Lieutenant Colonel Akshat Upadhyay
A congruence of events has catapulted the role and importance of semiconductors to the apex of India’s national security decision-making. Pandemic-induced lockdowns in various countries, strategic competition between China and the US and the Russia-Ukraine conflict have created uncertainties in the functioning of the global semiconductor supply chain. India’s exponentially increasing consumer electronics market and two live borders face a host of threats, placing a premium on the development of a semiconductor and display manufacturing ecosystem within the country. As a result, a number of MoUs have been signed between Indian and international firms.
A rapidly modernising military and the imperatives of fighting a modern war involve the use of emerging technologies such as unmanned systems, artificial intelligence (AI) and the internet of military things (IoMT) – which depend on the continued availability of advanced and more importantly, indigenous semiconductors and processors. Given the increasing relevance of digital infrastructure and consequent capabilities, in terms of hard national security, there is a need to become self-reliant in processing power. Here, the Indian Armed Forces can play an oversized role, not only in handholding indigenous semiconductor design startups but also by creating demands for customised processors and chips that can be used as a step-up for further production.
Why are semiconductors important? A semiconductor is a material like silicon, germanium or silicon carbide whose electrical properties fall between a pure conductor or insulator. Its main property is to switch the flow of current on or off, based on the application of voltage. This enables binary calculations based on Boolean algebra. The invention of the integrated circuit (IC) in 1958 where all components of an electrical circuit such as transistors, capacitors, diodes and resistors could be embedded into a single slice of semiconductor material has revolutionised electronics. This basic principle today defines all parameters of human progress, and economic development and may even provide solutions to mitigate existential risks to the planet.
As per Moore’s law, which was more of an observation that the number of transistors on a semiconductor wafer will double every 18-24 months, the electronics industry has accelerated at an exponential rate. The doubling of semiconductors almost every two years implies tighter packing of transistors in the same space. The more tightly packed the transistors, the easier it is for electrons to travel. Since the movement of electrons is measured as electricity and switching on and off is used for calculations, effectively an increase in transistors leads to an increase in processing power. The size of a transistor very roughly is measured in nanometres (nm) and is known as node size. The most advanced node sizes that are being manufactured today are 3nm. This implies a packing of almost 250 million transistors per mm2 or almost 80 billion transistors in the full chip.
This is immense processing power and companies are attempting 2 and 1nm with some planning to go sub-nm. Faster processing power is also connected to lower power consumption giving rise to concerns over size, weight and power (SWaP) optimisation. The introduction of the system-on-chip (SoC) design where important components such as a CPU, memory interface, input/output devices and interfaces, wireless communication and graphics processing unit (GPU) are all integrated onto a single chip, is one of the more innovative ways in which these issues are attempted to be addressed. As a comparison, conventional personal computer (PC) architecture features function blocks that are all separate and communicate via a printed circuit board (PCB). This technical information forms the substrate of the geopolitical competition over semiconductors and their importance in the contemporary era.
Semiconductor manufacturing is roughly divided into three phases: design, fabrication and assembly, testing and packaging (ATP). These three phases are heavily specialised and dominated by a handful of companies in specific locations. The design phase consists of certain software tools that create customised circuit designs for companies. Three companies in the world (Cadence and Synopsys in the US and Mentor Graphics in Germany) own the majority chunk of this category of software, also known as electronic design automation (EDA) tools. Next, a number of intellectual property (IP) cores are used as functional building blocks for designing the circuits using EDA tools.
These IP cores with tested and vetted current, voltage and other parameters are important since designing individual transistors on the scale of billions is virtually impossible. The IP cores are again dominated by a handful of companies in each semiconductor functional segment such as memory, analog, logic, SoC and others. These tools are used to create chip designs. As part of the value chain, design forms close to 40-50% of the entire effort. This is a human-capital intensive effort. As per reliable data, Indian designers currently comprise close to 20% of the global design effort.
The challenge remains of control over IP still in the hands of the Global North. Chip fabrication or the second phase is capital, labour, water and electricity-intensive process where each fabrication plant or ‘fab’ requires a starting capital between $10-15 billion to get set up. As of date, only three companies in the world ie Intel in the US, Samsung in South Korea and Taiwan Semiconductor Manufacturing Corporation (TSMC) in Taiwan have the capability to manufacture or fabricate the most advanced or ‘leading-edge’ chips. This stage comprises close to 400 different sub-stages and requires materials and gases from a variety of countries.
There are only three countries viz the US, Japan and Netherlands which manufacture the physical tools required by the fabs to make semiconductors. These tools are called semiconductor manufacturing equipment (SME). Contribution to the value chain from this stage is close to 40-50%. Finally, the ATP stage which is performed by the outsourced assembly and testing (OSAT) firms converts the fabricated chips into usable components for inserting into mobile phones, TV sets, computers, missile systems and other electronic devices. This contributes the remaining 10% to the value chain. As of date, this stage is dominated by China, Malaysia, Taiwan and South Korea.
There are a number of companies which prefer a ‘fabless’ model of production. They design customised circuits either for their own use or for their clients and outsource the fabrication or manufacture of the chips to the fabs or foundries. This is in contrast to an integrated device manufacturer (IDM) which does the design, fabrication and ATP itself. Intel is an IDM but due to the pressures of specialising in every step of the supply chain, has generally lagged behind TSMC in node size.
TSMC, on the other hand, is a pure-play foundry ie it does not design its own chip but only fabricates designs of other companies. The fabless-foundry model has enabled a lot of design startups to enter the semiconductor design space where they can design advanced chips for specific applications like AI, electro-optical detection etc known as application-specific ICs (ASICs) without the need for investing in fabrication.
Securitisation Of The Semiconductor Supply Chain
The concentration of specific parts of the semiconductor supply chain in different countries has led to concerns over probable disruptions in the future. The pandemic lockdown and the current Russia-Ukraine crisis have underlined the importance of semiconductors in the national security landscape. The pandemic led to a severe shortage in the automotive sector since carmakers have increasingly resorted to the use of sophisticated electronics in cars to provide mobility as a service (MaaS).
Additionally, the turn towards electric vehicles (EVs) also necessitates more automotive-specific ICs for use in powertrains, control systems and other requirements. Since limited foundries had to be contracted for competing requirements of smartphones, computers, chip design firms, carmakers, and cloud service providers such as Amazon and Microsoft, profits drove the supply of chips.
Automotive makers rely on comparatively legacy chips or chips with bigger node sizes. Due to the cyclical boom and bust nature of the chip market, they were edged out of the foundries’ priorities just before the lockdown. The cascading effect after the lockdown led to a severe shortage of chips for automotives that has only now begun to be eased. India’s fulfilment of its climate goals pivots on the increasing use of EVs in the future and the need for a stable supply of these chips becomes critical.
The criticality of Taiwan due to the presence of TSMC and China’s bellicose attitude towards reunification with the mainland has important implications for a number of countries. A recent joint report from Reuters and RUSI pointed out how a majority of chips used in Russian missiles and precision-guided rockets were sourced from US and European chipmakers. The report shows in detail specific chips like microcontrollers and signal processors made by American companies such as Texas Instruments, AMD, Altera and German Infineon AG in recovered parts of Russian missiles. In another report by Politico, Russian defence ministry officials are said to be looking for 25 specific kinds of chips such as field programmable gate arrays (FPGAs) in the open market. This showcases the very delicate nature of the semiconductor supply chain which is prone to disruption due either to unforeseen events such as pandemics or export controls by other countries.
America’s increasing strategic competition with China is also rooted in technological dominance over each other. The Third Offset strategy announced by the US Department of Defence has as its cornerstone autonomy and AI. This will depend on continued innovation and fabrication of indigenous chips on US soil and denying the same advantage to China. The US has already taken a number of steps in that direction. The Export Control Reform Act (ECRA) has been strengthened against China and a number of Chinese companies such as Huawei have been put on the Entity List of the Department of Commerce.
This is to prevent China from pilfering dual-use and foundational US technologies and actualise its Made in China 2025 (MIC 2025) program. The US President also signed the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act 2022 to incentivise domestic production of semiconductors, create a talent pool of scientific talent in the US, prevent the poaching of research and technology by China and increase the focus on research in basic sciences. For this ambitious initiative, a total of $280 billion have been set aside, with $53.4 billion to be given as subsidies to semiconductor firms. Interestingly, this subsidy is both for the US and foreign-headquartered companies and TSMC has been the first one to avail of this incentive. A 5nm plant is shortly planned to be set up in US’s Arizona state.
In India’s case, there are three major issues that define the need for semiconductors. These are using semiconductors as a stepping stone to produce value-added electronics and hence catalyse economic development; moving away from a fossil-fuel-dependent economy toward green energy and; using the strengths of the Indian industry to create offsetting advantages in defence to counter possible Chinese aggression in the future.
Semiconductor Self-Sufficiency To Catalyse Economic Development
India currently has one of the world’s biggest consumer electronics markets in the world. As per government data, out of an estimated $2.9 trillion in the global electronic devices market, India’s share is 3.6% and is estimated to grow at a compounded annual growth rate (CAGR) of 6.5% from 2022 to 2030. The government plans to increase the manufacturing and export of electronics to $300 billion by 2025-26 and create a digital economy worth $1 trillion by 2025.
Interestingly, the demand for semiconductors of all sorts is projected to increase at a CAGR of 22% from $15 billion in 2020-21 to around $110 billion by 2030. Producing semiconductors indigenously is a critical first step towards addressing the domestic demand and then exporting excess capacity abroad. The fragile nature of the supply chain reinforces the belief that India needs to attempt: specialisation in the first and third stages and provide incentives for starting production in the legacy category in the second stage.
The recent announcements by the government have been an excellent step in the direction where 50% financial incentives have been announced across all technology nodes and compound semiconductors, packaging, and other chip facilities. This can attract design startups that can utilise Indian intellectual capital to make customised chips, both within and outside the country. The issue of owning IPs still remains a major bottleneck to achieving total self-reliance in the design phase and the same may be addressed through consultations under the supply-chain resilience initiative in the Quad, leveraging the CHIPS for America International Technology Security and Innovation Funding of $500 million that the US has set out for its allies and partners.
India’s plans to achieve its climate goals, as laid out by the Hon’ble Prime Minister during his speech at the COP 26 Summit in November 2021 in the form of Panchamrit, are spearheaded by the Ministry of Road Transportation and Highways (MoRTH) with its focus on electric and hybrid vehicles (EVs), and lithium batteries. India’s aim to be carbon zero by 2070 will depend to a large extent on how early and effectively the country can leverage the expertise of its scientific community, solar and wind capacity and move to EVs. Additionally, the use of AI and unmanned systems in agriculture, forestry and other areas will also supplement these major initiatives. All this requires that India is assured of a stable, safe and resilient supply chain of indigenous semiconductors.
Finally, the pervasive adversarial challenge posed by China needs to be countered through a focus on technology, not only as supplementing conventional actions but also as part of mini-offsets to counter China’s superiority in numbers. Mini offsets can be thought of as part of a hybrid evolutionary-revolutionary strategy where India can use advantages in certain fields such as AI, chip design, unmanned systems and enterprise software solutions to counter China’s alleged strengths in the number of conventional platforms. While the US is pivoting its entire defence system to the Third Offset, India does not need to do so and in that respect, the system is evolutionary.
It does not intend to displace the existing structure in the beginning and introduces changes at a pace which is consistent with the pace of absorption. The Indian Armed Forces also need to descend to more granular levels when making their qualitative requirements and insist on indigenous processors and chips for their future systems. Chip design startups can also be handheld in the same manner as other startups and the criterion for entry into the Innovations for Defence Excellence (IDEX) can be expanded or clarified for including them.
Requirements of the defence industry in terms of sensors, actuators, electro-optical (EO) systems, discrete semiconductors, wireless communications, and memory chips require node sizes between 40 and 180 nm, while advanced capabilities such as 5G communication, big data analytics and use of AI applications require much more advanced chips. The chip design sector can benefit immensely by making ASICs for the military. However, in the former, the requirements of the military itself can jumpstart the chip fabrication industry and ensure a captive audience for the scaling effects to take root.
The role of semiconductors in India is a factor of three closely interlinked issues of economic development, national security and existential risks to the planet. These three issues overlap, and solutions in one case may also benefit other sectors. India’s economic development and overall security, internal and external are based on the continued availability of semiconductors. Self-reliance should not be mistaken for autarky and should be viewed from the perspective of a strong and developed India acting as a security provider, a market and a mature democracy. India should strengthen its self-reliance by indigenising the production of certain critical components and creating and maintaining a chain of partnerships and alliances that will weather various storms.
Lt Col. Akshat Upadhyay is a serving Indian Army officer, currently posted in MP-IDSA as Research Fellow-Strategic Technologies. The officer has authored ‘Coercive Diplomacy Against Pakistan’ and ‘Fighting Future Wars, Issue Brief’
