Semiconductor chips are to the 21st century what oil was to the 20th century. It is no wonder then that the impact of the crisis in the global semiconductor industry is being felt all over. Like how the geopolitics in the past had revolved around oil, the disruption in the chip production and supply chains has spawned intense rivalry among countries with the United States and China representing the two sides of the divide. The unprecedented shortage of chips and electronic components is having a dampening effect on the festive season in India. Typically, customers wait for months to buy smartphones and electronic goods at discounted prices during the festive season. However, they may be in for a shock this season. The prices of components required for smartphones have seen a steady escalation in the past year for several reasons, including closure of factories due to the coronavirus pandemic, container shortages, increase in shipping cost and rise in demand for automobiles and consumer electronics. Significantly, several mobile phone brands, which usually wait for the festive season to launch new models, have not made any such announcements yet. The impact of the global chip scarcity is all-pervading: automobiles, smartphones, laptops, tablets, consumer durables, gaming consoles and other electronic products. The crisis in the semiconductor sector has already led to lower production, delays in delivery time, lower discounts and higher prices. Even the optimistic estimates say the shortage will last till 2022, leading to prolonged supply disruptions across various segments.
The United States and China are locked in a fight over controlling the sector. In the last two decades, China, the world’s largest chip buyer, succeeded in making low-end chips but has not been able to master the advanced technology. For this, it has been trying to acquire companies in the US, Europe and Asia. But, its efforts are being blocked at the behest of the US which still controls the Intellectual Properties (IP), design and technology. Japan makes silicon wafers on which chip circuitry is etched while Taiwan and South Korea have the most sophisticated and biggest fabs to manufacture chips. In order to retain its control over the chip supply chain, America has pressured Taiwan, South Korea and others not to make chips for China. This is bound to have a crippling impact on China’s tech industry. The US-China rivalry has spurred large investments in new fabs. India should seize the emerging opportunities and invest smartly by positioning itself in the key parts of the value chain revenue. Chip design, and assembling, testing and packaging (ATP) are the two segments of interest for India. Chip design involves using software tools to simulate the physics of chip circuitry.