After American semiconductor company Micron announced setting up an assembly, testing and packaging plant at Sanand in Gujarat a few months ago, now another American semiconductor company, AMD, has inaugurated in Bengaluru its largest global design centre.Pune Stock
Micron and AMD plants are at the opposite ends of the semiconductor chips manufacturing value chain. The AMD plant puts India on track to the top of the global semiconductor value chain while it is just starting out on its chip-making journey.
As the chip war between the US and China hots up, with the US restricting access of Chinese companies to American technology, India hopes to enter an industry which has become even more crucial than oil because all digital instruments run on chips.Kanpur Investment
The global value chain of the semiconductor industry has seven differentiated activities, according to a BCG report.
Pre-competitive research comprises 15-20% of the global value chain. Design comprises 50% of value addition. Front-end (wafer fabrication) adds 24% value. Rest of the value is added through back-end (assembly, testing and packaging); electronic design automation (EDA) and core intellectual property (IP) which provide sophisticated software support to design; equipment and tools; and raw materials.
The US dominates design, EDA and core IP. So, it follows the ‘fabless’ (outsourcing fabrication) model where design and IP work is done by a company but fabrication is outsourced. Fabrication or manufacturing (front- and back-end) is concentrated in Taiwan, China and South Korea . The rest of the activities, mainly assembly, testing and packaging is concentrated in Asia with China having the largest share.
Initially, the US followed the integrated device manufacturer model, where all the activities (design, fabrication and assembly) were done by one company. But slowly fabrication and assembly was outsourced to China and Taiwan.
India is trying to emerge as a chip manufacturer which is a highly capital-intensive activity. Manufacturing is strategically important for India because dependence on other countries, especially China, or Taiwan, which is under the threat of forcible Chinese possession, for chips, may jeopardise India’s security. Chips are used in all things electronic from debit cards to mobile phones, washing machines to aircraft, and missiles to space rockets.
While India has announced a big Productivity-Linked Incentives (PLI) for chip manufacturing, it is a long race and needs lots of investment besides a elaborate local ecosystem.
Design, which requires talent more than capital, is the upper end of the value chain, and luckily India already has a significant pool of chip designers. The AMD chip-design plant, which will employ approximately 3,000 engineers, bets on India’s design talent. Though a number of American companies have chip design centres in India (AMD too has been in India for long), India’s design talent is not comparable with that of the USLucknow Wealth Management. But with AMD deciding to set up its biggest plant in India, India’s chip-design capabilities will surely improve.
The DLI scheme has been a game changer. So far, seven startups and MSMEs in India have availed the design incentives, ET reported in August. It is these smaller and lesser-known companies that have been writing the story of the semiconductor ecosystem in India. Industry observers say even as the government is working on getting foreign fab companies to make the massive investments to build manufacturing plants in India, it is these MSMEs which can actually make India a big semiconductor player — in the design segment which is at the top of the value chain.
India already has a good level of design expertise and talent because many multinational companies have been operating from here in the design segment.
Vivek Tyagi, chairperson of India Electronics and Semiconductor Association (IESA), told ET last year that with more than 20% of the world’s semiconductor designers working out of India, chip designing is a good starting point for the ecosystem the government is planning to set up in India. “More and more that we design, more intellectual properties we have, more patents we have, and more high value jobs we can create, rather than just assembly worker jobs,” he said.
Aiming to boost India’s design talent, the Electronics and IT Ministry aims to train over 85,000 engineers on chip design by expanding the infrastructure available for the technology to 120 academic institutions across the country in the next five years.
While chip manufacturing is strategically important for India as it cuts dependence on foreign countries for components of high critical importance, chip design is a low-hanging fruit which will also help establish the whole chip ecosystem without which India can’t aim to become a chip superpower. The AMD plant is a crucial step in that direction.
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