Organic demand in India for semiconductors … domestic manufacturing a necessity: Vice President & India MD, NXP Semiconductors

In an interview with Soumyarendra Barik and Pranav Mukul, Gupta — who heads the India operations of the three largest manufacturers of automotive semiconductors — also talked about the ongoing chip shortage and India’s production-linked incentive (PLI) scheme. Edited excerpts:

The automotive industry seems to be among the worst hit due to the semiconductor shortage. How do you see this situation evolving?

The supply chain issue is ongoing for almost two years now. If we recap the reasons of why it happened — there is a limited number of companies around the world. Taiwan hosts some of these companies, and there is an uneven dependence on Taiwan for semiconductors.

In the first phase of the pandemic, many of these sectors didn’t know how things would pan out. They thought demand is going to come down. Just like we reserve railway tickets in advance and there is wait list, one has to book slots to have chips manufactured in advance. If you don’t, you lose your slot.

A lot of automotive companies cancelled their slots with the assumption that they will not be requiring it. This was because having the slots would mean you pay for some of the expenses. Running a fab (fabrication unit) takes millions of dollars a day. Automotive companies thought that supply will not be required in the first couple of quarters of 2020, and they released those slots. But there was another phenomenon that was happening — work from home, study from home, gym from home, basically everything from home. Nobody had predicted this phenomenon.

Digitisation that was expected to happen in a 5-10 year timeframe, happened in literally one quarter. This meant that sale of laptops, speakers, mobile phones, headphones increased dramatically and that resulted in the slots emptied by automotive or industrial companies being occupied by consumer companies. Once you occupy a seat, you don’t want to leave it.

Automotive companies barely got their slots back and whatever they could get back, they got it at a higher price. We believe the unprecedented disruption in semiconductors that happened over the last few years is yet to get to a steady state. Our projection is that things should stabilise by the year’s end or beginning of next year.

When India announced the PLI scheme for semiconductors, a lot of big companies had shown interest, but the marquee names were missing when the applications came in. Is there an inherent issue with the scheme itself?

My view is that Rome was not built in one day. If semiconductor manufacturing was easy, I’m sure the nations who were able to build a nuclear bomb would have done it. But even they could not achieve the overall complexity of the industry.

India has a very strong chance because firstly, we have an organic requirement for semiconductors. We are consuming huge amount of semiconductor products. Secondly, there is a political will, which has never been the case before, in my observation. Thirdly, the subsidies that the government is planning to give through the PLI scheme as well as the design-linked incentive (DLI) scheme is a huge commitment. Why it is unprecedented is because earlier schemes used to be on tool cost and this time it is on project cost, which includes everything.

But the reality is that if you think from a big-picture point of view — the US President launched a similar scheme. They did not believe in subsidies and all but were forced because of the risk of dependence of the world on one country close to China. The European Union is doing something similar.

Everyone is trying to be independent. So there is going to be healthy competition between the US, Europe and Asia. For India, it (having domestic semiconductor manufacturing) is a necessity. It’s not optional.

Recently, a number of big names, including Intel and TSMC, have announced capacity addition primarily to deal with semiconductor shortage. But given that the demand for consumer electronics is now tapering, could we be headed into a semiconductor glut situation?

The way use of semiconductors is exponentially growing in our lives — if you think about it — a typical household has so many semiconductor nodes.

In 1980s, it was zero, in 1990s it was zero. Suddenly in 2000s, one device was there, the DSL modem; in 2010s, there were four devices with the mobile phone; and in the 2020s, people are already talking about smart refrigerators, smart ACs. One person has multiple devices. So per household, there are more than 20-25 devices that are connected. This exponential growth from one to 25 in 20 years multiplied by the world’s population growth means we are not slowing anytime soon. The number of connected devices is anywhere between 100-150 billion in the next few years. 5G will further increase this because many more things will be possible.

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We’re all on steroids as far as semiconductor consumption is concerned and memory companies don’t know, server companies don’t know, or even storage companies don’t know where we’re headed. I don’t believe semiconductor fabs will be sitting idle. There will always be the case where they are not 100 per cent utilised. There are entire countries that haven’t gotten a taste of semiconductors yet.

In India, the percentage of air-conditioner usage is in single digits. Each AC uses 8-9 semiconductor chips. So, it is only going to grow from here and going ahead, a lot of small and big companies are going to get access to fab, which seems like an impossible task right now.

The current scenario is that if you are a start-up, you will not even get an appointment to speak with someone at a TSMC, but in 2040, the world will evolve and maybe it will be possible to order fab manufacturing on an Amazon. This will happen as the number of suppliers increases over time.