India and Taiwan are in talks to deal with the challenges facing the recent shortage of semiconductor chips. In addition, both countries may sign a big deal to set up a $7.5 billion chip manufacturing plant.
As a result, the deal could bring chip manufacturing to South Asia with tariff cuts on components to produce semiconductors by the end of the year.
Today, millions of products like cars, washing machines, smartphones, smart devices, and more rely on computer chips, also known as semiconductors. Chips that are in short supply perform different functions in modern products, and a single device often has more than one.
New Delhi and Taipei
Trade talks between India and Taiwan are taking place when democracies around the world are boosting economic and military ties to stand against an increasingly assertive China.
The deal will bring an estimated $7.5 billion chip plant to India to supply everything from 5G equipment to electric cars.
Currently, India is looking for viable locations with adequate land, water, and workers. India will also provide various tax exemptions, financial support, other incentives, etc.
Proper infrastructure and skilled labor would be a major challenge in this deal. As we have discussed below, the complexity is more in silicon chip-making rather than any other electronics.
Semiconductors are the Brains of Modern Electronics
Because of their role in manufacturing electronic devices, semiconductors are an important part of our lives. Imagine life without electronic devices. There will be no smartphones, radios, TVs, computers, gaming consoles (PS5, Xbox), advanced medical diagnostics equipment, etc.
Developments in semiconductor technology have made electronic devices smaller, faster, and more reliable.
Modern electronic devices are unable to be manufactured without semiconductor chips and components. For instance, we often talk about processors or CPUs of Smartphones and computers. These processors are made up of silicon semiconductors.
Even the automobile industry is using silicon chips in vehicles.
Opportunity for India
The manufacturing of semiconductors is a complex process, and India has no experience in it. This deal will allow learning how to make silicon chips.
Likewise, jobs will open up for the youth of our country. The demand for semiconductors will increase further in the future. So India would step into one of the important electronic businesses.
The Indian government has accelerated the process of signing this deal, but it remains to be seen when the deal gets signed. China will surely get nervous if the deal gets confirmed between India and Taiwan.
Once the deal is signed, the overall factory setup will take a few more years to complete. So, it would be too early to predict what process node (5nm, 7nm, 12nm) TSMC will offer through Indian plants.
TSMC Largest Semiconductor Manufacturer
Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s largest chip manufacturing company. TSMC is a Taiwan-based semiconductor manufacturing company.
TSMC holds 56% of the foundry business of manufacturing chips. Their customers are Qualcomm, Nvidia, Apple, AMD, MediaTek, etc. Furthermore, Intel is also planned to use the TSMC N6 node for its GPU manufacturing. Generally, Intel manufactures its chips in its own facilities.
The fabrication plants of TSMC are working at full capacity to meet the existing silicon shortage. But as predicted, the silicon chip shortage will continue until the second quarter of 2022.
Similarly, other foundries like Samsung, Global foundries are also working hard during the global silicon crisis. Companies like Intel, TSMC, and Samsung are working on establishing new fabrication factories.
Since production cannot proceed at short notice, chip makers take a long time to meet demand. In addition, TSMC is trying to fulfill demands from all over the globe.
Also, building new billions of dollar facilities will take time. It’s a complex process to build a dust-free room, install million-dollar expensive equipment, etc. Small nano-scale impurities can ruin silicon chip manufacturing.
Fab’s diversification and expansion will help with future demand and geography issues. The issues of China and Taiwan are increasing year after year, and if anything happens in Taiwan, it may again lead to a chip shortage situation.
TSMC already started working on building a new fabrication plant in Arizona, U.S.
Reasons behind Silicon shortages.
U.S. and China Trade War
The U.S. accuses Chinese company Huawei of spying on its citizens and spying on people across the globe.
Huawei is a Chinese company that has grown to become the world’s largest telecommunications (5G) equipment, vendor. Although it also sells consumer devices such as laptops, phones, etc. And it is one of the largest 5G smartphone makers in China.
Before the Covid-19 pandemic, the time of the 5G smartphone rollout was near, and the trade war wasn’t looking like ending. Huawei knew they couldn’t buy chips after a while. So, they placed large orders for chips.
Covid-19 has halted operations of many industries.
Subsequently, in the pandemic, many tech companies intentionally ordered chips and stockpiled them. Thus, leaving other companies to struggle to order chips for their products.
During the Covid-19 lockdown, the demand for new computers, laptops, and smartphones was increased significantly. For work from home, online classes, gaming, entertainment, etc.
And right now, there are not enough of them to meet the demand of the industry. As a result, many popular products are in short supply.
Due to the pandemic, many industries and factories have been closed temporarily. Some industries and factories have been closed permanently. This puts pressure on existing industries and factories to catch up with demands.
Automobile companies had reduced orders for silicon chips during the Covid-19 pandemic as a consideration of lower sales. But things went opposite, and sales were on the rise after a few months of decline.
By the time companies reached to place new orders, the foundry sold that capacity to other companies. Hence, no more chips for automobiles. For ordering silicon chips, companies have to book slots months before in advance.