Taiwan clinched another victory in deepening trade ties with India through its semiconductor diplomacy. Last week, the Indian government started the construction of three new chip manufacturing facilities in Gujarat and Assam, including a fab to be built with the assistance of Taiwan’s Powerchip Semiconductor Manufacturing Corp (PSMC).
The strategic use of semiconductor technology, production and supply chain diplomacy might be a convenient approach for a diplomatic breakthrough, since many governments are keen to build local chip supply and boost supply chain resilience to help them weather geopolitical tensions and prepare for contingencies such as a global pandemic. However, Taiwanese companies should be cautious in making inroads into India’s chip market, as there are multiple factors behind successfully building a chip industry.
India showed its generosity by offering to shoulder half the cost of approved projects, up to an initial ceiling of US$10 billion, and aims to build a chip industry strong enough to compete with South Korea and China. Indian Prime Minister Narendra Modi’s Cabinet has approved US$15.2 billion worth of investments in semiconductor fabs, including a proposal to build the country’s first 12-inch chipmaking facility.
By 2027, India would have the fab and outsourced semiconductor assembly and test (OSAT) units producing, India Cellular and Electronics Association chairman Pankaj Mohindroo said early this month, adding that by the end of the decade, it might have more than 10 fabs and 20 OSAT units in production, and many semiconductor product design companies.
US chipmakers Micron Technology Inc and AMD Inc have announced investment plans in India, but how those projects would play out remains unknown. India is well-known for its superior software talent, rather than chip manufacturing engineers, and lacks a well-developed infrastructure essential for chip production. Without a stable and sufficient supply of electricity and water, it would be impossible to persuade major chipmakers to build fabs, as any production disruption would lead to massive losses. PSMC has concerns about whether India would be able to build its own chip industry and is playing it safe, only offering know-how and advice to Tata about constructing the 12-inch chip manufacturing facilities.
It would not invest any equity in the fab and would not be involved in its operation, PSMC chairman Frank Huang (黃崇仁) said, adding that this is the “assignment” from President Tsai Ing-wen (蔡英文).
Some Taiwanese semiconductor parts and equipment suppliers have followed in the footsteps of their clients, tapping into the Indian market. However, they are only selling their goods, with no substantial plans to build a local presence. Most companies have taken a wait-and-see approach given the high risks.
It is a huge challenge to be successful in the chip industry, especially for a country starting from scratch. Taiwan Semiconductor Manufacturing Co’s (TSMC) success is built on three decades of constant efforts. As a result, Taiwan has become the most cost-effective chipmaking site. It is extremely difficult to duplicate this experience in developing semiconductor manufacturing supply chains.
Talent is the most important part of a chipmaker’s success, in addition to an abundant supply of water, electricity and land.
It takes at least eight years to cultivate a skillful semiconductor engineer, TSMC has said.
India seeks to be a chip powerhouse in five years, but with many countries aiming to build their own chip supply, chipmakers face a talent scarcity. Talent acquisition is a top priority for major chip companies, making it even more difficult to compete for talent.
Considerable challenges and uncertainties lie ahead for India’s chip industry so Taiwanese companies should be prudent about its business decisions and pay extra heed to the business environment.
Making chips requires more than just money.
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