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India can be a winner in semiconductors

In the assembly, testing, marking, and packaging of chips, India has an advantage in terms of its low-cost, technical workforce

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.


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