Why Quad Focus On Semiconductor Chips Is About Breaking The Focus

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It’s a crisis that has cost the global auto industry billions of dollars in sales and delayed delivery times for everything from smartphones to computers. No, it’s not the Covid-19 pandemic, but the semiconductor chip supply crisis. Granted, while the Covid-induced lockdowns were a trigger for the problem, what really exacerbated it was the concentration of production almost entirely in a handful of countries. This is why the security group known as Quad, which includes Australia, the United States, Japan and India, is focused on resolving chain bottlenecks. supply for this crucial component. Here’s all you need to know.

What is in the spirit of the quad?

According to an article in the Japanese daily Nikkei, a major item on the agenda of the first face-to-face meeting of Quad country leaders in Washington is the need to “create a secure supply chain for semiconductors.” The statement from Quad executives – US President Joe Biden and Australian, Japanese and Indian Prime Ministers Scott Morrison, Yoshihide Suga, Narendra Modi, respectively – viewed by the publication reportedly underlined the importance of “supply chains resilient, diverse and secure technologies for hardware, software and services “.

The Quad, short for Quadrilateral Security Dialogue, clearly emphasizes combating and harnessing China’s muscle contraction in the Indo-Pacific region, but its goals are not limited to military cooperation alone. When the leaders of the four countries met virtually in March this year, they also talked about partnering on everything from vaccine supplies to climate change. A “backgrounder” on this meeting also stated that Quad countries will establish a “Critical and Emerging Technologies Working Group” because “a free, open, inclusive and resilient Indo-Pacific requires that critical technologies and emerging are governed and operate according to shared interests and values ​​”.

While “critical and emerging technologies” can be seen as a catch-all term, the Nikkei report indicates that the main area of ​​concern at the moment is semiconductor chips. It states that “more specifically, the Quad seeks to” launch a joint initiative to map capacity, identify vulnerabilities and strengthen supply chain security for semiconductors and their vital components. “

What caused the shortage of semiconductor chips?

Since the start of the pandemic, several major automakers have had to either slow down or halt production, while makers of electronic gadgets like Apple have said the chip shortage will hamper production and sales. It has been reported that the chip shortage could cost automakers around the world a loss of $ 60.6 billion in revenue in 2021 alone.

The fact of the Covid-induced lockdowns is not lost on experts and they further highlight the surge in demand for electronics during the pandemic as more people have started working from home – from smartphones, webcams to laptops and desktops – as having created the perfect storm conditions that exacerbated the chip shortage. But as Gartner analyst Koray Kose told the BBC, the pandemic “was probably just the last straw in the ocean.”

For something that can be said to be at the heart of the global tech and digital industry, it’s surprising how concentrated the semiconductor chip production lines are. The Semiconductor Industry Association (SIA) reports that about 75% of the world’s semiconductor manufacturing capacity is concentrated in East Asia, adding that the production of the most advanced semiconductors is entirely located in Taiwan and South Korea. These are countries and companies that are strongly aligned with the United States and, as the United States and China found themselves locked in a trade war under former US President Donald Trump, Washington moved quickly to restrict China’s access to chips.

According to the BBC, “the United States’ decision to prevent the sale of semiconductors and other technologies to Huawei” resulted in manufacturers outside the United States being “quickly inundated with orders from the Chinese company “. but far from being caught off guard, Beijing was already preparing to step up its chip production game. Indeed, Huawei’s ban was based on claims that China was stealing high-end technology to boost its domestic chip production capabilities. As part of its Made in China 2025 plan, Beijing hopes to achieve 70% self-sufficiency in semiconductor production by 2025 and is already making great strides in this direction. Reports indicate that China produced 203.6 billion chips in the first seven months of 2021, an increase of almost 50% year-over-year from 2020.

Measures taken by China to put its chip industry on a secure footing have now prompted other great powers to stand up and take notice, as the pandemic has made it clear that concentrated supply chains pose a risk to the world. industry as a whole in the digital age.

What can the quad do?

Taken as a whole, the Quad has substantial advantages that it can exploit. A working paper released by the Institute of South Asian Studies (ISAS) at the National University of Singapore in April of this year states that “each member of Quad has a comparative advantage in a specific sub-area of ​​the chain. supply of semiconductors ”and therefore the consolidation“ should make semiconductors an area of ​​interest ”.

Although China is looking to build up its chip production capacity quickly, it is the United States that remains by far the world leader in this sector. But its domination is strongly biased towards R&D. SIA data indicates that while the US chip industry accounts for about 47 percent of global chip sales, the country has only 12.5 percent of the chip manufacturing capacity.

In addition, out of the top 10 global chip design companies by revenue in 2019-2020, six were from the United States and the country is also home to the world’s leading Integrated Design Manufacturers (IDMs), which are companies that design and make their own chips, like Intel. .

“Despite the considerable advantage at the design stage, semiconductor manufacturing in the United States has declined since the 1980s,” the ISAS document states, noting that East Asian-based companies have moved companies American companies in this sector “because of the growing gap in manufacturing costs”. while “higher labor costs have made testing and packaging an unattractive proposition in the United States, prompting a relocation of this segment to East and Southeast Asia.” .

As for Japan, it is said to have become a “bastion of semiconductor manufacturing materials and chemicals needed to make chips,” although it also saw a drop in production after “higher costs … made subcontracted testing and packaging unpaid in Japan compared to South Korea. and Taiwan “.

India’s advantage would lie in “trained human capital” as semiconductor design requires a large number of skilled engineers, the ISAS document says. He notes that Indian design centers have the expertise to handle the entire design cycle and his experience with electronic components… provides a solid foundation for venturing into upstream steps such as assembly, testing. and conditioning “.

Australia, although not a major player in the chip industry, is a key source of essential minerals for the semiconductor chip industry, according to ISAS, advocating for the creation of an infrastructure supply across national borders which would ensure that no country or region is the backbone of the global chip supply ecosystem.

The March Quad ‘fact sheet’ mentioned that members encouraged cooperation ‘on telecommunications deployment, diversification of equipment suppliers and future telecommunications, including through close cooperation with our private sectors and industry. “. But as the ISAS document notes, few details are available on such cooperation, “indicating that a lot of consensus remains to be done”.

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