In view of the fact that almost all semiconductors, the foundation of routine electronics, in the world are made by Taiwan Semiconductor Manufacturing Co. (TSMC), the union government has initiated talks with the ‘renegade part’ of China (as Beijing views it) to get the know-how in India. Sources said the interlocutors are careful not to get sucked into the US-China trade war as it negotiates terms with the dominant Taiwanese company.
TSMC is the world’s largest contract chipmaker. Its customers include Qualcomm, Nvidia and Apple. It holds 56% of the foundry business of manufacturing chips.
In recent weeks, India and Taiwan have been working on a deal to bring chip manufacturing to South Asia.
According to an exclusive report by Bloomberg, this could bring chip manufacturing to south Asia along with tariff reductions on components for producing semiconductors by the end of the year.
The Bloomberg report said that officials in New Delhi and Taipei have met in recent weeks to discuss a deal that would bring a chip plant worth an estimated $7.5 billion to India to supply everything from 5G devices to electric cars
World leaders and executives at multinational corporations have been worried about the global scarcity of semiconductors, which has hit manufacturing and sales in numerous countries and no early solution is in sight.
The trade talks between India and Taiwan coincide with efforts of democracies around the world to boost economic and military links to stand up against an increasingly expansionist China.
TSMC has become indispensable to the US as much as to China, though. The company invests heavily in cutting-edge chip factories (known as fabs). It has also stopped cutting prices.
On the flip side, TSMC can charge between twice and three times as much per silicon wafer made using its most advanced processes, compared with what the next-most-advanced technology will fetch.
Over the past few years, TSMC has increased its R&D spending.
Current shortages of processors primarily reflect the strength of demand, but the concentration of their production in Taiwan heightens the threat of a shock to supply.
Semiconductors (chips) are neither conductors nor insulators. Usually made of silicon, they power a wide range of devices — cars, laptops, smartphones, household appliances and gaming consoles.
Semiconductors perform several functions such as powering displays and transferring data. A crunch in the supply of semiconductors has a consequent impact on sales of cars, fridges, laptops, television sets and other electronic devices.
Bloomberg says that manufacturing cannot be increased on short notice. Making chips is a complex process that takes months, the report explains.
The surge in sales for electronic devices during the pandemic created a huge demand for semiconductors. But Covid-19 is not the only factor behind the shortage.
The tense relationship between the United States and China is also a factor, since many US companies do business with Chinese companies. For instance, Huawei, which supplied to American chip makers, has been blacklisted by the US government.