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First Principles | How the chips fall in the battle for semi-conductors

by thesquadron.in
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“Wrap your head around this,” says Pankaj Jain over the phone, “over 80% of chips designers are Indian.” While this good news comes from an informal conversation with the New York-based founder and managing partner of Saka Ventures, it throws up some questions as well. Why doesn’t then, for instance, India manufacture semiconductors or chips, as they are loosely called?

Why this question matters is because as things are, we are in the midst of one of the fiercest battles since World War II. Unlike conventional wars that most of us are acquainted with, the ongoing US-China standoff over control of the semi-conductor ecosystem is different. Semiconductors are now a strategic resource that are needed everywhere — from the ubiquitous smartphones, to TVs, to the automobiles we drive, to navigating traffic, and also for the microwaves and the washing machines at our homes, and for the clusters of supercomputers that are used for drug discovery. It’s thanks to these chips and how they are used that the Covid-19 virus could be mapped as quickly as it was, and a vaccine was created in record time.

What makes this battle for semiconductors more compelling still is that the world’s semiconductor headquarters is in Taiwan, and leading the pack is the Taiwan Semiconductor Manufacturing Company (TSMC). But what puts Taiwan and TSMC in a piquant spot is that while Taiwan is physically close to China, Morris Chang, the founder of TSMC, spent a large part of his life studying and working in the US. Chang set up TSMC in 1997 with covert assistance from the American establishment. The Americans had started investing in research capabilities to build chips some decades ago and had co-opted private participation. Chang was one among them.

The Chinese, with their ambition of world domination, had read the writing on the wall a while ago and committed almost a trillion dollars over the next two decades to build an ecosystem to rival what the Americans have. While it is one thing to “design” semiconductors, it is another thing altogether to create the “foundries” such as TSMC’s that can manufacture it. India hasn’t yet invested in the intricate capabilities to manufacture semiconductors.

Another narrative that doesn’t get spoken about much in the mainstream is that one of the reasons why China has its eyes on mainland Taiwan is that it wants control of TSMC. This keeps the foreign policy establishment in New Delhi and other world capitals awake at night. They worry that if China gains control of Taiwan and TSMC, their policies will have to be tweaked to suit Beijing. Everyone is used to dealing with the US. Going forward though, as the battle for control of semiconductors gets fiercer, the US may not stay benign and want its pound of flesh. This could include insisting countries stay on their side if they want access to semiconductors.

It is one thing to fight on the borders, it is another thing to fight a battle over technology where the value lies in intellectual property that has been built over decades. When asked what the likely outcomes of this battle are likely to be, G Venkat Raman, professor of humanities and social sciences at IIM Indore and a sinologist has some pointers to offer.

Even as the Americans try to choke China as they try to shift TSMC out of Taiwan to the US, and look to increase cooperation with friendlier countries such as Japan and woo India, it is unlikely that China can be stopped in the longer run.

So, Venkat Raman makes the case that India should start work on semiconductors as the Chinese did. Anyway, as Pankaj Jain pointed out, most numbers of chip designers are of Indian origin. To that extent, the expertise exists. What these designers need now is the backing to build “foundries” they can work out of. When that happens, political sanctions and other such threats will inevitably follow. But that is part of the geopolitical game. Once upon a time, after Pokhran II, India was treated as a nuclear pariah by the Western world but that is now history.

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