Though India is making progress with making semiconductor chips happen, the real success would come when there are local gadget makers (like Apple, Samsung, Sony) are developed in India.
Apple built the chip supply chain, not the other way
Consumers all over the world want to hold iPhones in their hands. Similarly global businesses want a piece of Apple’s business too. They want to be suppliers of Apple or want to be associated with them. That gives immense power to Apple. A tight grip over an entire industry.
Being a fabless company, Apple began to source their chips from Foundries. They were the single most company which gave rise to the success of Foundry business model in semiconductors. Complex chips were manufactured in Taiwan and not so complex in China. Not to forget the chips and components which flew from South Korea, Europe and Japan. They were assembled and tested elsewhere and marketed all over the world.
Apple went global not just to save costs. They wanted exclusivity and protection of IP rights. They made the learning difficult and slow for their competition. For their suppliers, there is pain along with pride. For most of Apple’s suppliers, Apple is the biggest customer. Many of Apple’s suppliers run risky, concentrated businesses. Apple has the power to walk away and develop a new chip supplier elsewhere. Nvidia too enjoys similar benefits being another dominant player in their domain.
Who makes more money, gadget maker or chip maker?
If all is fair in business and war, you don’t want to criticize the dominant players. Rather you want to see how to grab a portion of their business. If we want to build fabs to make chips, not only we have to compete with other chip makers for business efficiency, but we will be at the mercy of companies who buys chips.
South Korea, China, Europe and Japan have local smart phone and other electronic gadget makers who can buy chips locally either for cost benefits or supply chain constraints. Chip makers in those countries have a domestic market and are not entirely dependent on exports. In India, there is no big electronic gadget maker present to consume chips made in India. Chips are needed in many industries, but electronic gadgets are the main market consuming semiconductor chips.
A company with successful products like Apple can develop its supply chain and create a huge market for its suppliers. And for companies like Apple, Nvidia, a good portion of their revenue is profits unlike their chip making suppliers who make thin margins. Build businesses like Apple, Samsung, Sony who make gadgets, their supply chain too will flourish. Build only fabs, you are a dependent.
Audacious goal
However audacious it might look like, a goal of building businesses which consume chips and market end products would be great for a consuming economy like India than just making chips. If India can change itself to build an environment conducive to making chips, it should do the same to develop customers for the fabs it is building.
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