Legacy chips: Through innovation, global collaborations India can counter China’s dominance – ET Government

Blog 4 min read Legacy chips: Through innovation, global collaborations India can counter China’s dominance While China, as per reports, is actively considering more than one trillion-yuan ($143 billion) support package for its semiconductor industry, as one of the largest fiscal incentives in the past five years, it focusses largely on the legacy chip segment. The plan also includes preferential tax policies as well as R&D in tune with Xi Jinping’s call “to win the tech race.” The decreasing nanometre paradigm may be akin to “The race to the swift,” as Simpkin puts it, but the mainstream legacy chips, also referred to as ‘Foundational Chips’ in terms of transistors etched on them will be the mainstay of many industries. These include consumer products, select military hardware, heavy machinery and automobile applications. It is also pertinent to acknowledge that post covid, the much-debated chip shortage was a function of inadequate availability of these legacy chips. While the interpretation of legacy chips transgresses various dimensions, the US CHIPS and Science Act of 2022 defines these ever-evolving devices at 28 nanometre technology, or larger. These legacy chips have a central role to play in manufacturing economies with myriad utilisation in consumer and industrial applications as well as being the bedrock of innovations. While the advanced chips are undoubtedly the prima donna of all cutting-edge technologies, these legacy chips are often viewed with a troika consisting of conflicting demand, public investment and manufacturing capacities which is apparently making their production spiralling into a lower scale, worldwide. While there is an embargo on advanced chip technologies to China from the west, there is a huge impetus in terms of state backed investment in respect of these legacy chips in China. This could be the old playbook leading to overproduction of legacy chips by China in the next four or five years, price advantage accrued due to the sheer volumes of scale and elbowing out of established entities from various market segments thereby affecting their revenues. It is a known business and geopolitical construct that flagging revenues cause dislocation and relocation of well-established technology behemoths, geographically. China has demonstrated this ability in the past and the electric vehicles market is an example of this influence and scale. While China, as per reports, is actively considering more than one trillion-yuan ($143 billion) support package for its semiconductor industry, as one of the largest fiscal incentives in the past five years, it focusses largely on the legacy chip segment. The plan also includes preferential tax policies as well as R&D in tune with Xi Jinping’s call “to win the tech race” in October 2022. While there may be tighter export controls in the offing for the west, some markets and geographies which are devoid of any home-grown semiconductor companies are likely to be more affected by this intended overproduction of legacy chips by China to cater for their demand and associated ease of imports. This is an important facet to be considered in the overall mosaic of technology, policy and geopolitics. While there is an argument of executing a series of stringent export controls and anti-dumping duties which can be levied in this context, the diversified supply chains need to be looked at with a focus on alternate suppliers and logistics. The commissioning of the Kumamoto plant in Japan by TSMC last month perhaps envisions this understanding. Unrestricted volumes and competitiveness, if unleashed by China in the future, needs to be viewed under the prism of corresponding security aspects by the designated agencies as well. Indian policies are most enabling and with the recent announcements of Micron in June 2023, the establishment of a fabrication facility at Dholera in Gujarat and two ATMP facilities at Sanand in Gujarat and Morigaon in Assam, which have been announced on 29 Feb 24, post approval by the cabinet. There are various other proposals in the pipeline and a lot is being done by the government of India. The scale and timing, however, needs careful monitoring as well as dynamic policy changes, keeping the anticipated Chinese footprint in legacy chips production for the future. While it seems that the timing of Indian production and increased production of legacy chips by China may just about converge, the same needs to be studied and factored in by the industry as well as in the future policies. An increased push for production of various speciality and bulk semiconductor grade chemicals by the Indian chemical industry, impetus on storage, distribution and warehousing facilities and indigenisation of a major part of supply chain dynamics will be a game changer in the next few years. Reinforcing innovation and mutually benefitting international collaborations will also be the cornerstones for ensuring an equitable semiconductor landscape in this part of the world, futuristically.

It is also pertinent to acknowledge that post covid, the much-debated chip shortage was a function of inadequate availability of these legacy chips. While the interpretation of legacy chips transgresses various dimensions, the US CHIPS and Science Act of 2022 defines these ever-evolving devices at 28 nanometre technology, or larger. These legacy chips have a central role to play in manufacturing economies with myriad utilisation in consumer and industrial applications as well as being the bedrock of innovations. While the advanced chips are undoubtedly the prima donna of all cutting-edge technologies, these legacy chips are often viewed with a troika consisting of conflicting demand, public investment and manufacturing capacities which is apparently making their production spiralling into a lower scale, worldwide. While there is an embargo on advanced chip technologies to China from the west, there is a huge impetus in terms of state backed investment in respect of these legacy chips in China. This could be the old playbook leading to overproduction of legacy chips by China in the next four or five years, price advantage accrued due to the sheer volumes of scale and elbowing out of established entities from various market segments thereby affecting their revenues. It is a known business and geopolitical construct that flagging revenues cause dislocation and relocation of well-established technology behemoths, geographically. China has demonstrated this ability in the past and the electric vehicles market is an example of this influence and scale. While China, as per reports, is actively considering more than one trillion-yuan ($143 billion) support package for its semiconductor industry, as one of the largest fiscal incentives in the past five years, it focusses largely on the legacy chip segment. The plan also includes preferential tax policies as well as R&D in tune with Xi Jinping’s call “to win the tech race” in October 2022. While there may be tighter export controls in the offing for the west, some markets and geographies which are devoid of any home-grown semiconductor companies are likely to be more affected by this intended overproduction of legacy chips by China to cater for their demand and associated ease of imports. This is an important facet to be considered in the overall mosaic of technology, policy and geopolitics. While there is an argument of executing a series of stringent export controls and anti-dumping duties which can be levied in this context, the diversified supply chains need to be looked at with a focus on alternate suppliers and logistics. The commissioning of the Kumamoto plant in Japan by TSMC last month perhaps envisions this understanding. Unrestricted volumes and competitiveness, if unleashed by China in the future, needs to be viewed under the prism of corresponding security aspects by the designated agencies as well. Indian policies are most enabling and with the recent announcements of Micron in June 2023, the establishment of a fabrication facility at Dholera in Gujarat and two ATMP facilities at Sanand in Gujarat and Morigaon in Assam, which have been announced on 29 Feb 24, post approval by the cabinet. There are various other proposals in the pipeline and a lot is being done by the government of India. The scale and timing, however, needs careful monitoring as well as dynamic policy changes, keeping the anticipated Chinese footprint in legacy chips production for the future. While it seems that the timing of Indian production and increased production of legacy chips by China may just about converge, the same needs to be studied and factored in by the industry as well as in the future policies. An increased push for production of various speciality and bulk semiconductor grade chemicals by the Indian chemical industry, impetus on storage, distribution and warehousing facilities and indigenisation of a major part of supply chain dynamics will be a game changer in the next few years. Reinforcing innovation and mutually benefitting international collaborations will also be the cornerstones for ensuring an equitable semiconductor landscape in this part of the world, futuristically. (The author is Vice President IESA; Views are personal)