Helium Supply Disruption Due To Iran War Can Hit Semiconductor Chip Availability

Chennai: The Iran war and the recent strike at QatarEnergy's facility has disrupted supply of helium, which is a key input in the production of semiconductor chips. This could lead to a supply shortage of chips, impacting almost all sectors across the globe. However, we may not see a Covid-like shortage of semiconductor chips this time, says Ashok Chandak, president of India Electronics and Semiconductor Association in an interview with Financial Chronicle.

Q) How crucial is helium in the production of semiconductors?

Helium is one of the important elements or gas which is required in various sectors, including semiconductors. So it's a very critical input for high tech semiconductor manufacturing.

It is typically used for wafer cooling, the leak detection in the sealed components, sensors, RF devices, et cetera. It's also used for controlling the atmosphere and shielding gas and cooling purposes. So overall helium is required both for semiconductor manufacturing as well as some of the advanced electronics.

Q) So how much helium can be stocked by the semiconductor manufacturers at a point of time and with that stock how long can the production go on?

See, typically what we have seen is because of this current supply chain challenges, ⁓ one of the issue has been the spot prices have gone up. So there is a spike in the pricing, obviously. And if the supply chain does not improve, that could really continue to be a problem. Normally, the companies those are working on this, have a bit diversified supply chain. Last couple of years, the resilient supply chain and diversification has been one of the important efforts which many companies were taking in the semiconductor sector particularly. Normally what we see is people keep some other stocks either into their own fabs manufacturing or the transits and other stuff and that typically lasts about one to three months. Sometimes the recycling also happens actually in some of the fabs.

Right now companies have already started looking for alternative supplies. Maybe the cost element could be different as this thing was much optimized in terms of the pricing. So that would have been and that is why we have seen recently the helium spot market prices have gone up actually.

Q) If Qatar helium is not coming what other alternative source markets are there?

So there are some other countries where the helium can be done. It is not that it is not possible. It's only because this country has got a sufficient supply and a cost optimization was there. So many of the semiconductor plants were used from this country. But there are also other sources and other countries from where the material is being used actually.

Q) Will we see a kind of situation like the COVID, where the world ran out of semiconductor chips and it affected almost all the sectors?

My view is at this stage no, but for a few reasons. One is there is always some buffer stock inventory in transit. Number two, as I mentioned before, many companies have started to work on supply chain resiliency for multiple of those raw materials, including gases, chemicals and other stuff. So the multiple sources had been identified in the past itself. It's only thing is they have to now start getting the supplies from there. So there may be selective supply tightness in the short term. There could be an increase in the cost as we have seen. But I do not see that a situation like COVID would happen because in a COVID situation everything stopped actually and manufacturing into multiple locations, multiple countries came to a standstill. Right now, yes, still there are many countries that have the supply possibilities.

I do not see that we will have COVID like situation.

Q) If not COVID like situation, at least there will be some kind of tightness in the market where the availability could affect some of the sectors. So in electronics and semiconductor production, it's dependent on the global value chain where the designing and the manufacturing of different parts are done in different countries. How is this global value chain likely to be disrupted by geopolitical and geoeconomic tensions as well as natural calamities?

Our semiconductor industry is very globalized and I would call its value chain highly globalized and inter-dependent. So any chip from design materials to the final assembly test and using electronics is touching multiple countries actually. So any disturbance globally in terms of the movement of the goods and items creates some kind of a disturbance.

But the good thing is now there are multiple countries having the capacities and competencies to do the various elements of the value chain. For example, there are many countries that supply gas, many countries that supply chemicals, the manufacturing of the chip, the wafers, the assembly, the final electronics. These are all not highly dependent on one particular single country. There are multiple countries involved and it's more interdependent right now.

So if this geopolitical tension continues or expands, there could be some impact on the raw material supply, logistics, some of the trade flows and the technology access. So this is where the impact could come. But I would say that total decoupling is neither practical, nor needed, because it's more of inter-dependence now. It's kind of a give and take, helping each other and because it gets impacted, so people would cooperate and they would work together actually.

Q) Even when we look at the global value chain, war affects all this cooperation that happens in a value chain.

If anything gets impacted, everything gets impacted because of that. It's not only semiconductor. And the foremost priority for anybody worldwide would be the human beings and the food value chain.

Q) Coming to India, if there is a shortage of chips, how will it affect our country? How self-sufficient are we in the production of semiconductor chips? And what are the challenges in electronics and semiconductor manufacturing?

India does not make many semiconductor chips. I think it's clear we are just starting our journey of semiconductor chips assembly test operations. The first major plant was announced last month. And there are a few more plants which will get operational this year, but these are more on the assembly test and packaging. The wafer manufacturing is still few years away.

The two approved plans of Tata as well as the SiCSem would happen later. So today we are fully dependent on semiconductors for imports. And if semiconductor manufacturing gets disturbed anywhere in the world, particularly our suppliers, that could also impact our electronics manufacturing. Because for any electronics manufacturing, the semiconductor is the important component.

So electronics manufacturing could face some pressure if there is a disturbance of the semiconductor manufacturing and supplies. All our sectors, be it automotive, telecom, consumer, mobile, everything is dependent on the import of semiconductors. As a nutshell, India is heavily import dependent on the chips. And that is also why we are building domestic capability as a strategic priority.

And as mentioned before, a few plants, assembly test operations would start this year. We have to manufacture later actually. So this is where we stand.

Q) Talking about the electronics industry, in recent times we have seen the manufacturing as well as exports going up big time. Can you provide some details of this like the kind of growth that we have been seeing in the electronics manufacturing as well as exports?

Electronics manufacturing has really taken off with a major uptrend during the last almost a decade, if we compare, but particularly in the last three to five years. We are looking at electronics manufacturing increasing to about $160 to $180 billion this year. Based on our IESA report, the electronics manufacturing in the country can go as high as $400 billion by 2030. So that's a big step up on electronics manufacturing. Several global players and India players have started doing the electronics manufacturing, be it global guys such as Foxconn, Flextronics, Sanmina, others, and also the Indian companies like Dixon, Keynes, Avalon, and so forth. So that's really the major stuff.

The fundamentals are extremely strong. And I would call India at a historic tipping point. It is because of the demand in India plus also the export potential we are looking at. In addition, the policy environment has been very decisive and coordinated. So we have the India Semiconductor Mission, which will feed the semiconductor chips into the electronics manufacturing. We had the production link incentive already running.

Then the electronic component manufacturing scheme called ECMS was announced. 46 projects were approved with the investment of about 22,000 crore and more to come. There's the design link incentive, which was made to create fabulous chip designs in the country. Plus the electronic manufacturing cluster development has also been going on. And recently India also did few strategic measures such as the trade deal with the United States, the FTA with European countries, the reforms on a Press Note 3 supply chain diversification. So all those things are going to add to our momentum into the electronics industry, which is expected to go as high as $400 billion actually by 2030.

Q) Despite the strides made in manufacturing, what is our value addition rate and how dependent are we on imports for inputs as well as components?

Value addition is one of the important topics which has been low as everybody keeps talking but I would say we have made good progress. Today as we speak we are already at 15 to 20 percent of the value addition depending on the type of electronic product we are looking at. Somewhere it is 15, somewhere it is 20, 22 on average about 18 percent. Now the value addition is going to go up substantially and that is one of the reasons why these policies are important. The central government policies added to the state government policies, there are at least nine states that have come out with the policies on the electronics and semiconductor sector that are helping to ramp up.

There are several projects that are announced in semiconductors, 10 of them approved by MIT for the ISM program plus many by states. ECMS I just mentioned, almost 46 projects more to come and sub-assemblies. DisplayFab will come up, there was an announcement by Dixon along with one partner from China. So these are all increasing and once these all plans get operational, we are looking at a big step up in a domestic value addition which could go as high as 35 to 40 percent in a 3 to 5 year time- frame.

Q) We have been seeing our Apple iPhone exports also shooting up in recent years. What is our role in the global value chain of iPhones?

In the entire mobile phone sector, including iPhone, India has become a major assembly hub, which is contributing significantly to the global supply chain diversification. Many global companies, the top brands you look at, be the Korean brand or American brand you referred to, are also looking at a global supply chain diversification. So we contribute significantly with that goal.

But this goal today is largely on final assembly and testing. And there are a few components. those are locally sourced, including some cabinets and batteries, the aluminum extrusion would come, connectors, so forth will happen. So once our electronic manufacturing ecosystem develops, we will have more contribution into the assembly testing of these mobile phones. So even the PCB plants are getting ready.

So all these things would add tomorrow. But also we should be clear that this is how the worldwide any other country has developed. Initially the things would start with the import of the kits, then the assembly, then the buying of the components, localization of the components. And that is how India is also making progress.

Q) Recently there was a GTRI report which said that for an iPhone worth $1000, India earns just $30 and much of this is given back to Apple as subsidy under the PLI scheme by the Indian government. What are your comments on this?

I don't have this exact number that you mentioned, but what we should look at is basically how is the impact of these phones made in India on our entire ecosystem? The starting point is always as I mentioned, the assembly and a test. So this represents the current stage of the value chain and typically it's known the assembly normally yields the lower value capture.

However, it's a good starting point. It creates a scale, it creates jobs, it creates ecosystem depth, it creates the localization opportunities, which is going to happen. So, over time, we would see the localization, the component manufacturing, the semiconductor manufacturing, and that would help India to capture the value increase significantly. So, we should not be today worried about how much India is earning. We should be looking at India creating a base and a platform for a further step up of creating a value in India and nurturing that value and capturing that value.

Q) Research and development is very crucial for this sector. How well are we placed in terms of R&D and what needs to be done?

On R&D, we have to step up substantially as a product creation initiative. Today, in our engineering pool, we can say that we have a very good strength, strong strength in chip design and engineering. But we have a limited presence in core R&D, be it at a chip level or a manufacturing level. So we need investments to nurture this.

Knowledge and competence of the chip design talent and get into the product creation. India needs to become a product creation nation and that would need a lot of IPs to be created locally. That means the core R&D has to be done. So we need to step up in R&D investments. Now the RDI funds were announced recently as we know 100,000 crore which will be made available as a fund of fund plus this.

The industry-led research is what we need in the future. We are good in academic research, where many institutes are doing the academic research, creating some kind of papers and other things, but this has to translate into commercial and viable products. And that is where the industry-led research is going to be very important. And we need to build the capabilities across materials, the equipment and process technologies, particularly towards the manufacturing side, this is very, very important.

Q) If you look at our Asian peers, many of them have gone a long way in terms of electronics manufacturing as well as R&D. Will we be able to catch up with them?

I think we should not be looking at this as a race and a catch-up. We should be looking at this as a journey which we are starting. And many countries, they have taken decades and decades to reach a critical stage or a scale we are trying to achieve in a few years only. And I know sometimes people ask, you know, we started the ISM program, but where is the progress and what is the outcome? These are normally long-term programs. They need nurturing over the long-term.

Take an example, even setting up the OSAT takes two years for assembly and testing of the semiconductors and making a full-fledged fab foundry, it takes four to five years. So we have to keep a little patience here. And India is definitely getting its significant presence felt now. Over the last few years, we have achieved the status I would call a trust across the global markets. And now India is seen as a very credible destination, investible destination for semiconductor manufacturing.

As I mentioned, we are really at a tipping point because of this very good coordination of the industry and the government in terms of the policy announcements, which is decisive and coordinated, really resulting in major investments in the sector and execution of the project.