Aniket PujariMeanwhile, China wants to hold a meeting between President Xi Jinping and global CEOs. The planned meeting comes as Beijing tries to stabilise falling foreign investment flows into China in recent years.
China is keen for the support of global business leaders, many of whom have invested heavily in the country, as it fends off the US government’s hostile trade tariffs.
So, with China’s recent technology success in AI-powered chatbot DeepSeek and efforts to lure global business leaders, the flow of FII funds from India to China cannot be ruled out. In the worst case, it could also mean India losing some benefits of the China+1 policy of global enterprises that seek to diversify their overseas business interests.
Therefore, India must safeguard its turf when it comes to sectors where local businesses compete head-on with Chinese counterparts.
India ranked third in terms of number of research papers published on semiconductor chip design and fabrication from 2018 to 2023. India was placed above Japan, South Korea and Germany, according to the Emerging Technology Observatory, a project of Georgetown University in Washington, DC.
Pack leaders
Indian organisations contributed almost 40,000 research papers, which was 8.4% of the global share and a growth of 26% in the five-year period. However, China has become the leader in the field, having overtaken the US after producing over 160,000 papers in the period, capturing 34% of the global share.
The semiconductor supply chain is, in fact, concentrated in specific regions. The US is a leader in chip design, contributing about 64% to the global market. In contrast, manufacturing and assembly activities are located primarily in Asia.
Over the past 30 years, there has been a significant shift in manufacturing capacity towards Taiwan, South Korea and China, which now hold over 85% of the global foundry market.
The regional concentration led to challenges in balancing supply and demand. This was especially exacerbated by the covid-19 pandemic, highlighting the need for diversified and resilient supply chain strategies.
India has progressed in multiple sectors of the chip design value chain. So far, there are more than half a million professionals aligned to chip design. Also, almost every product company and design house including Qualcomm, AMD and Intel have a base in India.
Indian engineers account for about 19% of the global chip design talent, according to a report by Boston Consulting Group.
The country’s progress in semiconductor research is on the back of substantial increases in the government’s budget allocation to semiconductor R&D, which grew 1.4x in the past decade.
Driven by initiatives from the government, strategic partnerships and programmes such as the Semiconductor Mission, production-linked incentive schemes, and special economic zones, India now stands firmly on the semiconductor manufacturing map.
Today, India manufactures less than 1% of the world’s semiconductors and, for the majority, it is reliant on imports. It’s necessary for India to reduce its dependency on the import of chips and improve its standing in the global electronics industry.
The Indian market for semiconductors is estimated to cross $100 billion by 2032 from about $40 billion in 2024 on the back of increased demand for smartphones and consumer electronics and developments in automotive technologies, automation and healthcare.
Threshold of opportunities
Companies that are already invested in India’s semiconductor supply chain include Tata Electronics, HCL Technologies, Dixon Technologies, Cyient and ASM Technologies.
HCL Technologies has a strong legacy of more than 25 years in the VLSI (very-large-scale integration) chip design segment, along with rich experience of having worked with top chip manufacturers and design foundries across the globe. The company recently opened a semiconductor design centre in Hyderabad.
Dixon Technologies has entered into an agreement with Taiwanese company Foxconn to help set up a semiconductor assembly and testing plant in the country. There is also an agreement between Tata Electronics and Taiwan’s Powerchip Semiconductor Manufacturing Corp (PSMC).
Cyient has set up a wholly owned semiconductor business to focus on end-to-end turnkey application specific integrated circuit (ASIC) design and chip sales.
So, India’s top semiconductor stocks are well-poised to capitalise on opportunities in both chip design and manufacturing over the next decade. Nevertheless, the industry faces hurdles such as a shortage of labour, limited access to rare earth minerals and the need for a stable supply chain.
The key problem, however, will be the stiff competition from both American and Chinese counterparts.
In 2022, the US government passed the CHIPS Act, promising $52 billion to secure the semiconductor supply chain. The US is going all out to set up chip fabrication plants to be less reliant on other economies. National security concerns and the fear of missing out on having the world’s best chips have prompted the US to bolster domestic chip production.
In 2024, Intel, the biggest US chipmaker, received the largest government grant of $8.5 billion to build new facilities. It will invest up to $100 billion in chip facilities over the next five years.
Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest semiconductor chipmaker, won a $6.6 billion US subsidy for producing the most advanced 2 nanometer processor chips.
Most of the world’s advanced chips, which are currently in high demand, are designed in the US and manufactured in Taiwan and South Korea. Of this, 90% come from TSMC.
China factor
So, how does China’s CEO meeting impact India’s semiconductor plans?
Chinese chip companies are rapidly investing in new semiconductor factories to try and advance the nation’s R&D capabilities.
China also needs to get around export controls imposed by the US and its allies. Those curbs are making it harder for Chinese companies to get access to the machines needed to make the most powerful chips. Such curbs have slowed the development of China’s high-tech sector, which is seen as a threat to the US.
Also, China has tightened its grip on rare earth minerals used in semiconductor production, including gallium, germanium, and antimony, and has imposed export restrictions, particularly to the US, citing national security concerns.
For months, China and the US have been involved in tit-for-tat export restrictions. The US hopes to cripple China’s military and artificial intelligence advances as well as hamper its ambitions to become a global leader in clean energy and other technologies.
The trade war is affecting global supply chains for chip and semiconductor manufacturers and pushing prices up.
India’s top semiconductor companies need access to both minerals and technology to accelerate growth and have a meaningful presence in the global supply chain. Therefore, developments that threaten the benefits of China+1 for Indian manufacturing need to be thwarted with necessary policy and government incentives.
Study the semiconductor ecosystem thoroughly and keep the top semiconductor stocks in your watchlist.
Happy investing!
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
