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24x7Report > Blog > Finance > The US Can Accelerate India’s Rise as a Legacy Chip Hub
Finance

The US Can Accelerate India’s Rise as a Legacy Chip Hub

Last updated: 2024/08/26 at 5:15 PM
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The US Can Accelerate India’s Rise as a Legacy Chip Hub
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Because the wrestle for crucial tech supremacy with China escalates, the U.S. and its allies develop more and more cautious about their reliance on China for “legacy” semiconductor chips. Earlier this yr, U.S. policymakers called for immediate motion to scale back home dependence on Chinese language-made trailing-edge or commodity chips. Sharing this concern, the U.S. Division of Commerce launched a survey to map the provision chains for such chips in January 2024. This concern was additionally a outstanding focus within the April U.S.-EU Trade and Technology Council session, the place each companions dedicated to figuring out provide chain distortions attributable to Beijing’s backed manufacturing of legacy chips. Such developments replicate a rising consensus in Washington and Brussels that China’s management over legacy chip provide chains poses severe financial and nationwide safety dangers.

Legacy chips are crucial parts for an unlimited vary of purposes and merchandise, from shopper electronics and automobiles to industrial gear, army techniques, and different crucial infrastructure like energy grids. To borrow parlance used within the U.S. CHIPS and Science Act, semiconductor chips fabricated on a course of older than 28 nanometers are categorized as “legacy semiconductors.” In distinction, at present’s modern chips (the chips that energy our smartphones and the GPUs that energy AI instruments like ChatGPT) are fabricated on extra subtle 5 or 3-nanometer course of nodes. Whereas legacy chips lack the uncooked processing energy of newer modern chips, they’re additionally vastly cheaper to provide. Nonetheless, producing these chips profitably can also be depending on delivery big volumes, with foundries working with razor-thin profit margins.

Completely different views abound about whether or not the U.S. and its allies are justified of their worries concerning the “overcapacity” of Chinese language legacy chip foundries and the velocity and scale of this capability buildup. If China have been to flood the market with low cost, backed chips, Western suppliers wouldn’t be capable to compete on worth, and due to this fact, it may hole out a part of the semiconductor industrial base in these international locations. On the different excessive, China may retaliate in opposition to widespread sanctions by denying market entry to legacy chips which can be very important for a lot of industries and, certainly, the lifestyle within the developed world. Lastly, since these chips find yourself in delicate or strategically essential purposes like aerospace, protection, and infrastructure, international locations just like the U.S. will discover it troublesome to abdomen the concept that these are being produced by a geopolitical adversary that might doubtlessly compromise nationwide safety by means of undetectable backdoors on these chips. 

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China’s dominant place within the provide chain for legacy chips is a results of a number of elements. Traditionally, decrease labor and manufacturing prices have allowed Chinese language suppliers to supply extremely aggressive pricing within the world market. Alongside this, a big and quickly rising home marketplace for industrial and shopper items that depend on these chips ensured that home foundries serving native demand achieved economies of scale. Nonetheless, the first explanation for concern for the West is Beijing’s large funding in home chip manufacturing capability by means of subsidies and industrial coverage.

China’s purpose of reaching semiconductor self-sufficiency ironically accelerated after the U.S. imposed sanctions affecting its capability to entry superior chips and chip-making gear. Chinese language corporations already produce round 60 percent of the world’s legacy chips, and Beijing has announced assist for main capability expansions for amenities producing these chips over the subsequent few years. This technique mirrors those who Beijing has efficiently used over a long time to realize a major benefit within the world worth chains for items like photo voltaic panels and electrical automobiles.

For the explanations talked about earlier, the US and its allies are considerably constrained of their number of efficient coverage responses. Tighter export controls on chip manufacturing gear will possible not considerably have an effect on legacy chip manufacturing since Chinese language amenities have had years to construct home capability within the applied sciences vital for his or her fabrication. Imposing excessive tariffs on Chinese language-made chips may elevate prices massively for downstream industries within the West that use them as intermediate parts. This might additionally invite retaliation within the type of restrictions on entry to different essential sources the place Chinese language suppliers dominate the market, similar to critical minerals. Subsequently, sanctions and denial regimes like those that may be effective at slowing China’s advances in making modern chips are unlikely to effectively obtain the West’s objectives of lowering dependence on Chinese language legacy chips. They don’t basically remedy the issue of China’s entrenched benefits in legacy chip manufacturing.

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That is the place India may doubtlessly play a key function as a substitute manufacturing base for legacy chips. Friendshoring provide chains for legacy chips to international locations like India is probably going essentially the most possible long-term resolution for the West. 

India has already embarked upon its semiconductor journey, with sights set firmly on turning into a serious participant within the manufacturing and meeting of legacy chips. India’s price benefits in labor and infrastructure, mixed with authorities incentives, will serve to maintain legacy chips inexpensive for price-sensitive markets globally; an space the place it could be uncompetitive for Western international locations to construct up big home capability. Upstream linkages to its massive pool of expert chip design and engineering expertise and downstream linkages to a number of slated meeting and packaging amenities will be sure that world shoppers on the lookout for end-to-end companies for his or her legacy chip necessities will discover a whole ecosystem that may cater to their wants. Additional, India is geopolitically aligned with the U.S. and the opposite Quad international locations, and due to this fact, chipmakers would face much less political danger than in China.

After all, India’s rise as a chip manufacturing energy, even in legacy nodes, won’t occur in a single day. Its first industrial fabrication facility has solely lately damaged floor. However it’s within the West’s personal curiosity to speed up India’s transformation right into a semiconductor energy centered on legacy chips. Tangible, focused measures like preferential market entry for India-made chips, know-how transfers, and expertise mobility applications will be undertaken by means of initiatives just like the iCET and platforms just like the Quad’s Semiconductor Provide Chain Initiative. This train can be performed out in a long time, however such is the character of geopolitics and the realities of a posh and fragmented world worth chain.

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TAGGED: Accelerate, Chip, Hub, Indias, legacy, rise

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