Underscoring the need for India to boost its semiconductor manufacturing capacity to meet its organic demand, Sanjay Gupta, Vice President and General Manager India at NXP Semiconductors, headquartered in the Netherlands, said the country could face competition from regions such as the United States and Europe. they are reducing their dependence on Taiwan, the largest semiconductor manufacturing country in the world.
In an interview with Soumyarendra Barik and Pranav Mukul, Gupta – who heads the Indian operations of the three largest automotive semiconductor makers – also spoke about the current chip shortage and India’s Production Linked Incentive Program (PLI ). Edited excerpts:
The automotive industry seems to be among the hardest hit due to the shortage of semiconductors. How do you see this situation evolving?
The supply chain issue has been going on for almost two years now. If we recap the reasons why this happened, there are a limited number of companies in the world. Taiwan hosts some of these companies, and there is an uneven reliance on Taiwan for semiconductors.
During the first phase of the pandemic, many of these sectors were unsure how things were going to unfold. They thought the demand would go down. Just as we book train tickets in advance and there is a waiting list, you have to book slots to have chips made in advance. If you don’t, you lose your location.
Many auto companies canceled their slots assuming they wouldn’t need them. Indeed, having the slots would mean that you would pay some of the expenses. Running a fab (manufacturing unit) costs millions of dollars a day. Automakers thought supply would not be needed in the first two quarters of 2020, and they freed up those slots. But there was another phenomenon happening – working from home, studying from home, home gym, pretty much everything from home. No one had foreseen this phenomenon.
Digitization that was supposed to happen in 5-10 years, happened literally in a quarter. This means that the sale of laptops, speakers, cell phones, headphones has increased significantly, and the slots emptied by automotive or industrial companies have been taken up by consumer companies. Once you occupy a seat, you don’t want to leave it.
Automakers barely clawed back their slots, and whatever they could salvage, they got at a higher price. We believe that the unprecedented semiconductor disruption that has occurred over the past few years has not yet reached a steady state. Our projection is that things should stabilize by the end of the year or the beginning of next year.
When India announced the PLI program for semiconductors, many big companies had shown interest, but brand names were missing when the applications came. Is there an inherent problem with the program itself?
My view is that Rome was not built in a day. If making semiconductors was easy, I’m sure nations capable of building a nuclear bomb would have done it. But even they could not reach the overall complexity of the industry.
India has a very strong chance because first, we have an organic need for semiconductors. We consume an enormous amount of semiconductor products. Secondly, there is political will, which has never been the case before, in my opinion. Third, the grants the government plans to provide through the PLI program as well as the Design Linked Incentives (DLI) program represent a huge commitment. The reason this is unprecedented is because earlier schemes were all about the cost of the tool and this time around the cost of the project, which includes everything.
But the reality is that if you think from a global perspective, the American president has launched a similar program. They did not believe in subsidies and all but were constrained because of the risk of the world’s dependence on a country close to China. The European Union is doing something similar.
Everyone tries to be independent. So there will be healthy competition between the United States, Europe and Asia. For India, it is a necessity (to have a national manufacture of semiconductors). It is not optional.
Recently, a number of big names, including Intel and TSMC, announced capacity additions primarily to address semiconductor shortages. But as demand for consumer electronics declines, could we be heading towards a semiconductor glut situation?
The way semiconductor usage is growing exponentially in our lives – if you think about it – a typical household has so many semiconductor nodes.
In the 1980s it was zero, in the 1990s it was zero. Suddenly, in the 2000s, a device was there, the DSL modem; in the 2010s, there were four devices with the mobile phone; and in the 2020s, people are already talking about smart refrigerators, smart air conditioners. One person owns multiple devices. Thus, per household, there are more than 20 to 25 connected devices. This exponential growth from 1 to 25 in 20 years multiplied by global population growth means we won’t be slowing down any time soon. The number of connected devices will be between 100 and 150 billion in the next few years. 5G will further increase this because so much more will be possible.
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We’re all on steroids when it comes to semiconductor consumption and memory companies don’t know it, server companies don’t know it, or even storage companies don’t know where we’re going. I don’t believe the semiconductor factories will sit idle. There will always be cases where they are not used 100%. There are whole countries that haven’t tasted semiconductors yet.
In India, the percentage of air conditioner usage is in the single digits. Each AC uses 8-9 semiconductor chips. So it will only grow from here and in the future many small and large businesses will have access to fab, which seems like an impossible task right now.
The current scenario is that if you’re a startup you won’t even have an appointment to talk to someone at a TSMC, but in 2040 the world will change and it might be possible to order a fab manufacturing on Amazon. This will happen as the number of providers increases over time.