The Tata Groups’ reported plans to set up a USD 300-million semiconductor manufacturing facility on a wartime basis is likely to face some headwinds given the absence of raw materials in the country and its scarce availability outside due to the ongoing shortage globally since the pandemic, says a report.
The pandemic and its after effects on increased demand for data and consumer electronics have left semiconductor makers unable to keep up with supplies. Adding to the pains are the extreme weather and natural disasters in many producing countries such as the Taiwanese drought; hurricanes, extreme cold weather and flooding in the US; and a major fire at the Renesa’s plant in Japan, which have all put further pressure on supply chains, according to a note by Fitch Solutions, an affiliate of Fitch Ratings.
The Tata Group is reportedly in discussions with several states to identify the land to build a USD 300 million chip making unit. According to reports, the country’s largest conglomerate is planning to run the group as an outsourced semiconductor assembly and testing facility. So far, Tamil Nadu, Karnataka and Telangana have been identified as possible locations for the plant and the Tatas aim to finalise the location this month itself and have it up and running by late 2022.
The facility will assemble and test semiconductor chips after sourcing the sophisticated silicon wafers from semiconductor foundries like Taiwan-based TSMC, Fitch Solutions said quoting media reports. The Tata plant will rely on wafer production from offshore chip foundries, which are already struggling under intense demand. Tatas will, therefore, be vulnerable to further disruptions to silicon wafer manufacturing, the report said.
Noting that the country presents a favourable environment for manufacturers of electronic components given the incentive schemes to promote local manufacturing, and the Tata’s announcement is timely and opportunistic, coming at a time of global chip shortages, the report however warned that “reliance on silicon wafers made by offshore foundries, growing geopolitical tensions in the region and the emergence of new Covid variants all pose considerable downside risks to Tata’s plans.”
The report also said new Covid-19 variants will continue to accentuate the semiconductor shortage as the emergence of the Delta variant already saw Asia once again become the epicentre of the pandemic in the first half, particularly as the region is characterised by relatively low levels of vaccination. As a result, these analysts do not expect chip shortage to ease until mid-2022 and supply issues to some continue into 2023 to some extent.
The semiconductors making is primarily an Asian forte with two Taiwan companies meeting 65 per cent of global supplies in H1 of 2021 (Taiwan Semiconductor Manufacturing Company or TSMC 58 per cent and United Microelectronics Corporation 7 per cent); Korean major Samsung’s meeting 14 per cent; and two Chinese firms meeting 11 per cent (Semiconductor Manufacturing International Corporation’s 6 per cent and Semiconductor Manufacturing International Corporation’s 5 per cent — any disruptions to Asian supply chains are of great global significance.
“Continued border closures and localised lockdowns following the emergence of new variants will continue to place pressure on semiconductor supplies and strengthen the risk of shortages continuing well into 2023, adding downside risk to Tata’s investment,” the report warned, adding too such reliance on outsourced silicon wafers from companies like TSMC, the Tatas will still be vulnerable to supply chain disruptions stemming from geopolitical tensions between Taiwan and China.
A further downside risk is Tata’s inexperience in making semiconductors. The report sees the domestic consumer electronics market to grow from USD 66.7 billion in 2020 to USD 105.1 billion in 2025, indicating the large prospective market for chip makers. But Tata’s investment, the country’s position in the global semiconductor market will remain very limited, even over the long-term and the full reliance on chip imports is unlikely to see significant change any time soon.