Central Idea

• Setting up a semiconductor fabrication plant in India holds immense significance, driven by both market opportunities and strategic considerations. With India’s growing dependence on semiconductor imports, the nation becomes vulnerable to coercion. Recognizing these challenges, the Indian government’s 2022 Semiconductor Mission deserves commendation. However, uncertainties persist regarding the establishment of a fab in India.

What are Semiconductors?

• Semiconductors are materials that have properties that are in between those of conductors (such as copper) and insulators (such as rubber).
• They have the ability to conduct electricity under certain conditions, but not under others.
• The conductivity of semiconductors can be manipulated through the introduction of impurities or doping with other materials. This process alters the electronic properties of the material and creates regions of excess or deficit of electrons, called p-type and n-type regions respectively.

India’s Previous Attempts to Establish a Semiconductor Fabrication Plant

• Special Incentive Package (SIP) in 2007: India’s first serious attempt to establish a semiconductor fabrication plant through this package did not yield any response from potential investors.
• Modified SIP in 2012: The second attempt involved a modified version of the Special Incentive Package. After extensive outreach efforts, two consortia were approved by the Cabinet. One consortium was led by Jaiprakash Associates in partnership with IBM and TowerJazz, while the other was led by Hindustan Semiconductor Manufacturing Corporation along with ST Microelectronics. However, despite finalizing locations and allocating land, both consortia failed to mobilize the necessary resources for the fabrication plant

Significance of Establishing Semiconductor Fabrication Plants for India

• Market Potential: India is experiencing a growing demand for semiconductors driven by various sectors, including electronics, telecommunications, automotive, healthcare, and consumer goods. Establishing semiconductor fabrication plants in India would enable the domestic production of semiconductors, reducing dependence on imports and capturing a significant portion of the expanding market.
• Strategic Independence: Dependence on imported semiconductors makes India vulnerable to coercion and supply chain disruptions. Establishing domestic semiconductor fabrication plants would enhance India’s strategic independence by reducing reliance on external sources, ensuring a secure and consistent supply of critical technology components.
• Job Creation and Skill Development: Semiconductor fabrication plants have the potential to generate a substantial number of high-skilled jobs. These plants require a skilled workforce in areas such as engineering, manufacturing, research and development, and technical support. Establishing such plants in India would drive job creation and contribute to the development of a skilled labor force.
• Technological Advancement: Semiconductor fabrication plants foster technological advancements and innovation. By establishing these plants, India can build its expertise in semiconductor manufacturing, drive research and development in the field, and contribute to technological advancements in various industries. This would enhance India’s competitiveness on the global stage and position it as a technology leader.
• Economic Growth and Investment: Semiconductor fabrication plants have a significant economic impact, contributing to GDP growth and attracting investments. These plants create a multiplier effect, stimulating the growth of ancillary industries and supporting sectors. Moreover, establishing semiconductor fabrication plants would attract foreign direct investment and promote collaborations with global semiconductor companies.
• Ecosystem Development: Setting up semiconductor fabrication plants requires the development of a comprehensive ecosystem, including supply chains, research institutions, testing facilities, and supportive infrastructure. This ecosystem development would have positive ripple effects, fostering the growth of related industries, supporting technological advancements, and nurturing innovation in the semiconductor sector.
• National Security: Establishing domestic semiconductor fabrication plants enhances national security by reducing dependence on foreign sources for critical technology components. It strengthens self-reliance and safeguards against potential disruptions in the global supply chain due to geopolitical or economic factors, ensuring the availability of essential technology components for strategic applications.

Challenges in Establishing a Semiconductor Fabrication Plant

• High Risk and Capital Intensive: Investing in a semiconductor fabrication plant involves significant financial risk and requires substantial capital investment. Billions of dollars need to be recovered before the technology becomes obsolete. This poses a challenge in terms of securing the necessary funding and ensuring a return on investment.
• Economic Viability and Production Volumes: Semiconductor fabs require large production volumes to achieve economic viability. The production levels often need to meet global demand rather than just the domestic market. Achieving the necessary economies of scale can be challenging, especially for a new fab in a competitive market.
• Ecosystem Development: Establishing a semiconductor fabrication plant involves developing a complex ecosystem. This includes securing a reliable supply chain for hundreds of chemicals and gases required for chip fabrication, setting up the necessary infrastructure for cleanrooms and equipment, and training a skilled workforce. Building this ecosystem from scratch can be a significant challenge.
• Quality and Yield: The semiconductor industry requires high-quality manufacturing processes and yields to ensure profitability. Poor quality and low yields can lead to significant losses and render a fab economically unviable. Maintaining consistent quality and optimizing yields pose challenges in the fabrication process.
• Technological Complexity: Semiconductor fabrication is a highly complex process that requires advanced technologies and expertise. Keeping up with the latest advancements, staying at the cutting edge of technology, and ensuring access to state-of-the-art equipment and techniques can be challenging.
• Strategic Competition: The global semiconductor industry is highly competitive, with countries like China, the United States, and the European Union investing heavily in chip manufacturing. Competing with established players and navigating strategic challenges, such as technology transfers and market dominance, can be a significant hurdle for India or any new entrant in the industry.
• Environmental Considerations: Semiconductor fabrication processes involve the use of hazardous chemicals and generate waste. Ensuring compliance with environmental regulations, managing waste disposal, and adopting sustainable practices present challenges in terms of environmental impact and sustainability.

Alternative Approaches for Semiconductor Fabrication

• Acquisition of Existing Fabs: Instead of establishing a new fab from scratch, a viable alternative is to acquire existing semiconductor fabrication facilities. This approach offers advantages such as access to stabilized technology, an established supply chain ecosystem, existing product lines, and an established market presence.
• Focus on Assembly, Testing, Packaging, and Marking (ATMP): Setting up ATMP facilities can be a relatively easier and cost-effective option for developing the semiconductor ecosystem. ATMP facilities specialize in the packaging, testing, and marking of chips, rather than their actual fabrication.
• Strategic Partnerships and Collaborations: Collaborating with established semiconductor companies, research institutions, and global technology leaders can help overcome the challenges of building a semiconductor fabrication plant independently. Strategic partnerships can facilitate technology transfer, access to expertise, and shared resources, thereby accelerating the development of the semiconductor ecosystem in India.
• Government Support and Incentives: Governments can play a crucial role in supporting the establishment of semiconductor fabs by providing financial incentives, tax benefits, infrastructure support, and policy frameworks conducive to the growth of the industry.
• Research and Development Focus: Emphasizing research and development efforts in semiconductor technology and fabrication processes is crucial. Investing in advanced R&D can help develop cutting-edge technologies, improve yields, reduce costs, and enhance competitiveness in the global semiconductor market.
• Skill Development and Education: Developing a skilled workforce is essential for the success of the semiconductor industry. Investing in education and skill development programs focused on semiconductor technology, fabrication processes, and related disciplines can ensure the availability of qualified personnel to support the growth of fabs and the overall ecosystem.

Lessons from China in Semiconductor Fabrication

• Acquiring Existing Fabs: China’s success in the semiconductor industry involved acquiring existing, loss-making fabs from around the world. This approach allowed China to access established technologies, supply chains, product lines, and markets. Acquiring existing fabs can provide a head start and a foundation for building a semiconductor ecosystem.
• Government Financial Support: China’s semiconductor industry growth was backed by massive government financial support over the last two decades. Investing substantial funds in the sector enabled the development of infrastructure, research and development, and the creation of a favorable environment for chip manufacturing.
• Lower Manufacturing Costs: China’s lower manufacturing costs played a significant role in its success. By leveraging economies of scale, cost efficiency, and competitive pricing, China became a major player in chip production. Exploring cost-effective manufacturing strategies can be a valuable lesson for other countries.
• Rare Earth Control: China’s strategic advantage in chip-making was bolstered by its control over rare earth minerals. These minerals are essential for chip production. By securing a reliable supply of rare earths, China gained a strategic edge in the semiconductor industry. Assessing and securing critical resources can be crucial for long-term success.
• Building Ecosystem and Training Human Resources: China focused on developing a comprehensive semiconductor ecosystem. This involved not only establishing fabs but also investing in the necessary infrastructure, supply chains, and training skilled personnel. Building a strong ecosystem and nurturing human resources are vital for a sustainable semiconductor industry.
• Balancing Subsidies and R&D Investment: China’s approach involved allocating funds saved from acquiring existing fabs towards advanced research and development (R&D) in fab technologies. This allowed for continuous innovation, improved capabilities, and the potential to develop state-of-the-art fabs in the future.
• Leveraging ATMP Facilities: China’s semiconductor journey included the establishment of over 100 Assembly, Testing, Packaging, and Marking (ATMP) facilities. While ATMP facilities may not contribute directly to chip fabrication, they provide a stepping stone in developing the semiconductor ecosystem, training personnel, and nurturing supporting industries

Conclusion

• India’s pursuit of semiconductor fabrication requires careful consideration of past failures and exploration of alternative approaches. Acquiring existing fabs, as demonstrated by China, offers a viable path to develop the fab ecosystem and save on subsidies. Furthermore, investing in ATMPs can help nurture the required infrastructure. By leveraging lessons learned, fostering innovation, and securing strategic alliances, India can establish itself as a key player in the global semiconductor industry.

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