Why India wants Samsung to build a semiconductor plant in Tamil Nadu

Chennai: Samsung Southwest Asia President Ken Kang shakes hands with Industries Secretary S. Krishnan after exchanging the MoU for setting up a new compressor plant in the presence of Tamil Nadu Chief Minister M.K. Stalin, in Chennai. Photo/ Courtesy

The  Indian government has requested Samsung Electronics to set up a semiconductor plant in the country to expand its semiconductor production. India has also announced that it will give subsidies to all the interested semiconductor giants willing to set up a semiconductor plant in the country.

The Chief Minister of Tamil Nadu requested Samsung while tossing the carrot of a $ 10 billion incentive.  India had prepared the stimulus package in 2021 to promote semiconductor production in the country and also curb the ongoing worldwide shortage. 

In the past decade and a half, India had tried  on several occasions, with no success, to attract chip manufacturers.

India’s Business Standard reported in February this year that the government had received suggestions worth $20.5 billion from five companies for setting up semiconductor and display fabrication units. 

Hence, the prevailing response indicates the companies’ confidence in the government’s ability to offer the right environment and incentives to build a semiconductor industry. 

The applications have been received for setting up 28 nm to 65 nm fabs with a projected investment of $13.6 billion. They have sought support from the Centre to the tune of $5.6 billion.

The  government of India is currently being seen as more welcoming of chip makers  than before, a thing that might propel the country to be one of the most important chip manufacturers. 

India is the second most populated country 1in the world, with a population of 1.3 billion, thus being one of the world’s largest consumers of Samsung Electronics products, among other things.

Meanwhile, semiconductor consumption in India is expected to grow from US$21 billion in 2019 to US$400 billion in 2025, according to the KOTRA Mumbai Trade Center and the India Electronics and Semiconductor Association (IESA).

Currently, India lacks semiconductor production capacities. The Indian semiconductor design market expanded from US$14.5 billion in 2015 to US$52.6 billion in 2020, but the nation does not have sufficient plants to produce chips.

Semiconductors, invented in the 19th century, possess distinct electrical properties. A material that conducts electricity is called a conductor, and a substance that does not conduct electricity is called an insulator. Semiconductors are substances with properties somewhere between them. 

ICs(integrated circuits) and electronic discrete elements such as diodes and transistors are made of semiconductors.

Common basic semiconductors are silicon and germanium. Silicon is the most common of these. Silicon forms most of ICs. 

Semiconductors became essential for many electronic appliances as well as for social infrastructure that supports our everyday life.

Semiconductors play an important role in equipment control in a variety of fields, such as operating air conditioners at a comfortable room temperature, enhancing automobile safety, laser medication in cutting-edge medical care and many more.

Moreover, the improvements in semiconductor technology have driven systems efficiency, miniaturization and energy savings, which in turn help to preserve the global environment in addition to achieving safe and comfortable life and creating a prosperous future.

In a computer network, a chipset is a set of electronic components in an integrated circuit that regulates the flow of data between the processor, memory and peripherals. It is usually found on the motherboard. Chipsets are usually designed to work with a certain group of microprocessors. 

Because they control transmission between the processor and exterior devices, the chipsets play a crucial role in determining system performance in equipment such as phones, computers and other tech systems.

As of  2020, the United States was the leading country in the semiconductor industry, with 47 per cent of the global semiconductor market.

South Korea, the home of Samsung Electronics company, was second in the world, with about 20 per cent of the world share. Companies from Japan and the European Union (EU) accounted for 10 per cent of the market.

Last year, income from the global semiconductor business amounted to $ 583, which was an increase from the previous year where total revenues reached $ 466.

Semiconductors are a significant element in modern electronics. They  make up a critical component of many commonly used electronic devices such as smartphones, tablets, and PCs, and nearly all modern devices that run the current world, directly and indirectly.

Like almost every other industry, the semiconductor enterprise was dealt some fatal blows by the coronavirus pandemic. 

The semiconductor industries from China and Taiwan,  which are also the  dominant chip-producing regions,  were forced to shut down when the pandemic first hit. Nonetheless, although production recovered and semiconductor revenue grew in 2020, surges in demand due to changing customer patterns, and the  challenges in chip capacity allocation, resulted in a global chip scarcity in 2021.

Since 2020, there has been a worldwide shortage of chips, a deficit that has hugely affected nearly 170 industries in the world. 

Due to the high demand of the scarce semiconductors, electronic appliances and even automobiles have gone up in prices.

The vehicle industry alone was projected to lose a tune of US$210 billion in revenue last year.

The global chips shortage is believed to be caused by a number of factors, including the coronavirus pandemic, the China-US trade war, drought in some parts of the world and the Russia-Ukraine war.

The aftershock waves of the Covid-19 gl[bal pandemic spread so  far and wide as to occasion the shortage. When the pandemic hit the world, a number of containment measures were put in place. For example, lockdowns and working from home phenomena led many people to buy computers to enable them run errands and activities remotely. The surge in the purchase of computers was so high that in the fourth quarter of 2020 alone, the sale of computers grew by 26 percent from the previous year. 

Besides, as a result of  lockdowns, chip production factories  were shut down, leading to the depletion of the stock that was in the market.

The China-US conflict took a turn that also impacted the production and sale of chips in the world, when the US put sanctions against Semiconductor Manufacturing International Corporation (SMIC), China’s largest manufacturer of the chips. The restriction made it hard, almost impossible for SMIC to sell semiconductors to all companies that have American ties.

The tensions between Russia and Ukraine, which have finally blown out to almost a full-fledged war between the countries, resulted in the deficit of raw materials for the production of the chips. For instance, neon is a main material in chip production, as it is essential for  the lasers in the production. Ukraine produces more than a half of the neon gas that’s available in the world. 

However, the war has made the gas supply so low and unpredictable that its price has increased six times! 

In a bid to get out of the current world status quo and shortage  , the chip makers are trying to get alternative suppliers of the gas, but that seemingly might take longer, if at all a new one will be found.

It is believed that any new supplier of the gas  would take at least nine months to increase production.

Meanwhile, it is worth noting that Samsung market share in India has been diminishing since 2020, from 24 per cent to 16 per cent in the last quarter of last year.

In the same period, India’s smartphone market revenue crossed $38 billion in 2021 with 27 per cent growth.

Xiaomi led the market with a 24 per cent shipment share.

Samsung Electronics has been operating in India since 1995. The Korean tech giant is producing home appliances in India, including QLED TVs, The Frame, and refrigerators. Nonetheless, there is no Samsung semiconductor plant in India yet.

Interestingly, Samsung has the world’s biggest mobile manufacturing plant in the Noida City of India, which is spread over a 35-acre piece of land. 

Semiconductor plants require many costly devices to function. It is estimated that the cost of constructing a new plant is well over $ 1 billion, with values as high as $3–4 billion being common.

Making chipsets is an electricity and water-intensive affair that comes with its own share of risky waste. The manufacturing process also involves toxic gases and chemicals that contribute to greenhouse gas emissions, this exacerbating the climate change phenomenon.

Greenpeace estimates that TSMC alone, which is the world’s largest chipset maker, uses 4.8% of Taiwan’s electricity yearly. This is expected to rise to 7.2% this year as production at new plants begins in TSMC’s home country.   

Last year, when Taiwan was struck by a drought , TSMC started ordering water from trucks to ensure no disruption to its manufacturing. This new crisis management procedure quickly escalated to high tensions between the company and farmers.

If the current wave of establishing semiconductor industries in India comes to pass, then the country stands to win greatly and position itself as significant chip manufacturer. However, India should plan to tackle the challenges that come with such factories, especially with regards to the natural ecosystem.

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