India’s advantages will win it investments in semiconductors but be patient: Miller – Hindustan Times Feedzy

These advantages include the parallel rise of an electronics manufacturing ecosystem, talent in terms of chip designers, and the generous support provided by the government, Miller noted.

Miller, the author of Chip War: The Fight for the World’s Most Critical Technology, and an associate professor at Tufts University, also said that American export and investment restrictions on China in the domain are driven by a desire in the United States (US) to stop American technology from supporting China’s military modernisation, particularly in artificial intelligence (AI).

The impact of these restrictions will become more visible over the years, but Miller said China remains substantially behind and will confront a deficit of capabilities for much of this decade and beyond.

The complex supply chain

In a conversation with HT on Friday, Miller explained the complexity of the semiconductor ecosystem supply chain and the concentration of power in the hands of a few companies.

“A semiconductor is a small device, in most cases the size of your fingernail. And they are used to manipulate electric currents for computing. Today there are different types of semiconductors — some remember data and some process data. Some turn real-world signals into ones and zeros. But all of the computing that happens today happens thanks to semiconductors,” Miller said.

These chips are generally made of silicon and into the silicon are carved millions, often billions, of microscopic switches called transistors, which flip on and off, turning circuits on and off. Just the primary chip in a smartphone includes ten to 20 billion transistors, “each of them roughly the size of a coronavirus”.

Miller said the semiconductor ecosystem includes multiple steps. One, it requires a complex and sophisticated design software, where a few firms in US enjoy a dominant position.

Two, it requires a particular design, which is done by companies in US, Israel, Taiwan among others. “India is another country with a large number of chip designers. But the US is the dominant player here.”

Third, manufacturing requires production tools — “among the most complex machines that humans have ever invented, tools that can deposit thin films and materials or etch tiny canyons in the silicon, just a couple of atoms wide”. A company in Netherlands, a few in California, and in Japan are the only ones capable of making these tools.

The fourth step is acquiring the materials, including an ultra-pure silicon wafer and a suite of gases, which is the speciality of companies in Japan.

The fifth step is the actual manufacturing of the chip, which is done by just a few companies, most notably the Taiwan Semiconductor Manufacturing Company (TSMC).

“The final step, once you have manufactured a chip, is to put it in a package and assemble it in a device,” Miller said.

The geopolitical battle

In the wake of restrictions imposed by Washington on China, Miller said that while companies think of chips as being about consumer devices, governments tend to think of their application in defence and intelligence. While this has always been true, it has become even more salient with the rise of AI.

The US realised, Miller said, that only a tiny number of companies make chips that make AI possible. The entire world’s AI infra is being developed by American design chips, and at the moment, Chinese AI capabilities, including in defence, are being built on US hardware. If China’s access is cut off, the US can retain the most advanced capabilities in the domain, Miller said, explain the restrictions.

Acknowledging that Beijing was pumping in tremendous resources in the domain, Miller was sceptical of China’s ability to catch up in the short term. “China is starting from a position of being meaningfully behind in almost every segment of the chip industry supply chain, and quite far behind in a lot of key segments. And now the US and Japan and the Netherlands have made clear that they are not going to let China access not just cutting edge, but also one or two generations behind the cutting edge when it comes to tooling and software. Over some time horizon, China will succeed, but it’s going to take a long time.”

This mattered at the current moment, Miller pointed out, because the most advanced AI systems required more and more data to train, which meant having access to the most advanced chips capable of training the most advanced AI systems would produce better AI now. This is where China will lag.

Taiwan’s centrality

A key subtext, though not the cause of the conflict between the US and China over Taiwan, is Taiwan’s centrality in semiconductor manufacturing.

“TSMC has a unique market position. It’s not just the biggest, it’s half the foundry market, and many of the big firms, companies that design chips but don’t manufacture them, treat TSMC as either their only supplier or their most important supplier by far,” Miller said. He was also sceptical that companies will be able to match TSMC’s capabilities in the short term.

This centrality, Miller warned, has significant implications. “We must recognise if there is a war in the Taiwan Straits, the impact on the chip industry and thus on the global economy will be catastrophic.”

Assessing India’s strategy

Miller has followed India’s efforts to develop its own semiconductor industry, with a national policy, a national mission, massive subsidies and its wooing of different industry leaders to invest in India, including a recent announcement by Micron to set up an assembly, testing and packaging facility in Gujarat.

On Delhi’s strategy, Miller first counselled patience. “If you look at historical examples of countries that started playing a really small role in the semiconductor ecosystem and went on to play much larger roles. In Korea or Taiwan, for example, it was a four-decades long process from their initial investments to having large, profitable high-tech players. And so I think that should put in context the journey that India’s electronics industry is on.”

Miller said he sensed disappointment from people in India that there was not more rapid progress. “This is the hardest industry that’s ever been invented. This is the most complex technology that’s ever been invented. So there’s no rapid progress. It takes hard work, and long-term investment.”

Having said that, Miller suggested India had key advantages. The first was that the entire electronics ecosystem, including companies eyeing assembly of smartphones and PCs, were looking very carefully at India as a location for manufacturing and assembly. “In the long run, that’s going to be a very strong tailwind to support not just electronics assembly, but also semiconductor packaging and fabrication.”

The second was India’s large base of workers with expertise in design. “Although there aren’t a large number of design firms headquartered in India, nearly every semiconductor design firm in the world has Indian staff members. And so, the expertise in the workforce and chip design in India is really second to none.” And the final advantage was that the Indian government, as well as state governments, had been “quite generous with the various incentives schemes”. “

On whether India should focus on fabs or other, relatively easier, elements of the semiconductor ecosystem first, Miller said the experience of other countries showed that they entered with assembly, test and packaging before moving to fabrication. “So, I think there’s a lot of scope for India to win investments in that sphere, particularly because it’s right adjacent to the device assembly, smartphone assembly, PC assembly, where India is also in the early stages of winning a lot of market share.”

But it need not be an either-or scenario, Miller added, pointing out that in the domain of compound semiconductors like the types of semiconductors that are in electric vehicles, or logic chips, there was scope for fabs.