Five days before the Indian Institute of Technology Madras began its recruitment drive - the students' recruitment portal was updated with a new job posting. Students at IIT-ISM Dhanbad in Jharkhand saw the same thing. Tech giant Microsoft is looking for silicon hardware engineers - a position it is hiring for for the first time.

The company is looking to hire graduates who understand hardware programming - a skill often prized by chipmakers like Texas Instruments, Analog Devices and Nvidia when hiring new employees. Five students who have been shortlisted for the position told The Ken that at Microsoft, these new hires will be responsible for testing, validating and designing the chips that the company uses for its cloud computing server, Azure.

The company has already released two chips - Maia 100 and Cobalt 100 - by the end of 2023.

"The Cobalt 100 is a cloud-specific chip that will allow companies to run algorithms faster and more efficiently," said Arjun Menon, co-founder and chief engineer at chip design company Incore Semiconductors. It is based on the Arm architecture, one of the most widely used CPU designs. "The other [Maia 100] is an AI accelerator that Microsoft uses to run its cloud services more efficiently."

Microsoft plans to invest $3 billion in India

Microsoft plans to invest $3 billion to expand its artificial intelligence and cloud services in India.

Microsoft CEO Satya Nadella said at an event in Bengaluru on Tuesday that the company, which has been operating in India for more than 20 years, will also train another 10 million people in India using artificial intelligence.

"The infrastructure and skills investments we announced today reaffirm our commitment to making India the number one country for AI and will help ensure broad benefits for people and organizations across the country," Nadella said. "The pace of AI adoption in India is exciting."

India is a key overseas market for US tech giants, which have invested billions of dollars to build and expand their presence in the South Asian market to attract businesses serving millions of users.

Competition has intensified in recent quarters as Microsoft has actively enhanced its products with new artificial intelligence features. E-commerce group Amazon said in 2023 that it plans to invest $12.7 billion in its Indian operations by 2030.

Microsoft, one of the top cloud and AI providers in India, operates three data center regions in the country and the company said a fourth data center region is scheduled to be operational next year. The $3 billion investment will be used to develop a scalable AI computing ecosystem to serve India's AI startups and research community.

India has become one of the world's largest and fastest-growing developer markets. More than 17 million developers in India use Microsoft's GitHub. In recent months, several tech executives, including Nvidia CEO Jensen Huang and AMD CEO Lisa Su, have visited India, in part to attract developers.

The number of chip design engineers in India is about 300,000

Several estimates have previously put the number of chip design engineers in India at around 300,000, with consultancy Boston Consulting Group (BCG) saying in a report that 19% of the world's chip designers are in India, but the country accounts for only 7% of chip design facilities.

China has 28% of the world's chip designers and 12% of design facilities, while the US figures are 32% and 27%, respectively.

Europe, home to chip design giants such as SoftBank-backed Arm, Infineon and NXP, is the only major region where the proportion of semiconductor design facilities (21%) exceeds the proportion of chip design engineers (4%).

Industry sources estimate that the number of chip design engineers in India is around 300,000.

While the Indian government has focused its 76,000-crore rupee ($10 billion) chip subsidy plan on semiconductor manufacturing and packaging, experts say India should double down on chip design because it is the higher-value part of the semiconductor supply chain.

Union Minister Ashwini Vaishnaw told Moneycontrol a few months ago that the next version of the semiconductor plan will focus more on the chip design ecosystem. The plan aims to support end-to-end domestic production of at least 10 chipsets, including design, manufacturing and packaging.

The Indian cabinet has approved three projects under the plan worth a total of Rs 126 lakh crore, while US semiconductor giant Micron also received approval to set up a unit last year.

The four projects are expected to account for a cumulative Rs 59,000 crore of the Rs 76,000 crore chip incentive plan announced in 2021.

"I think it's understandable to focus on chip design because it has a lot of added value," Chris Miller, author of "The Chip Wars," said last year. "But if you want to provide a lot of jobs for low-wage workers, chip packaging seems to be a good choice." "Politicians in every country like manufacturing plants because they can cut the ribbon and take pictures of the factories." "If you look at the chip industry today, most of the value is still in chip design. If you talk to TSMC, they might say we would rather be like Nvidia," he said. Taiwan's TSMC is the world's largest chipmaker and a major supplier to Apple and Nvidia, a US chipmaker and one of the biggest beneficiaries of the artificial intelligence boom.

Can India become a global chip power?

Semiconductors power every aspect of modern digital life – from tiny smartphones to the massive data centers that control the internet.

Advanced semiconductor technology also plays a key role in the automotive industry's transition to climate-friendly electric vehicles and the development of artificial intelligence applications.

India accounts for 5% of global chip demand. That could double by 2026, Deloitte says, driven by new trends such as smartphones, consumer appliances and self-driving cars.

The domestic market is clearly booming. But at key stages of the chip production value chain – product development, design, manufacturing, ATP (assembly, test and packaging) and support – India only has a significant presence in design, and has to start from scratch in manufacturing.

"India has 20% of the world's chip design talent, with 50,000 Indians doing the job," Deloitte partner Kathir Thandavaryan told the BBC.

Most semiconductor manufacturers, including Intel, AMD and Qualcomm, also have their largest R&D centers in India, tapping into local engineering talent.

However, Deloitte said obtaining trained staff could be a major headwind for businesses, with an estimated 250,000 jobs needed across the value chain when investment starts flowing in.

Therefore, strengthening industry-academia collaboration in this area is crucial.

To its credit, the government has been working towards this goal, for example by training 85,000 engineers through its Chips to Startups program.

Experts say other factors have also enhanced India's readiness to participate in this global race, such as improved global logistics, infrastructure and efficiency rankings, and a more stable power grid, a key prerequisite for semiconductor manufacturing.

Geopolitics also appear to be working in India's favor, with the United States increasingly looking outside of China to outsource parts of its semiconductor supply chain.

India, as an increasingly close ally, can be a viable "friend-support" destination for American companies looking to outsource support functions, Tandavarian said.

But its protectionist trade policies, especially its absence from multilateral trade agreements such as RCEP (Regional Comprehensive Economic Partnership), could come at a heavy cost.

"If China-based semiconductor companies diversify, then the tariff regime for their components is unlikely to change significantly even if they move to Vietnam. This is because countries belonging to the same regional trade arrangement are likely to be more uniform," said Mr. Bhandari.

However, the biggest challenge New Delhi faces in its quest to position itself as the global chipmaker of choice is something that manufacturers across industries are all too familiar with – the notoriously difficult doing business' environment.

China is known for its software prowess, but not its hardware prowess. Manufacturing as a share of GDP has stagnated for years due to a lack of an enabling ecosystem.

Experts say India needs "fundamental and lasting reforms" to change that and make its semiconductor mission a success.

"This requires addressing investment barriers such as customs/tariffs, taxes and infrastructure," Stephen Ezer, vice president for global innovation policy at the Information Technology and Innovation Foundation, told the BBC.

"If incentives are India's primary strategy to attract semiconductor ATPs or fabs, then in the long run, India will not be able to compete with competitors like China, the EU or the US."

Mainly because India's semiconductor incentive policy is just one of a few in the world, with blocs like the EU and the US offering much larger subsidies at the same time.

Most companies will not easily relocate their operations for subsidies "because they already have an ecosystem of suppliers, partners, consumers and logistics networks, all of which make it difficult for them to move operations to other jurisdictions," said Mr. Bhandari.

Experts say India's subsidies could also be better directed.

Currently, China supplies all parts of the chipmaking value chain. Instead, China could play to its strengths.

For example, it could invest in schools to train engineers, or double down on its competitiveness in semiconductor ATP and design support, rather than focusing on actual chip manufacturing, which is capital-intensive and has a long gestation period.

Mr. Ezer warned that the government must not fall into the "shiny object syndrome" of focusing on fabrication.

However, he added that being competitive in the field would mark a "major leap for national technology" and the government was right to try to seek more investment in the sector.

With domestic electronics production in India crossing the $100 billion mark, the lack of some domestic manufacturing facilities would also "have a serious impact on India's import costs," Bhandari said.

The stakes are clearly high for India in semiconductors. India has failed many times in the past. But after years of delay, a dedicated policy that is broadly correct is just the first step in the right direction.

Bhandari said it was "a new opportunity to make up for previous missteps." "The geopolitical stars have aligned for this opportunity. In a world of fragmented and strife-ridden supply chains, India finds itself at a crossroads - either make a serious attempt to nurture hardware manufacturing or miss the boat again."

Source: Content from Semiconductor Industry Observation

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