India-US chip collaboration could boost global chip supply chain

India is trying to emerge as a competitive alternative to China in the semiconductor sector amid an intensifying chip war between the US and China.

Last week, India and the US signed a memorandum of understanding to establish a semiconductor supply chain, which experts see as an opportunity for both countries to reduce global dependence on China.

“The memorandum seeks to create a collaborative mechanism for the flexibility and diversification of the semiconductor supply chain in light of the US CHIPS and Science Act and India’s Semiconductor Mission (ISM),” said Charlie Dye, vice president and research director at research firm Forrester. :

ISM is a government initiative that aims to promote the growth and development of the semiconductor industry in India and advance India’s strategies to develop the semiconductor and display manufacturing ecosystem.

India aims to be a major semiconductor player

Although India has no domestic semiconductor manufacturing companies, the country has focused on attracting chipmakers to set up facilities in the country. In December 2021, India approved a $10 billion incentive program to attract investment in semiconductor manufacturing and display manufacturing and become a major player in the global semiconductor supply chain.

The semiconductor industry relies on a complex global supply chain for raw materials such as silicon wafers, chemicals and gases. Material supply disruptions due to the pandemic and geopolitical tensions have contributed to semiconductor shortages, affecting products ranging from servers and computers to car manufacturing.

The pandemic has prompted businesses across geographies to consider how to deal with supply chain disruption, largely due to over-reliance on just a few countries for chips.

Taiwan, South Korea, Japan, the US, and China are currently the major chip manufacturing players.

As the US grows increasingly concerned about China’s growing geopolitical power, based in part on its manufacturing capabilities, US President Joe Biden’s administration is imposing sweeping restrictions on chip technology exports to China.

All of this has made India a potential sweet spot for chip technology development and possibly a key link in the global semiconductor supply chain.

The latest US-India partnership signals that the US sees India as a future partner in building a resilient supply chain, said Gaurav Gupta, an analyst at research firm Gartner.

However, considering “the entire semiconductor area, which includes raw silicon wafers; chip design; wafer production; assembly, including testing and packaging; raw materials including chemicals and EDA [electronic design automation] “The only area where India has a decent presence today is chip design or what is also considered to be part of the mythic ecosystem,” Gupta said.

Realizing the need to be competitive in a sector as important as semiconductors, India is working with other countries to create a resilient supply chain.

In September 2021, the Quad Alliance, consisting of India, the US, Japan, and Australia, partnered to secure supply chains for semiconductors and 5G telecommunications technologies to offset China’s growing influence.

“If successful, India can be part of the global semiconductor supply chain, especially in manufacturing, where about 75% of the shares are held by China, Taiwan, South Korea and Japan. The idea is to have a balanced regional distribution of the share of chip production for the future, so you can better respond to any logistical or geopolitical crisis, like what happened during the pandemic,” Gupta said.

Now the most important task for India is to demonstrate its first commercial factory, according to Gupta.

Just this week, India’s IT minister Ashwini Vaishnav said the country is set to announce its first semiconductor manufacturing plant, selecting a bid from one of three international bidders: the Vedanta-Foxconn joint venture, the International Semiconductor Consortium (ISMC) and Singapore. IGSS Ventures.

If one of the proposals moves forward soon, it could be three or four years before the finished wafers can be shipped to customers, Gupta said. The outsourced Semiconductor Assembly and Test (OSAT) timeline could take two and a half to three years, he said.

“At this point, I’m not really going to focus on when India becomes a viable alternative against established countries. The current priority is to take small steps and prove that he can be a player in this space. We have government schemes, proposals, interest and agreements, but the key will be how and when the projects are actually implemented,” Gupta said.

India can become a major chip maker in 3-4 years

However, some experts believe that India has the potential to become a manufacturing nation within three to four years given that the country is resourceful and has a strong focus on skill development.

“India has a very large chip design skill footprint with a very advanced and robust chemical industry. With the publication of NEP [national education policy]formulation of new syllabi by AICTE [All India Council for Technical Education] recent and major political push for hardware including PLI [product-linked incentive] and DLI [design-linked incentives] According to government schemes, India should be a semiconductor manufacturing nation in three to four years,” said Anurag Awasthi, vice president, IESA, an industry body for semiconductors, electronics system design and manufacturing.

As both India and the US focus on building resilient national semiconductor supply chains, the India-US MoU will help both countries address regulatory barriers to business and talent mobility in both countries and contribute to the long-term strategic development of diversified semiconductor ecosystems. Forrester’s Dai said:

The MoU is not only expected to lead to greater technology development cooperation between the US and India, but is also likely to boost enterprise investment in the semiconductor sector, said Helen Chiang, head of Asia/Pacific semiconductor research and general manager of IDC Taiwan. “The collaboration also shows that the US hopes to partner more with non-Chinese supply chains to build a US-led semiconductor ecosystem. India is China’s top seventh exporter of semiconductors. A deeper relationship with the US would be a potential long-term concern for China.”

Copyright © 2023 IDG Communications, Inc.

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