Is Nvidia enough to restore India’s lost chip-making success?

Now, AI king Nvidia wants to capitalize on India’s growth story - no surprise there, because who wouldn’t?

The world’s second-largest firm wants to collaborate with India to make semiconductor chips on Indian soil. Starting with building AI infrastructure with Reliance Industries.?

It all happened in this week’s AI summit held in India when Nvidia’s CEO Jensen Huang also forged new partnerships with Infosys, Tech Mahindra, and Flipkart.?

"This is India’s moment, you have to seize the opportunity," Huang had said earlier this year. "I am looking forward to partnering with India in a very deep way to make that possible."

Why the India focus?

Well, India has long focused on being Atmanirbhar and promoting 'Make in India,' and becoming a semiconductor powerhouse is part of that list.

The government already started this work in December 2021 with its Rs 76,000 crore incentive fund under the India Semiconductor Mission. In under 36 months, they've approved 5 semiconductor projects set to roll out between 2025 and 2027.?

After Micron Technology got the go-ahead for a $2.75 billion assembly unit on Indian soil, big names like Tata Electronics, and Kaynes Semicon have also jumped into the game with their own manufacturing plans.

But, why do these chips matter so much to the world?

Since the global chip shortage in 2021 (blame the pandemic) which led to our cars, electronics, and smartphone prices reaching next-level highs, the world realized we need these chips more than we think.?

See, semiconductors are the brains behind almost all electronics. They handle data, power screens, and manage battery life - without them, our devices just would not work. These tiny chips are everywhere now, in everything from fridges to cars, airplanes, smartphones and even missiles.

Any device with an on/off switch has hundreds of chips inside to make it work. They power our communications, factories, businesses, banks -?all of it relying on them.

Without these chips, our world might still look a lot like it did during the late '50s when there was no digital tech, connectivity, or modern innovation.

Even though semiconductors make up a small part of global GDP, they are an essential ingredient to products and services worth billions of dollars. Demand for these chips is really high right now, so much so that the industry is projected to become a trillion-dollar one by 2030.

They’re crucial for both devices and data centers. How?

#DidYouKnow that semiconductors make up about 54% of the $527 cost to build an iPhone 14 Plus, and that’s the biggest expense in the phone? (According to TechInsights). A car also contains thousands of chips and the average cost of these chips is rising year after year.

The basics of economics teach us that when the raw material for a product is in short supply, your cost of buying that product also rises significantly. Therefore, the world had to ensure that enough chips were produced to meet the demand.

But, the chip crisis also highlighted global dependence on just a few key players - especially Taiwan Semiconductor Manufacturing Company (TSMC), which produces 90% of the world's advanced chips.

So, to cut that dependency, governments started putting big bucks into building up local chip industries.?

The US passed the Chips Act, promising $52 billion to ramp up local chip production. EU too, with a €43 billion plan, while the UK committed ￡1 billion to the sector.?

So, isn’t India late to the party?

To answer that you should know that India's semiconductor journey isn’t new. It kicked off in 1950 with the founding of Bharat Electronics Limited in 1954 and Semiconductor Complex Limited (SCL) in 1976.?

Back in the early '80s, India’s own SCL had a shot at leading the semiconductor wave, since the rest of the world wasn't too far ahead.?

But everything changed in 1989 when a mysterious fire at SCL in Mohali caused huge losses. It took eight years for SCL to get back on track, but new entrants such as TSMC and Samsung had raced ahead by then.

Call it the lost progress.

Taiwan now dominates by manufacturing 90% of these chips, followed by South Korea, which produces 8%. Thus, for India to catch up and find its place while regaining its lost ground is going to be a lot of work.

The Fabrication unit (commonly called fab) is where the modern-day magic happens, turning silicon into integrated circuits such as chips for semiconductor devices.

India needs at least 10 more semiconductor chip fabrication companies to set up shop in India in the next decade - that’s the words of Ajit Manocha, president of the global semiconductor industry body SEMI. So, looks like we still have a long way to go.

Coming back to Nvidia’s interest in India - it isn’t just the growth story, there’s another factor at play.

A few years ago, the US decided to hit China’s chip industry by banning exports of important chip-making machines - citing national security reasons. After this, Nvidia also started to feel the squeeze from Washington's restrictions on its China business and since exploring opportunities elsewhere.

While Nvidia has been thriving as a leader in chips and AI, remember that it is primarily a design firm and does not manufacture chips on its own. The tech firm relies on the crown player TSMC for it.

As for TSMC and Intel, both being big in the chip-making business, they haven’t shown much interest in setting up shops here yet. Without their support, it may be challenging to become a leading semiconductor superpower.?

But perhaps the new collaborations could pave the way for India in the future and somewhere help establish its place in the supply chain.