China And The US Reshaping Their Semiconductor Supply Chains Present Both Challenges And Opportunities For India: Chris Miller

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April 11, 2024

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The historian and writer of the 2022 e-book Chip War talks concerning the brewing provide chain struggle between the 2 international locations, why India has quite a lot of work to do to develop its expertise pipeline, how AI goes to play an even bigger and larger function within the chip business, and extra

Chris Miller, writer of the 2022 e-book Chip War: The Fight for the World’s Most Critical Technology. Image: Annabelle Chih/Getty Images

The semiconductor chip struggle has intensified amid rising geopolitical tensions and strained ties between the US and China. Diversifying the chip provide chain and gaining AI chip dominance have develop into extra vital than ever. Currently, many of the world’s chips are designed within the US and manufactured in Asia. The most-sought-after superior silicon chips are made in Taiwan and South Korea. Over 90 p.c comes from the Taiwan Semiconductor Manufacturing Company (TSMC). National safety issues and having the world’s greatest chips have prompted the US to bolster home chip manufacturing.

In a dialog with Forbes India, Chris Miller, writer of the 2022 e-book Chip War: The Fight for the World’s Most Critical Technology, talks about China’s method within the chip business, tackling the expertise scarcity and India’s function within the brewing provide chain struggle. Edited excerpts:

Q. Which a part of the chip worth chain wants extra palms on deck?
All of them, however in several methods. In the approaching years, there may be going to be extra emphasis on chip design. Because many of the advances we see will accrue from higher design methods versus higher manufacturing methods. Numerous innovation is occurring within the packaging area. And there’s additionally a necessity for diversification, as a result of in the present day, China is by far one of many largest gamers in testing and packaging, and the remainder of the world is sort of reliant on China in ways in which convey up some critical range of provide danger. The areas the place Indian companies are investing—energy semiconductors and extra foundational logic chips—are rational locations to take a position. These companies can set up deep hyperlinks with their prospects and be certain that they’ve native prospects.

Q. Which nation has probably the most essential uncooked materials required to make semiconductor chips?

Raw materials will not be probably the most advanced a part of the chip business. It’s refining them to the requisite stage of precision as a result of within the chip business, manufacturing processes usually require 99.9999 p.c purity for a lot of supplies. That’s truly an underestimate for sure of the supplies concerned. The problem is not digging them out of the bottom or buying the supplies of their uncooked type, however processing and purifying them. It occurs at specialty chemical companies, largely in Japan, which is the world’s chief in such a ultra-purified, ultra-refined chemical and materials manufacturing.

Q. Talent scarcity is a giant problem on this sector. What could be carried out to deal with the difficulty?

It is a large concern in each semiconductor firm I discuss to and in each nation that I am going to. This is a spot the place India has loads of work that it may do to additional develop its expertise pipeline. Numerous Indian staff are already working in semiconductor corporations, doing issues like design and verification. This is a optimistic, as these staff have gained experience within the business. The new batch of engineering expertise from India ought to be coupled with enterprise experience. Especially if you begin speaking about establishing new corporations, partly it is about technical experience, however quite a lot of it’s about figuring out the enterprise alternative and understanding advertising, provide chain administration and product improvement. Those are issues that you do not study in engineering class, however you do study in enterprise college and in operating companies. This a part of the expertise downside usually will get underestimated in discussions, but it surely’s truly simply as vital as a level in engineering or materials science.

Q. Which sector consumes probably the most variety of chips?

Most chips consumed in greenback worth would both be within the smartphone or information centre sectors. Both of them devour roughly 1 / 4 of all chips which are produced in greenback worth. And that is as a result of the chips that go inside your telephone and in information centres are extraordinarily costly. Other sectors, like client gadgets and conventional manufacturing, devour cheaper chips. A brand new automobile usually has 1,000 chips inside, however lots of these chips are less expensive. Sometimes they’ll price solely $1 and even much less, whereas a knowledge centre chip can price as much as $10,000.

Q. National safety issues are one of many the reason why the US and China are aggressively increasing their manufacturing capability. What function can different international locations, like India, play?

The proven fact that China and the US are attempting to see provide chains reshaped presents each challenges and alternatives for India. The problem is that as a result of China is investing a lot and subsidising its companies so closely, it’s troublesome for corporations from any nation to compete with China in an open market. Even Japan, Taiwan and the US discover themselves competing head-on with closely subsidised Chinese rivals. The Chinese companies do not have probably the most superior know-how. But in lower-tech chips, they’re simply pretty much as good as many established companies, and that’s why established companies are feeling quite a lot of value strain.

The alternative is that the US, Japan, Taiwan, Korea and European companies are attempting to determine China plus one provide chain. In different phrases, have a China-focussed provide chain largely meant to promote to Chinese prospects, after which have a rest-of-the-world provide chain that includes as little of China as potential. This presents quite a lot of alternative for India in chip making, testing and packaging, and machine meeting. The majority of this in the present day occurs in China, which goes to shift. Apple is an effective instance of this. Until lately, it assembled virtually all of its telephones in China. Reportedly, it is making an attempt to assemble as much as 1 / 4 in Tamil Nadu by the tip of subsequent 12 months. That’s only one firm, emblematic of the shifting provide chains which are underway.

Q. What are the learnings for India from China, which has been investing within the chip business since 2014 and but imports 75 p.c of it?

The Chinese method has not been primarily market-driven. China has invested in companies that aren’t very worthwhile. There has been little use of a market mechanism to find out the place the Chinese funding funds are going. Measuring return on invested capital, the Chinese chip funding funds are most likely among the many worst enterprise capital companies on the earth when it comes to return. That’s most likely not a mannequin that you just’d need to emulate. Thinking arduous about the way you get a very good return on capital is vital to long-term viability, which implies you have to spend money on companies which have a viable enterprise mannequin in the long term.

On the brilliant aspect, China has carried out significantly better the place it has attracted machine meeting, just like the meeting of telephones or PCs, which is a very low value-added enterprise within the meeting. The new smartphone prices $1,000; the precise meeting course of solely prices $5 or $10. Take an iPhone, for instance. Of all of the supplies inside, round 1 / 4 of them by worth are sourced from Chinese companies. In the preliminary iPhones, it was solely the meeting that was carried out a decade in the past. China has dramatically elevated the worth that accrues to Chinese companies in smartphone manufacturing by studying to supply the parts as effectively. And we’re within the very early phases of seeing that in India. It’s going to take a while for Indian companies to discover ways to produce and competitively produce the kinds of parts that go into electronics. It’s not a good suggestion to only give attention to assembling gadgets since you’re not capturing quite a lot of the worth. Whereas when you begin producing parts, abruptly extra worth begins accruing to your agency.

Q. Transistors are getting smaller and smaller. It’s solely going to get troublesome to shrink them additional. What are corporations like Intel and TSMC doing to maintain Moore’s Law alive?

They’ve received huge funding applications underway to develop new applied sciences. They’re going to maintain shrinking transistors and packing them extra densely collectively. These companies additionally proceed to spend money on new design methodologies to make sure they have higher designs in addition to higher manufacturing processes. That’s going to be simply as vital because the manufacturing enhancements which are coming down the road.

Q. Where do you assume the chip business will stand in 2030?

AI goes to play an even bigger and larger function within the chip business and alter the best way chips are designed and produced. AI shall be a bigger supply of demand for brand spanking new kinds of chips. That’s what we see proper now, with Nvidia turning into the world’s third-most priceless firm. A sequence of corporations and merchandise that emerge shall be pushed by the necessity for higher chips for AI.

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