Monday Morning Meeting Report: Semiconductor Global Supply Chains: An Introduction

Lt. Col. Akshat Upadhyay, Research Fellow, Manohar Parrikar Institute for Defence Studies and Analyses, made a presentation on the “Semiconductor Global Supply Chains: An Introduction” at the Monday Morning Meeting held on 15 January 2024. Dr. Cherian Samuel, Research Fellow, MP-IDSA, moderated the session. Ambassador Sujan R. Chinoy, the Director General of MP-IDSA, and scholars of the Institute were in attendance.

Executive Summary

The presentation summarised the global semiconductor industry and the geopolitical tensions surrounding it. Similar to other technologies, semiconductors initially served military purposes before becoming integrated into broader societal applications. The presentation also delved into the concise history of semiconductor technology, its significance, various types of semiconductors, and the geopolitical implications surrounding them.

Detailed Report

The Session commenced with Dr. Samuel’s introductory remarks highlighting the extensive utilization of semiconductors, tracing back their origins in military applications. He emphasised Taiwan's significance in the global semiconductor industry, along with its vulnerability to disruptions in the semiconductor supply chain due to escalating tensions between the United States and China. Lt. Col. Upadhyay began his presentation by emphasising the profound impact semiconductors have had on shaping the modern world. He proceeded to delve into the technical definition of semiconductors, describing them as materials possessing electrical conductivity falling between that of conductors and insulators. He elaborated on commonly used semiconductor materials such as Silicon, Germanium, and Gallium Arsenide (GaAs). He also explained various types of semiconductors, including Discrete Semiconductors, Application Specific ICs (ASICs), Radio-Frequency ICs (RFICs), Micro-electromechanical Systems (MEMS), and System-on-a-chip (SoC).

He emphasised that the world is operating within the 5th computation paradigm, a concept defined by Ray Kurzweil, with semiconductors as the foundation for a trillion-dollar electronics industry. He also pointed out that this same technology forms the basis for the ongoing competition between the US and China. Lt. Col. Upadhyay also highlighted several milestones in the history of semiconductor technology, illustrating its journey from the confines of research laboratories to widespread civilian use. He continued elaborating on the technological progression using the 6 D’s Exponential Framework. This framework outlines a technology's roadmap before reaching its disruptive potential, offering opportunities for development.
Using graphs and figures, Lt. Col. Upadhyay underscored the transformation of the semiconductor industry from a crowded field of competitors in the early 2000s to its current state, where only a handful of companies possess leading-edge manufacturing capabilities. He further delved into the end of Moore’s Law, explaining that its future hinges on researchers’ ability to develop new materials, manufacturing and packaging techniques, and advancements in computing architecture. One suggestion he offered to extend Moore’s Law is to transition toward 3D technology.

Delving further into the topic, he emphasised the fundamental components of a semiconductor production chain and highlighted various subsets within those elements. He pointed out that many original equipment manufacturers (OEMs) and original design manufacturers (ODMs) procure semiconductors to integrate them into consumer end-products. The typical semiconductor production process spans multiple countries and continents.
Expanding on China’s current status in research and development (R&D) and its share in the global chip supply, Lt. Col. Upadhyay highlighted that China currently lacks a significant presence in critical phases such as design, Electronic Design Automation (EDA) and core Intellectual Properties (IPs). Instead, China’s involvement is primarily limited to the back end, constituting approximately 10 percent of the supply chain.

Regarding the geopolitics of semiconductors, he emphasised that while the semiconductor supply chain is internationalized, it is not truly globalized, as it remains concentrated within a few countries and companies. As an illustration, he pointed out that only one company worldwide, the Netherlands-based ASML, holds a monopoly over Extreme Ultraviolet (EUV) Lithography equipment. Additionally, he noted that the global supply of photoresists, crucial chemicals for semiconductor production, is controlled by a small cluster of companies primarily situated in the US, Germany, Japan, and South Korea. Big tech companies have also entered the chip designing arena, with the likes of Amazon, Google, Microsoft, and Tesla all developing chips tailored for artificial intelligence (AI) applications and cloud services.

To maintain leadership in the semiconductor supply chain and stay ahead of China, US President Joe Biden announced new export controls, which are unilateral and were implemented without any other country's support. The measures include severely restricting the flow of almost all chips and related technologies produced globally into the high-end of China’s supercomputing ecosystem, encompassing advanced GPUs intended for any purpose within China. Furthermore, Americans are prohibited from participating in crucial aspects of China’s semiconductor sector to prevent China from benefiting from US expertise and know-how.

The controls may extend beyond chips as the US has identified AI, quantum information systems, biotechnology, biomanufacturing, and advanced clean energy technologies as fundamental to US national security. However, advanced computing and supercomputers have been singled out as targets for these measures. He also emphasied how the equipped with a 7 nm chip, raises doubts about the effectiveness of the US’s unilateral sanctions. Highlighting the potential scenario, he suggested that companies with significant production facilities in China, such as TSMC and SK Hynix, might not react favorably to these measures. They could exert pressure on their governments to circumvent these measures or seek alternative solutions to replace US technology that cannot be sold in the Chinese market.

Regarding India, he mentioned that chip consumption is projected to exceed US $80 billion by 2026 and reach US $110 billion by 2030. India is one of the world's largest consumer electronics markets, so it makes commercial sense to incentivize diverting supply chains and ensure that Indian startups have robust foundations to compete with international players. Furthermore, achieving multiple governmental goals, such as poverty alleviation and improving connectivity, will require advanced chips.

In this context, Indian initiatives like the India Semiconductor Mission (ISM), launched in 2021, are poised to play a significant role. The ISM aims to provide financial support to companies investing in semiconductors, display manufacturing, and the design ecosystem. He also elaborated on the ongoing projects and partnerships between India and other major players.

Questions and Comments

Ambassador Chinoy, began his remarks by expressing concern about India's absence from the global supply chain, despite the ongoing initiatives. He emphasised China's use of Gallium export restrictions to pressure US allies. Additionally, he posed a critical question regarding what steps India can take to gain leverage in the supply chain. He also expressed his concern and curiosity regarding the potential for electronic scavenging from modern devices such as smartphones, as well as the possibility of reverse engineering. Lt. Col. Upadhyay responded by saying that India should focus on manufacturing, and assembly, testing, and packaging (ATP). He also underlined that India should focus on the foundations and, therefore, focus on the existing 180-nm chips, as it is also economical.

Dr. Rajiv Nayan raised a query about why the US lags behind Taiwan in this field. Lt. Col. Upadhyay responded by highlighting that the issue with the US lies in its companies, such as Intel, primarily focusing on the Integrated Device Manufacturer (IDM) model, whereas TSMC concentrates on niche areas. He also emphasised that China is currently utilising 7nm chips only in limited devices and has yet to scale up its usage extensively. Gp. Capt. Rajiv Narang raised a query regarding which entities in India are eligible for partnerships with the US under the Initiative on Critical and Emerging Technologies (iCET), and whether India's focus is on becoming a manufacturing hub or emphasizing research and development (R&D). In response, Lt. Col. Upadhyay mentioned that institutions like SCL Mohali, in collaboration with DRDO, and IIT Madras are engaged with the US, supported by the Indian Government, under the iCET initiative.

Report prepared by Mr. Rohit K. Sharma, Research Analyst, Strategic Technologies Centre.