The Chip Wars

The Chip Wars

Controlling chip manufacturing today is like controlling oil production in the previous century. The country that controls a majority of chip production can, at will, throttle or bring down the growth of economic and military expansion of other countries. There are two types of chip manufacturers. Some like Intel or Samsung design their own chips, and others like Apple or other defense organisations design them but they are manufactured by foundries–such as the Taiwan Semiconductor Manufacturing Company (TSMC), which is the largest in the world.

Samsung and TSMC together account for over 70% of the world’s semiconductor development. Due to the sudden surge in demand for semiconductor chips from the automobile industry, the companies have struggled to keep pace with demand. Setting up a semiconductor foundry requires a huge investment of over $10-$12 billion and a steep learning curve. The shortage has also led to a cold war where each country wants to gain hold of chip supply in the interest of their economic progress.

The chip war today has escalated to an extent that the U.S. has prohibited any company that uses American technology from working with Huawei. This prohibits TSMC from developing chips for Huawei, thus virtually putting a stop to a large portion of its production and in turn creating huge problems for the company. This has led to a serious escalation of tensions between China and America.

Automobile companies are facing an acute shortage of chips that may lead to an expected loss of $60 billion in revenue in 2021 alone. With just two companies making a majority of the world’s semiconductors, it is time that India takes serious steps in semiconductor manufacturing. Almost every product developed today requires semiconductor chips and being dependent externally can lead to catastrophic results in the advent of war. QUAD (Japan, U.S., Australia, and India) has directed its focus on semiconductor manufacturing to break the TSMC monopoly.

The power of QUAD comes from the respective strength of the four countries in design, materials, human resources and minerals. The U.S. houses the largest number of chip design companies, with over 47% of all chips being designed by US firms. Japan has a stronghold on semiconductor materials such as chemicals, and India is relatively strong in trained human capital required for chip manufacturing. Australia, on the other hand, is rich in minerals essential for chip manufacturing. Together, QUAD aims to dethrone China or the Chinese stronghold in chip manufacturing and create its own chip manufacturing facility. Hopefully, in the near future, that aim is to make India self-sufficient in semiconductor manufacturing and limit the country’s exposure for chips from external sources.

Chinmaya Udghosh