Date : 21/06/2023

Relevance : GS Paper 3 ; Semiconductor Industries

Main Points : Semiconductor Mission, semiconductor fabrication plant, Moore's Law, Chips

Context-

• Setting up a semiconductor fabrication plant in India is not just a matter of ambition. It holds significance due to the growing market and the strategic need to reduce dependence on semiconductor imports, which makes India vulnerable to coercion.
• The government's Semiconductor Mission for 2022 is commendable, but uncertainties remain regarding the establishment of a fab.

Previous Attempts:

• Initial attempts to establish a fab in India began in 2007 through a Special Incentive Package (SIP), which failed to yield any response.
• A second attempt, known as the Modified SIP in 2012, showed more promise. After extensive outreach efforts with major fab companies worldwide, India came close to realizing a fab.
• Two consortia, one led by Jaiprakash Associates in partnership with IBM and TowerJazz, and the other led by Hindustan Semiconductor Manufacturing Corporation along with ST Microelectronics, were approved by the Cabinet.
• These two fabs required a combined investment of $10 billion, with the government offering nearly $5 billion in incentives. The fab locations were finalized, and land was allotted. However, both consortia failed to mobilize the necessary resources, resulting in their ultimate failure.

Challenges in Chip Warfare:

• Semiconductor fabrication represents the cutting edge of technological advancement. While progress adheres to Moore's Law, with the number of transistors doubling every 18 months, miniaturization has led to increased complexity and costs. Consequently, the industry has witnessed a decline in participants.
• China, despite entering the semiconductor fab industry late, achieved significant success by acquiring numerous loss-making fabs globally and investing heavily in the sector.
• With lower manufacturing costs, a thriving electronics manufacturing industry, and a strategic hold on rare earths essential for chip production, China has emerged as a major chip producer.
• Recognizing the potential ramifications, the US and its allies have implemented measures to restrict technology transfer to China. The US enacted the CHIPS and Science Act, providing substantial subsidies, while the European Union sanctioned funds for a new fab in France.
• India now faces stiff competition from these countries in the intense chip warfare.

Key Considerations for Fab Establishment:

• Investing in a semiconductor fab is inherently risky, as billions of dollars must be recovered before the technology becomes obsolete. Economic viability typically necessitates substantial production volumes to meet global demand.
• Therefore, relying solely on the domestic market is inadequate for a fab's success. Additionally, the small freight-to-price ratio and zero-custom duty regime under the Information Technology Agreement make it advantageous to produce chips in a single location for global sales. These factors explain why companies are hesitant to establish greenfield fabs.
• Developing a chip manufacturing ecosystem in a greenfield location poses significant challenges. It requires an extensive array of chemicals, gases, training for personnel, and access to abundant clean water. Moreover, the art of chip-making is critical, as poor quality and low yields can lead to fab failures.

Strategic Choices: Logic, Memory, and Analog Fabs:

• Deciding on the type of fab to establish is another critical consideration. Logic/processor fabs, which produce chips with the highest strategic value and profitability, require advanced technologies.
• Memory fabs focus on advanced feature nodes, while analog fabs can be less advanced but larger in size. Logic fabs are the most expensive, whereas analog fabs are relatively more accessible.
• An alternative approach is to establish Assembly, Testing, Packaging, and Marking (ATMP) facilities to develop the fab ecosystem before setting up a full-fledged fab. However, ATMPs have limited value in terms of chip production.

Drawing Lessons from China:

• India's strategy thus far has been centered around setting up a new logic fab. However, China's success in acquiring existing fabs provides valuable lessons. Acquiring established fabs offers advantages such as reasonable pricing, stabilized technology, an existing supply chain ecosystem, established product lines, and an established market.
• This approach allows India to develop the fab ecosystem, train skilled resources, and allocate saved funds for advanced R&D in fab technologies.
• Another viable strategy could involve setting up ATMPs, as demonstrated by Tessolve, now acquired by the Tatas, which successfully packages chips up to a 7 nm feature size. China has over 100 ATMPs, highlighting their importance in the fab journey.

Conclusion:

India's pursuit of a semiconductor fab faces various challenges and uncertainties. By examining the reasons behind past failures and considering alternative approaches, India can learn valuable lessons from China's successful semiconductor industry. Acquiring existing fabs, developing ATMPs, and investing in advanced R&D can help India establish a robust fab ecosystem and compete in the global chip warfare. The urgency to act now, despite trailing China in this journey, remains crucial for India's future success in the semiconductor industry.

Source : The Hindu