Industrial Electronics Industries, Automobiles Industries, Smartphone companies, Computers and IT Hardware companies etc. The worst hit by the shortage is the Automobile sector. As per the US Agency’s report, Automobile sector is expected to face an estimated loss of $110 Billion by 2022. Companies like Jaguar, Volkswagen, Ford, Land Rover have shut down their factories, laid-off workers and slashed vehicle production.
Reason for the semiconductor chip shortage
There are many reasons which has resulted into shortage of semiconductor chip in Global market.
There are not many manufacturers of the semiconductor chips. Companies like Apple, Qualcomm, NVIDIA, and ADM only design the chips but the supply of the chips rests in the hands of a few.Manufacturing semiconductor chips is not easy. To set up a semiconductor manufacturing industry nearly $9-10 Billion and a minimum time period of 3 years is required. The semiconductor fabrication plant requires a huge amount of water and continuous electricity. Producing semiconductors is a delicate operation. The environment of ‘Clean Room’, where the production is done, is controlled artificially. The ‘clean room’ uses the International Organization of Standardization, ISO 14644. The environment is monitored continuously, a cubic meter of air of a cleanroom contains not more than 10 particles of dust which are less than 200 nm, this is less than 10,000 dust particles found in operation theater. The production process is so delicate that even a particle of dust can cause havoc and millions of dollars of wasted effort, these industries are kept run 24*7 because once stopped it needs a very precise inspection before restarting, which consumes lots of energy and time. The largest semiconductor chip manufacturer and supplier is TSMC (Taiwan Semiconductor Manufacturing Company) holding 53.9% of the global supply share, followed by Samsung with 17.4%, Global Foundries with 7.0%, UMC with 7.0%, SMC with 4.5% and others with 10.2%.
The maximum burden of supply lies with TSMC. Chip- manufacturing requires extensive use of water, this year as Taiwan is suffering from the worst drought in over 50 years, the chip-making company, TSMC, is getting directly affected by this crisis. Other than this, Industries in Japan were destroyed due to earthquake and fire and In Texas, the winter storm and bad weather resulted in shutting down of the semiconductor fabrication plant.
The pandemic has further aggravated the situation. As the Pandemic started the demand for cars and automobiles dropped because of which the companies had to slow the production and put a halt on semiconductor chip orders. This led the Semiconductor industries to give even higher priority to the companies manufacturing home appliances, T.V’s, laptops, mobiles etc as their demand hyped. Meanwhile, The US placed a ban on China and stopped export of the semiconductor chips. Huawei, the largest smartphone manufacturer of China, saw it coming and started to hoard the chips and persuaded companies to prioritize their chips.
India Semiconductor industry
In 2020, the Global Semiconductor market revenue was $466.24 Billion and it is projected by DCI to be $522 Billion in 2021 with an early growth of 12.5%.
India aspires to have $400 Billion export of electronics manufacturing by 2025. As per the Indian Cellular and Electronics Association(ICEA) India’s semiconductor industry is capable of gaining the size of the global market by becoming a hub which will provide a manufacturing value of $100 Billion and create 5,00,000 jobs.
For reaching its goal Indian government has taken various initiative to strengthen the semiconductor industry.
The MeitY has planned to revise its policy framework, to develop the industry by providing initial capital that is meant to attract more private players and push India to become a global hub for semiconductors.
The Government has also planned to give $1 Billion to the companies that set up their Semiconductor fabrication plant in India.
For ensuring further investment, employment creation and reduction in dependency on imports, the Government amended the M-SIPS by approving an incentive of $1.47 Billion for investors.
The Government has approved a scheme for Promotion of Manufacturing of Electrical Components and Semiconductors(SPECS), a Product Linked Incentive(PLI) scheme and for 13 critical sectors.
Over 20 semiconductor manufacturing and designing companies in high-end, display, and speciality fabrication have reportedly submitted Expressions of Interest (EOIs) to set up manufacturing plants in India. The deadline was April 30, 2021. Next Orbit Venture has planned to invest $100 Million in a Semiconductor fabrication plant, INVECAS has planned to invest between $15-20 Million, Infineon Technologies has partnered with NSDC to impact education and training regarding semiconductors to young talent, Freescale merged into NXP semiconductor in 2015, ArionTech has acquired Bangalore chip design company Smartplay of $163 Million, IESA and Singapore Semiconductor Industry (SSIA) have signed a MoU.
India has entered a race where two superpowers are competing against each other, the US and China. US’s new infrastructure plan includes $50 Billion for semiconductor R&D and manufacturing, another $50 Billion has been included for the creation of an office at Commerce Department focussed on the US’s industrial capacity and support for the production of critical products. China, not far behind from USA, has pumped $46 Billion in its semiconductor industry. India is standing against global leaders and dominators. India has to prove itself to the investors in every aspect to show that it is favourable for the industry. It has to tackle some basic needs for the industry, such as massive amounts of water supply and continuous electricity. In addition, strengthening of regional fabrication industries and chip- making companies needs to be done Consumption of the chips is gradually increasing and to fulfill the demand India needs to tie up with the global semiconductor manufacturing leaders for a safe and better path. India has three- fold advantages over others countries – design, qualified human dividend and market.India is a hub for design companies with 130 semiconductor design houses developing IP in India. India also has the required IT professional and a ready market for semi- conductors. A place to design and test along with being an IT hub will surely benefit India in gaining a good amount of market share in the future.
(Writer is a Student of DDU Gorakhpur University and Member at FETC)