• Setting up a semiconductor fabrication plant in India is not mere pride. There is a growing market.
• There are also strategic reasons: India''s susceptibility to coercion increases due to its reliance on semiconductor imports.
• As a result, the government''s 2022 Semiconductor Mission is commendable.
• However, there is still some doubt about whether India will have a fab.
• In this context, it is critical to understand why previous attempts failed and to consider alternative approaches.

Earlier Attempts and Challenges in Semiconductor Fab Industry

Earlier Attempts

• Special Incentive Package (SIP) was the first serious attempt made in 2007, but it yielded no response.
• Modified SIP was the second attempt in 2012 fared better.
• India came close to having a fab after over two years of extensive outreach with practically all the major fab companies in the world.
• Two consortia were approved by the Cabinet with an attractive set of incentives.
• Jaiprakash Associates in partnership with IBM and Israeli company TowerJazz, and
• Hindustan Semiconductor Manufacturing Corporation along with ST Microelectronics.
• The two fabs together involved an investment of $10 billion, and also the government offered incentives amounting to nearly $5 billion in the form of cash and tax cuts.
• Locations for the fabs were finalised and the land was allotted.
• But finally, both failed to mobilise resources.

Challenges

• Semiconductor fabrication represents the ultimate frontier of human tech advancement.
• The frontier has been advancing adhering to Moore’s law that the number of transistors in a unit area doubles every 18 months.
• But the progress of miniaturisation is accompanied by higher complexity and costs.
• As a result, the industry has seen a decline in the number of participants.

China''s Dominance and Global Chip Warfare

• China started late in the semiconductor fab industry, but the industry was backed by massive government financial support over the last two decades.
• China acquired hundreds of loss-making fabs from around the world and built its fab industry.
• Aided by lower manufacturing costs and a massive electronics manufacturing industry, China’s chip production has grown rapidly.

Global Chip Warfare

• The United States is the traditional leader in this game, and it realised China had become one of the major producers of chips.
• China was aided by its market supremacy in rare earths, which are essential for chip production, it has a strategic stranglehold on chip-making.
• The U.S. and its Western allies have blocked the transfer of the latest fab-related technology to China over the last year.
• But this could be a case of closing the stable door after the horses have bolted.
• The U.S. enacted the CHIPS and Science Act in 2022, with nearly $40 billion in subsidies.
• It is to bring back semiconductor manufacturing to the country.
• The European Union (EU) sanctioned €7.4 billion for a new fab in France.
• India will have to contend with these countries in what has become intense chip warfare.

Challenges in Semiconductor Fab Investment and Development

• Investment in a semiconductor fab is one of the riskiest.
• It requires billions of dollars and that too needs to be recovered before the technology becomes obsolete.
• This necessitates substantial production volumes for economic viability, often reaching levels that are adequate to meet global demand.
• It is therefore difficult to conceive of a fab that is based on the domestic market only.
• The advantage of semiconductors having a small freight-to-price ratio and a zero-custom duty regime under the Information Technology Agreement, 1996.
• This facilitates production in a single location and global sales, and it is why no company is interested in setting up a greenfield fab.

Fab Types and Ecosystem Development

• Developing an ecosystem for chip manufacturing in a greenfield location is a major challenge.
• Hundreds of chemicals and gases are required for chip fabrication, people need to be trained, and abundant clean water be made available.
• But above all is the art of chip-making. Despite the best equipment, poor quality and low yields can make fabs fail.
• There are other issues, such as whether to set up a logic/processor, memory or analog fab.
• Electronic equipment and its functionalities are characterised by their logic chips, which are therefore strategically important and generate the highest profit.
• The most advanced set of technologies is needed to manufacture them.
• Analog chips are essential but have the least strategic value.
• Types of Chips Produced by Semiconductor Companies: Memory Chips, Microprocessors, Graphic Processing Units (GPUs), Commodity ICs, Analog Chips, Mixed Circuit Semiconductors etc.

Memory fabs vs Analogue fabs vs Logic fabs

• Memory fabs use the most advanced feature nodes, whereas analogue fabs can be as large as 130 nm.
• Logic fabs are the most expensive, while analogue fabs are the least expensive.

Assembly, Testing, Packaging, and Marking (ATMP)

• Assembly, Testing, Packaging, and Marking (ATMP) is a simpler option for developing the fab ecosystem before establishing a full-fledged fab.
• However, ATMPs have little value in terms of chip manufacturing.

Suggestions for India''s Semiconductor Fab Development

Acquiring Existing Fabs

• India’s strategy has been to set up a new logic fab.
• Whereas, China acquired loss-making fabs and then set up its logic fab.
• Advantages of acquiring existing fabs:
• Reasonably priced.
• Stabilised technology,
• Supply chain ecosystem,
• Established product line, and
• Market.
• Acquiring existing fabs will enable India to build a fab ecosystem and train human resources.
• Because of this much lower subsidies would be required, and the funds can be diverted for advanced R&D in fab technologies which will help build state-of-the-art fab in the next few years.

Setting up ATMPS

• Another strategy could be setting up ATMPs.
• Tessolve had set up an ATMP in 2013-14 and is now acquired by Tatas.
• This ATMP is successfully packaging chips up to 7 nm feature size.
• China has over 100 ATMPs.

According to a Chinese proverb, "The best time to plant a tree was 20 years ago, but the second-best time is now." China started on the fab journey about 20 years ago. India might have missed the earlier opportunities to explore Semiconductor Fab Development. But India can now focus on its Semiconductor Industry to cater for its domestic needs and global market.