India reportedly in talks with Taiwan to establish $7.5 billion semiconductor plant amid chip shortage

In order to address the global semiconductor chip shortage issue, India is in talks with Taiwan. 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 secure supply of semiconductors for 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.

What caused the semiconductor shortage?

Semiconductors, or chips, have properties that are somewhere between conductors and insulators. Usually made of silicon, they are used to power a wide range of devices - cars, laptops, smartphones, household appliances and gaming consoles. These tiny objects perform a host of functions such as powering displays and transferring data. So, a supply crunch has a consequent impact on sales of cars, fridges, laptops, TVs and other electronic devices. Manufacturing cannot be increased on short notice. As a Bloomberg report points out, making chips is a complex process that takes months. Taiwan Semiconductor Manufacturing Corporation (TSMC) is the world’s largest contract chipmaker, whose customers include Qualcomm, Nvidia and Apple. It holds 56 percent of the foundry business of manufacturing chips. 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.

What are the possible fallouts?

Since production cannot be pushed at short notice, it takes chip manufacturers a long time to catch up with demand. A report published by Gartner in May estimates that the chip shortage across categories of devices could continue well into the second quarter of 2022. “The semiconductor shortage will severely disrupt the supply chain and will constrain the production of many electronic equipment types in 2021. Foundries are increasing wafer prices, and in turn, chip companies are increasing device prices," said Kanishka Chauhan, principal research analyst at Gartner. One report by Bloomberg points out that chip lead times, or the period between ordering semiconductors and delivery, rose to a record 21 weeks in August, from six weeks in July. According to data from Society of Indian Automobile Manufacturers (SIAM), automobile wholesales in India declined 11 percent year-on-year in August. Maruti Suzuki, India’s largest carmaker, will see a 60 percent cut in production in September due to shortage in supply of semiconductors. Mahindra and Mahindra M&M said it would cut output by 20-25 percent in September due to the semiconductor shortage. The automaker will observe seven “no production days" at its automotive plants during the month. There is a strong likelihood that the semiconductor shortage will impact sales during the upcoming festive season in India.

What about laptops, smartphones, etc.?

Production of electronic devices has also been impacted by the shortage of semiconductors. During a post-earnings call with analysts, Apple CEO Tim Cook had said that “supply constraints will hurt sales of iPads and iPhones. Cook said the shortage is not in high-powered processors, but “legacy nodes,” or chips that perform functions like driving displays or decoding audio, which can be manufactured using older equipment. South Korea’s largest conglomerate Samsung Group had in August said it would invest 240 trillion won ($206 billion) in the next three years to expand its footprint in biopharmaceuticals, artificial intelligence, semiconductors and robotics. Many tech companies have begun developing their own chips, a move that will not only alleviate the current supply concerns but will likely help the industry in the long-run.