The fate of chips will determine the fate of nations

Every major economic superpower is using its money and its best minds to win this silicon battle

October 10, 2022 12:15 am | Updated 11:47 am IST

The Taiwan Semiconductor Research Institute at Hsinchu Science Park in Hsinchu, Taiwan.

The Taiwan Semiconductor Research Institute at Hsinchu Science Park in Hsinchu, Taiwan. | Photo Credit: Getty Images

A human hair is 50-180 microns whereas the novel coronavirus is 0.1-0.5 microns. In comparison, today’s most advanced chips are about half the size of the novel coronavirus in diameter and are shrinking rapidly. The fate of nations depends on this infinitesimally small piece of silicon, which can devastate and shape our lives in myriad ways.

Dependence on chips

Let us consider three different scenarios. First, Apple’s new A16 chip has over 16 billion transistors in it. And Taiwan Semiconductor Manufacturing Company (TSMC), the world’s leading manufacturer of chips, placed over one quintillion (that’s 1 followed by 18 zeros) transistors on just the iPhone chip. Every message we send, every picture we take, every call we make depends on one chip or the other.

Apple buys its chips from Cirrus Logic, Kioxia, Skywords and TSMC. It designs these in-house, and the super complex processes that run the iPhone operating system makes Apple a force of nature. But even a trillion-dollar company like Apple is not able to manufacture its own chips. A16 is made by a single company, in a single building called Building 18 in Taipei. TSMC’s fab is perhaps the world’s most expensive and valuable factory. Chips today are manufactured in just a handful of nations: Taiwan, South Korea, the U.S., Japan, the Netherlands, and China.

Second, Russia appears to be unable to dominate Ukraine in the war, one of the reasons being that it is using more brawn than brain. Ukraine is using precision-guided missiles to fight Russia, which it recently procured from its Western allies. These missiles are powered by chips. While Russia has some precision-guided missiles, it is unable to manufacture these at the scale required because of Western trade sanctions. Whatever Russia has is a combination of some chips stolen, some made indigenously and some imported in the past, claim Ukraine and U.S. officials. The U.S. government’s famous Entity List ensures that this technology does not reach China and Russia and they cannot get ahead in the chips race.

Third, earlier this year, Toyota temporarily shut down production at assembly lines at five domestic group plants in Japan due to the shortage of chips. If you want to buy a new car in the U.S., the waiting time is really long.

What is common in these scenarios is the importance of chips. Not just the ability to manufacture chips, but also the ability to integrate and synthesise them into complex systems will determine the fate of nations in the coming decades. Today, critical sectors such as defence, telecom, electronics and mobility are hugely impacted by the chip shortage, which won’t end until 2023, as per research studies. If there ever is a natural disaster in South Korea or Taiwan, it could only worsen the crisis. The U.S., European Union, Japan, India and China have poured in about $200 billion into the semiconductors sector, but the impact of that will not be seen now. The U.S. was ready to defend Taiwan should there be aggression from China probably because no country in the world has the capability to produce chips better and faster than Taiwan (and South Korea) does.

‘Don’t be Foxconned’

While India has taken a visionary step to subsidise chip manufacturing through the Production-Linked Incentive scheme, there is one cautionary tale that it must bear in mind as it chases global chip manufacturers. It is called ‘Don’t be Foxconned’. Like Brazil and Vietnam in the past, in June 2018, Racine County in Wisconsin in the U.S. was led up the proverbial garden path by Terry Gou, Chairman of Foxconn, along with U.S. President Donald Trump and Governor Scott Walker. Mr. Gou secured around $5 billion in subsidies and promised thousands of jobs and the world’s best LCD manufacturing plant. But everything remained on paper. Despite uprooting people from their homes to build a new factory, not one chip or LCD panel ever got built there. Mr. Trump even called the Wisconsin Valley Science and Technology Park the eighth wonder of the world. A manufacturing facility in the municipal records, its designation was quietly changed last month to ‘storage facility’.

Indian States, which are competing to court chip manufacturing investments, must also bear in mind that steady electricity and billions of gallons of clean water are required to set up a chip unit, which none of them can offer today. Even LCD panel manufacturing is a dream for the future. For example, the proposed Racine plant required about seven million gallons of water per day, which was being called a violation of the Great Lakes Compact by environmentalists. Chips manufacturing will require even more. India will get there with prudent strategies and sensible leadership in the coming decade, if all goes well.

A chip manufacturing plant costs $15 billion-$20 billion which takes years to recoup profitably even if it is runs all year. With global supply chains in turmoil thanks to COVID-19 and the Ukraine war, the game of chips is even more complicated now. Every major economic superpower is using its money and its best minds to win this silicon battle. This will impact the lives of citizens in more ways than one. India can afford to lose this war only at its own peril.

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