Quest for semiconductors: From Intel to India’s Vedanta

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An unforeseen pandemic, unabating geopolitics and tense trade war. These are the factors that have proved more than enough to disrupt the entire demand and supply chain of semiconductors in the past two years. The extent of this disruption and its impact on industries, particularly on the manufacturing and electronics sectors remains visible in global markets. But this critical imbalance in the supply and demand of semiconductors has also ignited a new quest for semiconductors among large companies globally.

The move largely is aimed at building an alternative supply chain through localized manufacturing in different countries and regions. However, given the complexity of this modern-day crisis with the rapidly changing technology landscape and growing demands of silicon chips, industry experts say “it may take more than two years to ease out.”

Quest for semiconductors
From US-based Intel to India’s Vedanta Resources to Taiwan’s Foxconn — all these companies are heavily investing and forming new partnerships in the field of silicon and chip manufacturing. The aim of these companies is not only to build and strengthen their supply chain of semiconductors for future needs but also to address the current short supply globally.

For instance, semiconductor and tech giant Intel has announced a definitive agreement to acquire Israel based silicon chipmaker Tower Semiconductor for $5.4 billion this week. With this acquisition, Intel will further push its ambitious plan to become a major provider of foundry services in the world.

Before Tower Semiconductor’s purchase, Intel was in talks to acquire GlobalFounderies – a spinoff of tech giant AMD. But Intel failed to clinch a deal with GlobalFounderies and the company filed an IPO and got listed on the NASDAQ.

Intel’s new CEO Pat Gelsinger had announced the IDM 2.0 strategy in March last year. The Integrated Device Manufacturing (IDM) 2.0 strategy mainly focuses on three areas – large-scale manufacturing internally, expanding third-party foundry capacity and building the company’s foundry services.

Tower Semiconductor’s acquisition to an extent will be more than handy in the execution of Intel‘s new strategy.

“This deal will enable Intel to offer a compelling breadth of leading-edge nodes and differentiated speciality technologies on mature nodes – unlocking new opportunities for existing and future customers in an era of unprecedented demand for semiconductors,” said CEO Gelsinger.

In terms of investment in semiconductor chip manufacturing, last year Intel committed $20 billion to build two factories in Arizona and this year it has revealed plans to build a large scale semiconductor facility in Ohio. Intel expects the production to start in 2025.

This indicates how much Intel is focusing on expanding and strengthening the supply chain of semiconductors and its manufacturing facilities in the US.

However, with Intel becoming Tower Semiconductor’s parent company, the Israeli chipmaker has re-tabled its plan to set up a manufacturing facility in India reported The Business Standard newspaper.

Tower Semiconductor is in talks with the Modi government for the proposed $3 billion semiconductor manufacturing facility in Gujarat’s Dholera Special Investment Region, the report quoted a source saying.

The Israeli company had threatened to scrap its proposed plan over some policy issues with the government authorities last September. But after the Modi government announced the production-linked incentive (PLI) scheme in mid-December 2021, the report said that Tower Semiconductor has re-tabled its plan for a manufacturing facility in India to the government.

Quest for semiconductors continues
Interestingly, the quest for semiconductors has brought Taiwan’s Hon Hai Technology Group also known as Foxconn to Indian shores.

Indian conglomerate Vedanta Group and Foxconn early this week signed a memorandum of understanding (MoU) to form a joint venture (JV) company. This JV company will manufacture semiconductors in India.

Vedanta will be a majority stakeholder in the JV company, while Fox would hold 40% shares in the venture with an investment of $118.7 million. This joint venture, according to Foxconn will give a significant boost to domestic manufacturing of electronics in India.

The joint venture between Vedanta and Foxconn is the first business initiative since the Indian government announced its new policy for electronics manufacturing with the PLI scheme.

Policies, incentives and the real impact
Probably, the Indian government’s policy shift is similar to the US President Biden’s call for $50 billion in funding for semiconductor manufacturing incentives and research investments in the country in early 2021 as part of the CHIPS for America Act.

Several global tech companies including Microsoft, Apple, Google, Amazon and others have come together to promote semiconductor manufacturing in the US with the formation of the Semiconductors in America Coalition (SIAC).

Overall these measures will lead to localise chip manufacturing in India, the US and other countries.

But all such efforts and initiatives backed by government schemes whether it is in the US, India or elsewhere would take around two years to become operational. “Adding new capacity began in 2021 but won’t be operational until 2023 at the earliest,” Deloitte noted in its 2022 Semiconductor Industry Outlook.

That means that the supply of semiconductor chips is unlikely to ease out in the near term. And it will impact production across major industries from automotive to computers and consumer electronics to medical devices and more as they would not be able to meet the demands in the markets globally.

Quest for semiconductors and industry stats
The top semiconductor issue of 2021 was the imbalance between supply and demand, as per Deloitte’s outlook. This imbalance led to chip shortages that affected both traditional chip end markets, such as data centres and smartphones, and traditionally less dependent markets, such as automotive, consumer goods, and washing machines.

In 2022, the global semiconductor chip industry is expected to reach US$600 billion, as per Deloitte’s outlook. It revealed the chip shortage of the past two years resulted in revenue misses of more than US$500 billion worldwide between the semiconductor and its customer industries, with lost auto sales of more than US$210 billion in 2021 alone.

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