A bloody clash with Chinese troops in Ladakh’s Galwan Valley on June 15 that left 20 Indian soldiers dead has triggered the worst crisis between the two countries since they went to war in 1962.
The deadly faceoff led to protests and Chinese goods were burnt in some parts of the country. As calls for boycott of Made-in-China goods got louder, Gurugram-based Micromax said it will soon launch three new phones, giving Indian consumers a choice.
Imposing economic costs on China, one of India’s biggest trading partners, will not be easy and is perhaps best illustrated by India’s smartphone market.
Chinese firms like Xiaomi, Vivo, OPPO, and Realme, with their tech and cost advantages, have reduced home-grown companies like Micromax, Intex and Karbonn to bit players.
According to Counterpoint Research, the four Chinese companies control more than 70 percent of India’s smartphone market, which is the second-largest in the world.
China is the world’s top smartphone maker. India is second but largely depends on the neighbouring country for components such as chips, batteries, display panels and printed circuit boards.
It remains to be seen then how “Indian” will Micormax’s phones be. Not just Indian phone makers, companies around the world rely heavily on China or Taiwan for components.
So, why doesn’t India, which exported 36 million smartphones in FY20, have its own Apple or Samsung?
A processor, or the chip, is the most vital component of a smartphone or any other computing device. It’s an incredibly complex piece of technology that performs billions of mathematical calculations within a second to execute a command.
These semiconductor chips are the brains of computing devices. The process of making them is time-intensive, requires precision and cutting-edge industrial capabilities.
Taiwan and China lead the world in making these processors, which are packed with billions of electronic components, through a procedure called semiconductor wafer fabrication.
It is a multi-step process that involves making circuits on a wafer made of silicon. The measure of a manufacturer’s skill is how small the transistors can be. Transistors are like switches that turn a signal on or off.
A smaller transistor means more efficiency since it can do more calculations without getting too hot. It also allows for smaller dye sizes that reduce costs and translates into more cores per chip.
A microchip can have multiple processing units that can work simultaneously. Each processing unit is called a “core”. Most phones these days have an octa-core or an eight-core chip.
For instance, a 10 nanometer chip — a human hair is about 60,000-100,000 nm wide — is twice as dense as the earlier 14nm one.
The smaller we go, the more expensive and sophisticated it gets.
A plant where these chips are made is called a fab. The business is highly competitive and cyclical. It has been around for over five decades and is dominated by established players.
The iPhone 11 series is built on a 7 nanometer chip.
Taiwan Semiconductor Manufacturing Company (TSMC) is Apple’s primary contractor which produces these chips in China. It’s the world’s most valuable semiconductor company. Qualcomm leads the chipset segment in the Android world and uses TSMC’s facilities to make its processors.
While India has emerged as a leading space for companies to design these chipsets, manufacturing is outsourced or contracted to companies like TSMC.
Texas Instruments, a leading global semiconductor design and manufacturer, was the first company to set up a design bureau in the country in 1985 in Bengaluru, then known as Bangalore. The Indian Space Research Organisation has a semiconductor facility in Punjab’s Mohali but it is for internal use and relies on imports for components and spares. Moreover, the lab makes 180nm wafers and the world has moved on to 7nm.
It is a pricey business
The primary reason India doesn’t have a commercial fab is that it is very expensive.
TSMC spent almost $10 billion in 2010 on a manufacturing facility that can produce 28nm chips. The facility in Taiwan can produce 100,000 wafers a month. In the fast-changing technology industry 28nm is already ancient–companies are now eyeing 3nm.
A fab has to be retooled every couple of years, at enormous costs, to stay competitive.
South Korean giant Samsung spent $14.3 billion in 2014 to set up a new fab. The 3nm process is expected to cost TSMC more than $20 billion. These huge sums are the reason why even a trillion-dollar company like Apple relies on TSMC.
TSMC has led the market for decades but China is catching up. The Chinese government set up SMIC (Semiconductor Manufacturing International Corporation) in 2000. It’s China’s largest chip-maker and can produce up to 14nm process.
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There is more
Whether it’s an iPhone or OnePlus, TSMC has made processors for both Apple and Qualcomm.
If it’s an AMOLED or OLED display screen, Samsung leads the market followed by LG. Camera lenses for phones are usually designed by Samsung or the Japanese Sony.
Batteries make or break a phone. There are several players in the market, most of them based in China, which has huge lithium reserves.
Lithium-ion batteries charge faster and last long as they store lots of energy but still stay light, making them idle for electronics and even electric vehicles.
Bridging the software gap
Most smartphones run on Google’s Android operating system. The package released every year is known as stock Android or vanilla Android in tech circles.
But most phones sold in India run on a custom “skin” that sits on top of stock Android. Smartphone makers change user interface (UI) to alter the way the home screen looks, the way apps are arranged and introduce other features to stamp their brand.
Xiaomi calls it MIUI, Realme has Realme UI, OPPO ships with colorOS, while Vivo’s got FuntouchOS. Even OnePlus relies on OxygenOS.
Phone makers have spent years developing these skins to allow customisation and it has worked. The current market share proves stock Android phones are a tiny minority.
The software has to be well optimised with the hardware. Xiaomi reuses a particular chipset–Snapdragon 625– in several of its phones.
It buys them in bulk and software optimisation is easier as the core remains the same across phones and updates are faster to push. And this is where phone makers like Micromax, Intex, and Karbonn lost out.
They relied on units assembled in China that were often stamped Indian. Software-hardware integration was terrible, with no software updates and a poor lifespan.
When companies like Xiaomi and Samsung started assembling phones in India, they didn’t have to pay an import duty which allowed them to price their offerings aggressively.
Indian tech giants have shied away from hardware for a long time. HCL had a brief stint with ME lineup of laptops but it couldn’t take on Lenovo, Compaq, Dell or HP.
India has a thriving software ecosystem that has delivered cutting-edge product but we’re yet to see physical product-based companies or business models take-off.
The government did take a shot at manufacturing semiconductors. It brought together private players and foreign investors but it didn’t work.
A consortium led by Hindustan Semiconductor Manufacturing Corporation (HSMC), which had ST Microelectronics and Silterra Malaysia, was asked to set up a Rs 30,000-crore fab in Gujarat. The permit to set up the country’s first chip unit was cancelled in 2019 as the consortium couldn’t submit the required documents.
In a globalised economy, 100 percent indigenisation is impossible, at least in the foreseeable future. We depend not just on China, but also the US, Japan, South Korea, Taiwan, Vietnam and many other countries for components.
For India to be “Atma Nirbhar” (self-reliant), investments, increased spending on R&D and attention to skilling labour will be a good start.
(The author writes on technology, aviation, and mobility.)
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