Plans announced by the Tata Group to set up a $ 300 million semiconductor manufacturing plant on war footing are likely to face headwinds given the lack of raw materials in the country and its limited availability outside due to the current global shortage, according to a report.
The pandemic and its after-effects on increased demand for data and consumer electronics have kept semiconductor manufacturers from keeping pace. In addition to suffering, there are extreme weather conditions and natural disasters in many producing countries, such as the drought in Taiwan; hurricanes, extreme cold and flooding in the United States; and a major fire at the Renesa plant in Japan, all of which put additional strain on supply chains, according to a memo from Fitch Solutions, a subsidiary of Fitch Ratings.
The Tata group is said to be in talks with several states to identify the land to build the chip manufacturing unit. The country’s largest conglomerate is reportedly 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 finalize the location this month and put it into operation by the end of 2022. .
The facility will assemble and test the semiconductor chips after purchasing the sophisticated silicon wafers from semiconductor foundries such as Taiwan-based TSMC, Fitch Solutions said citing news reports. The Tata plant will rely on wafer production from offshore chip foundries, which are already struggling with intense demand. Tatas will therefore be vulnerable to further disruption in silicon wafer manufacturing, according to the report.
Noting that the country presents a favorable environment for electronic component manufacturers given incentive programs to promote local manufacturing, and that Tata’s announcement is timely and timely, coming at a time of global chip shortage, the report warned, however, that “reliance on silicon wafers made by offshore smelters, growing geopolitical tensions in the region, and the emergence of new COVID variants all pose significant downside risks to Tata’s plans.”
The report also states that newer COVID-19 variants will continue to exacerbate the semiconductor shortage, as the emergence of the Delta variant has already seen Asia once again become the epicenter of the pandemic in the first half of the year, especially since the region is characterized by relatively low levels of immunization. As a result, these analysts don’t expect the chip shortage to abate until mid-2022, and supply issues for some will continue to some extent through 2023.
Semiconductor manufacturing is primarily an Asian strong point with two Taiwanese companies covering 65% of global supply in the first half of 2021 (Taiwan Semiconductor Manufacturing Company (TSMC) 58% and United Microelectronics Corporation 7%); meeting of the great Korean Samsung 14 percent; and two Chinese companies with 11% (6% Semiconductor Manufacturing International Corporation and 5% Semiconductor Manufacturing International Corporation) – any disruption in Asian supply chains is of great global significance.
“Continued border closures and localized blockages following the emergence of new variants will continue to put pressure on semiconductor supplies and heighten the risk of shortages continuing through 2023, adding risk to the decline for Tata’s investment, ”the report warned, also adding such reliance on outsourcing. Silicon wafers from companies like TSMC, the Tatas will always be vulnerable to supply chain disruptions resulting from geopolitical tensions between Taiwan and China.
Another downside risk is Tata’s inexperience in semiconductor manufacturing. The report sees the domestic consumer electronics market grow from $ 66.7 billion in 2020 to $ 105.1 billion in 2025, indicating the vast potential market for chipmakers. But Tata’s investment, the country’s position in the global semiconductor market will remain very limited even in the long run, and full dependence on chip imports is unlikely to see any significant change anytime soon.
(Edited by : Vijay Anand)