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Who is Winning the Microchip War: India or China?
The world is running out of computer chips. And due to the unprecedented shortage of electric chips and semiconductors, a new microchip war is brewing between the two largest manufacturers: India & China.
But, who is winning it? Here’s an explainer:
The Semiconductor Crisis: Explained
Semiconductors are used to make integrated circuits. These microchips are the lifeblood of all electronic appliances, from smartphones, laptops, and gaming consoles to supercomputers and modern weapons.
Powering the technological evolution over the last two decades, the demand for semiconductors has skyrocketed. However, the 2020 pandemic halted the chips’ manufacturing, sparking a global semiconductor crisis.
The crisis was so bad that Apple lost 6 billion dollars in revenue, Maruti had to cut down 40% of its production, and Mahindra had to cut down 20% of its production. Due to chip shortages, the auto industry has already lost 100 billion dollars in revenue.
Even though production has resumed, manufacturers are still unable to fill out the shortage caused by COVID.
So, why is there a sudden shortage of semiconductors and their impact on different industries?
The Rush of people with Electronic Gadgets
The first reason for the shortage is that the industry had already been growing rapidly and was already on the brink of shortage. According to the semiconductor industry association, more than 100 billion integration circuits are used daily worldwide.
The market is so huge that the industry’s biggest players, including Intel, Micron, Nvidia, and Qualcomm, can’t keep up with the demand, given the enormous size of the market.
The Microchip War & Impact of Covid-19
Lockdown-induced online work dramatically increased demand for electronic devices. But with the manufacturing and transportation services primarily halted, demands outstripped supply.
Another the reason why the shortage is so difficult to recover is that manufacturing a microchip typically takes more than four months. Additionally, microchip manufacturers need giant factories with dust-free rooms, multi-million-dollar machines, molten tin, and lasers.
Since manufacturing cannot be increased on such short notice, the wait times for chips increased alarmingly. The situation has worsened so severely that the waiting time spiked from 11.8 weeks in September 2019 to 21 weeks in August 2021.
Consequently, the market value of semiconductors grew over 20% ($600 billion) in 2021.
Hence, the radical difference in supply and demand has turned the table, and this is why companies from various areas across the world from various sectors have started facing production issues.
The four major industries that have furiously faced the heat of crisis are auto, LED lighting, consumer electronics, and the appliance industries.
What is the position of India in the semiconductor market?
Despite homing big heads like Intel, Micron, and Samsung housing and R&D centers in India. India doesn’t have a significant chip manufacturing industry.
When looked at India’s semiconductor trade situation, India became the 13th largest importer of semiconductor devices in the world in 2020, with $2.38 billion in semiconductor device imports.
And now comes the story’s climax behind the semiconductor war between India and China.
The terrifying part is that about 68.1% of India’s semiconductors were imported from China in 2020. Followed by 40% in and 26% from Hongkong in 2022.
So, what is India doing to fix the situation and reduce its dependence on China? And How is India indirectly in the position of war with China in the semiconductor industry?
India Vs. China: The Microchip War
The roots of India & China’s microchip war can be traced back to the Quad Summit.
During the quad summit conference held by US president Joe Biden on the 24th of September 2021 debated on how to tackle several aspects of economic challenges that come through different countries’ economic development. And one such aspect was the semiconductor shortage in the world.
Long story short, chip manufacturing is a complex process requiring multiple steps. So if each country sets up five divisions for five different processes, it is both costly and time-consuming.
Because of this, India, Australia, Japan, and the US have chosen to work together to execute only those processes that best suit their strengths while transferring the remaining ones to other nations.
That means the US will design the semiconductor; Japan will provide resources to make semiconductor that is raw materials and chemicals like silicon wafers and ICs. While Australia will come up with an electronic supply chain as it has access to critical materials and advanced mining.
Meanwhile, India has many skilled engineers and laborers for cheap assembling and manufacturing.
So, in the quad summit US, Japan, Australia, and India joined hands to build a robust semiconductor supply chain based on their strength to eliminate their dependence on China, Hongkong, and Taiwan.
Thus India’s INR 76000 cores production incentives program is indirectly threatening Chinas mega semiconductor chip industry.
Will the Microchip Program Really Benefit India?
The US is very well aware of future weapons and is acting smartly to overcome China in supercomputing and AI tech. That’s why the US wants semiconductor technology to be kept away from the hands of China.
Hence in October 2022 US banned all semiconductor exports to China. Alongside baning all the technologies that China can use against the US.
The US does not want China to develop weapons that may use against the US military. Consequently, fostering India to come up with semiconductor manufacturing to cut the wings of China in the field of making chips.
As discussed above, the US is king in designing the chips, but with sanctions on exporting any such technology from the US, China will face heat.
While the US has joined hands in the quad summit to design semiconductors for India, here comes the answer to that incentive program.
Is India Winning the Microchip Chip War?
Over the next two years, the Indian government plans to establish 20 semiconductor plants. To tackle the shortage of semiconductor Government of India has lined -up with attractive incentive support for companies engaged in silicon conductors, photonics, semiconductor packaging, compound semiconductor manufacturing, sensors fabs, and semiconductor design.
Moreover, India is also tying up with Taiwan and encouraging semiconductor companies to manufacture semiconductors in India by providing land at affordable prices for their setup.
India is in an overstated circumstance where it is a semiconductor-importing nation and is about to switch to a semiconductor-exporting nation. Here is some heat in China. And that sparks an unintentional semiconductor war between China and India.