The first ‘fab’ step forward

India’s first chip fabrication plant marks a pivotal step towards self-reliance in electronics. Here is how it will impact the communication sector.

On 29th February, the Union Cabinet approved the proposal for India’s first commercial semiconductor chip fabrication plant. Under this proposal, Tata Electronics Private Limited (TEPL), a Tata Group firm, is partnering with Taiwan-headquartered Powerchip Semiconductor Manufacturing Company (PSMC) to establish a chipmaking facility, commonly known as a fab, in Dholera, Gujarat.

The decision to establish this chipmaking plant has set in motion India’s first commercial chip development plan, expected to start delivering the first chips approximately three years from now. In light of this, Voice&Data delves deeper into the potential impact of this chip fab on the overall networking and IT hardware industry, which in turn powers India’s communications operations.

The joint venture plant by TEPL and PSMC will manufacture three billion chips annually across four nodes or sizes—28nm, 50nm, 55nm, and 90nm.

Why a chip fab is important

A chip fab is crucial as it takes semiconductor wafers and transforms them into chipsets and processors. These chips are typically categorised into various ‘nodes’, which denote the size of a single semiconductor chip. Smaller chips often indicate more advanced technology—modern smartphones, for example, utilise chips as tiny as 3nm (nanometers).

Upon completion, the joint venture plant by TEPL and PSMC will manufacture three billion chips annually across four nodes or sizes—28nm, 50nm, 55nm, and 90nm. Although none of these nodes are new per se—for instance, commercialisation of the 90nm chip node happened over two decades ago in 2003—yet, each of these nodes is still of immense strategic importance.

Of particular interest is the 28nm node. A November 2020 note to investors by UK-based analyst and consultant, Omdia, emphasised that 28nm chips are utilised in various applications such as OLED displays for TVs and phones, connected home appliances, the Internet of Things (IoT) devices like smart bulbs and plugs, Wi-Fi routers, modems, and extenders, as well as navigation devices such as GPS units in cars, and more.

The 28nm node, along with others such as 55nm, holds significant strategic importance due to its ability to strike the right balance between technological sophistication and production cost. Even as more cutting-edge devices transition away from the 28nm chip node, it is unlikely to disappear completely from demand. Its importance can be judged by the fact that as recently as 2021, the market-controlling Taiwan Semiconductor Manufacturing Company (TSMC) set up new plants to cater to the demand for 28nm chips.

For India, having its chip fab capable of producing such nodes is a much-needed transition. It paves the way for increased domestic value addition in appliances once the fab becomes operational.

What does this mean for networking hardware?

Today, domestic value addition is crucial in electronics manufacturing due to two primary reasons: geopolitical significance and control over the overall value chain. Specifically, in hardware such as Wi-Fi modems and routers, geopolitical concerns have gained prominence over the past seven years, particularly regarding cybersecurity. There is a growing apprehension about the world’s dependency on China for such devices, highlighting the need for diversification and greater domestic control over the production of networking hardware.

Consequently, the United States of America became the first nation to officially take action against China by banning the use of their networking hardware in state affairs. Subsequently, they recommended against their usage in networking infrastructure. This move, which led to sanctions against the Chinese electronics conglomerate Huawei and the latter’s subsequent downfall, was closely followed by similar measures in India and the European Union.

Presently, India can manufacture exterior casing for Wi-Fi router hardware, and other parts of the networking component supply chain are also localised. However, semiconductor chips account for 40% or more in terms of the value of the component supply chain. The ability to localise this aspect will not only bring in greater revenue but also help the government increase domestic tax collection.

More importantly, this will reduce India’s reliance on other nations for sourcing chips amid geopolitical conflicts. As seen in the past decade, the US sanctions on licenses for chip supply to China had a cascading effect on the nation’s biggest tech brand, Huawei, which has seen its market capitalisation plummet since its peak in 2016-17.

The 28nm chips are utilised in various applications such as OLED displays for TVs and phones, connected home appliances, and Industry of Things (IoT) devices.

In networking hardware, this means that once the fabs become operational, India will be able to source chips locally, reducing its dependence on imports that are often restricted by geopolitical conflicts. This is crucial to ensure that the country’s communications infrastructure is not curtailed by the influence of any other nation.

The extent of chipmaking in India

While India has taken the vital first step, the country is still some years away at the very least from achieving self-reliance in the space. The TEPL-PSMC fab is likely to see groundbreaking work commence in the coming weeks, following Prime Minister Narendra Modi’s mandate at February’s Cabinet meeting that all manufacturing work on new chip facilities must begin within the next 100 days.

Once the fabs are operational, India will be able to source chips locally, reducing its dependence on imports that are often restricted by geopolitical conflicts.

Following the announcement, Union IT Minister Ashwini Vaishnaw stated at a press briefing that the Centre hopes the manufacturing of the chip fab will be completed within the next two-and-a-half to three years, instead of the usual timespan of over four years required for a chip fab to be built. Even if this accelerated timeline is met, the first chips are unlikely to reach commercial companies through the supply chain before the end of 2027. Further time could also be required for the facility to scale up its manufacturing capacity to the proposed volume of three billion chips per year.

What remains to be seen is how demand for the chip nodes to be produced in this fab will persist in 2027 and beyond. Given that TSMC, the world’s largest chip manufacturer, has invested in building four full-capacity giga fabs to ramp up 28nm chip manufacturing, it is unlikely that demand will abruptly taper off. However, India’s contribution to local chip demand will still take some time to materialise.

 By Vernika Awal

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