One of the biggest challenges the semiconductor industry now faces is to meet the growing demand for products in the coming years. The current global trade scuffle would pose another barrier to the sector because it will uplift the price of semiconductor materials and interfere with international alliances within the industry. Apart from that, the escalation of Internet of Things (IoT) and artificial intelligence (AI), the increasing demands from the smartphone sector, and other electronics industry is putting immense pressure on the worldwide semiconductor supply chain. Hence, new-fangled solutions are required to tackle these challenges. It is extremely intricate to recycle semiconductor materials and therefore, during the manufacturing process, upcoming semiconductor products should utilize more sustainable processes to decrease the emissions of toxic pollutants. In this regard, we spoke of Tarun Pathak, Research Director, Counterpoint Research about the current challenges the semiconductor industry is facing, how India can uplift its semiconductor manufacturing process to become more competitive, and why strengthening fabless semiconductors are key to building India’s ESDM strategy.
Q. What are the current challenges in the global semiconductor industry amid the massive slump in chipset production? Where does the situation stand? Kindly elaborate.
The biggest challenge for the semiconductor industry is to first bridge the gap between demand and supply and develop strategies that ensure that such lag doesn’t happen in the future. This includes deciding on where investments need to be made and including geographic expansion as well to negate geopolitical concerns. Currently, it will still take one to two years for the situation to become normal. Another hurdle is the fabrication of semiconductor processes because it needs a talented workforce and top-notch precision, especially in India. There are actually scores of steps associated while packaging, testing, making, and assembling the wafer. Then, global semiconductor firm TSMC’s recent adjustment on wafer prices indicates that the price hikes in the foundry industry will continue into 2022. In the current quarter and between 2020, the cost of wafers at matured nodes has augmented to 25-40 percent and towards the end of 2022, another 10-22 percent price could be increased. As Samsung and TSMC center mostly only on building customer relationships and bringing down costs to maintain profitability, we do not speculate a similar magnitude in advanced/leading-edge nodes (10nm and below). Now, if you speak of the supply chain, smartphone OEMs suffer most on margins if they fail to increase prices for end-users. Researchers all over the world believe that if OEMs take this step then the growth of smartphones and other devices in the 5G segment will restrict in 2022 and IC inventory could pile up more.
Q. When do you think this ongoing chipset crisis would end? Do you really think excessive investment in inventories and wafers would lead to excess production of chips, which will be unused?
We think that shortage will continue till 2022 and ease up in 2023. The investments here wouldn’t necessarily address the immediate demand but is more strategic long-term investment. But, several manufacturing firms feel that this crisis could last till the end of 2023 because demand will be escalated as electronic items will require more chips than before. But, the point is that supplies will be still limited. The semiconductor manufacturing firms have expedited their efforts to craft more chipsets. For instance, Intel, one of the world’s largest semiconductor firms has announced to double their manufacturing and in March this year, it proclaimed to invest $20 billion in two new semiconductor factories in Arizona. TSMC, the biggest contract manufacturer that works with Apple and several leading firms is also constructing a new $12 billion worth chip factory in Arizona and by April 2023, it also announced to invest another $100 billion to increase its production capacity. Though it is highly expected by Counterpoint Research that the situation will be under control by 2023, it all depends on when the new production starts and when the investment actually happens. Another point to be noted is that the entire world is now getting vaccinated and once the vaccination process gets completed manufacturing will commence seamlessly.
Q. What does India need to do to boost its semiconductor manufacturing and become globally competitive? Where does the production capacity of chipsets currently stand in the country?
Semiconductor manufacturing requires massive investments to the tune of multiple billions of dollars. To attract investment of this kind India first needs a very strong policy that will lay the foundation for long-term investments. Apart from this the infrastructure, skilled workforce, and government investments will help it to make it globally competitive. We don’t currently do much in terms of the production of chipsets from India. The important fact is that how do we develop and design the products. We cannot craft an intellectual property (IP) if we are not aware of how to assemble, fabricate, design, and test it according to the product. This is exactly where India must look to perk up its manufacturing capacity. Proper knowledge of technology is now required among the industry leaders and the labour as well. We must also look upon to modernize our manufacturing facilities with cutting-edge equipment and machinery.
Q. Do you think building up fabless semiconductors will boost India's ESDM strategy? In fact, the US's anti-China could boost India's own semiconductor FAB units?
This is true. I think rather than FAB, first India will try to capture the parts of the value chain in Semiconductor like Assembling, Testing, Marking and Packaging (ATMP) and other local value components. Currently, India lacks in designing and producing important components and it has to import around 70-80 percent of raw materials from China and other countries. So, unless you enhance the value chain in ATMP and manufacturing of components, you cannot develop FAB also. FABs also require huge investments and India at this moment lacks a company that can develop this. Moreover, there is not much announcement or proclamation by any global companies to develop FABS in India. US’s anti-China sentiment may or may not boost FABs in India because currently, Singapore, Vietnam, Arizona, and other European countries are preferred destinations for semiconductor FABs and chipsets.
Q. Can you please highlight some of the latest chipset or some new technologies we could witness in the coming years?
Chipsets powering advanced applications such as AI-enabled smart devices, 5G communications, High-Performance Computing (HPC), and autonomous cars will spur innovation. The content growth in semiconductors will fuel the growth of product value in the IP licensing and IC design industry.
Q. Various survey reports claim that the chipset production is still in a state of scuffle while meeting demands from electronics and automobile manufacturers. If you can kindly share some accurate or approximate numbers about the discrepancy in demand supply.
The demand has been exceeding supply for almost 6 out of the 9 months in this year so far and at one stage Indian smartphone market was sitting on a lean inventory of 3-4 weeks. But the situation has become better recently at least on the smartphone side (esp on mid to high-tier smartphones). Entry to low-end smartphones there i s still issues. Back in 2020, semiconductor’s international sales escalated to 6.5 percent approx. If now the production suddenly gets halted even for a day and even if sales augment, there will be a barge in the manufacturing. The entire industry must conscientiously work together or in collaboration to increase production to renew demands, but it cannot be done instantly and will take some time.