The world is beset with many wars. Cold War, hot war, information war, cyber war and many more. Add one more to the mix. Chip war.
Integrated Circuit (IC) chips are the bedrock of today’s information age. They are everywhere. In computers, phones, TVs, communication systems, satellites, avionics, defence equipment, automobiles and more. These chips pack in billions of transistors, the most basic element of computing. The packing density varies from one billion transistors in a chip for a 28nm (nano meter) manufacturing process to 50 - 100 billion plus transistors for a 2nm process chip. The latter has improved performance, but it comes at the cost of increased manufacturing complexity.
The IC chip manufacturing value chain consists of three distinct stages. Design, Fabrication (fab) and Assembly, Testing, Marking & Packaging (ATMP). Design involves creating the electronic version of the digital circuits, the physical layout etc. Fabrication consists of silicon wafer preparation, chemical and metallic deposition, photo lithography to create a pattern on the wafer using ultra violet (UV) light, etching and so on. The last stage is packaging and testing.
Where does India stand in the chip race? India has a significant presence in the design segment currently. Our first fab unit in Gujarat, a joint venture between Tata Group and PSMC will produce chips, using the 28nm process for the automotive and consumer electronics sectors. This is a mature technology, but not cutting-edge. The 2-3nm process chips are state-of-the-art. They find applications in the latest smartphones, Graphic Processing Units for AI etc. But the investment for making these chips will be three times that for a comparable 28nm chip plant capacity as in Gujarat. No foreign company has shown interest in setting up such an advanced plant in India. We have a long way to go in this segment. We will have a moderate presence in the ATMP segment shortly.
Companies that do design, fabrication and testing, all in house, are known as Integrated Device Manufacturer (IDM). The biggest two in the business are Intel and Samsung. Then there are pure play design companies (fabless) like ARM and NVIDIA. The designs are manufactured by fabs (foundries) who do just that. TSMC (Taiwan Semiconductor Manufacturing Co.), Global Foundries etc. come under this category.
IC chip manufacturing is dependent on an interconnected supply chain, spanning many countries. Till some years ago, this supply chain was chugging along with perfect coordination. Now that is under threat due to geopolitical tensions. To understand this, please refer to the following diagram.
The companies in the US have a quasi- monopoly on Electronic Design Automation (EDA) tools, the first and foremost requirement in chip manufacturing. Next comes the need for different types of equipment for the many processes involved in manufacturing viz. for deposition of material on the silicon wafer, lithography to create patterns on the material and etching to remove unwanted material. US, Dutch and Japanese companies dominate this sector. Of special interest is the Dutch company ASML, who has a virtual monopoly on Extreme Ultra Violet (EUV) lithography machines. The IC chips of 2nm nodes can be produced only with these machines. Then there are the companies from Japan and Germany which supply silicon wafers, specialty chemicals and gases for the fabs.
With geopolitical tensions between the US and China hotting up, the former has banned the export of EDA software, specifically related to advanced chip design, to China. EUV lithography machines from the Netherlands are also on the restricted export list to China. These measures are part of a broader effort by the US and its allies to restrict China’s access to advanced semiconductor technology.
China is not sitting idle. In a tit for tat move, it has banned the sale of gallium, germanium, and other minerals, which are crucial for producing advanced semiconductor devices for the military sector, to the US. To make matters worse, China produces 98 per cent of gallium and 68 per cent of germanium in the world. On the technical front, SMIC, a Chinese fab, has produced a 7nm process node chip last year, stunning Washington. It was not expected. But further progress to 5nm or 2nm is hampered by the sanctions of the US and its allies. The Chinese, in the meantime, with ample support from the government, are focusing on two critical technologies—EDA software tools and EUV lithography—for self-reliance.
Now we come to the Achilles heel of the supply chain. TSMC and Samsung are the major foundries for the manufacturing of very advanced chips. TSMC is just a pure play fab and Samsung an IDM. Nonetheless, the latter does take on manufacturing jobs for fabless design companies. But Samsung’s foundry business has been beset with challenges of yield, the percentage of chips meeting specs, compared to TSMC, the market leader. More and more fabless design companies are shifting production to TSMC. And TSMC makes the most advanced chips only in Taiwan as a matter of policy. Regardless of the pressure to shift production elsewhere, for the foreseeable future, cutting-edge chip fabrication will be carried out only in Taiwan. The certainty of US support for the defence of Taiwan being somewhat hazy, it is also a good strategy to keep the Americans interested in the independence of Taiwan.
With China sabre-rattling over Taiwan, TSMC becomes the single point of vulnerability in the chip supply chain.
Taiwan is not just some territory for China. It is the key to world domination.
The author has worked at senior levels in Videsh Sanchar Nigam Ltd.(VSNL), Ericsson and in the academic world