Learning by Proxy | Chipping Away

Drawing a new world order begins with determining where Silicon Chips would be manufactured!

Last year I had written a piece on Silicon Chips. I would highly recommend reading it before diving into this edition. These are some interesting changes afoot. How these changes will affect the landscape of technology evolution will be interesting to watch!

The Chip Fight

In the article referenced above, I had described the evolution of chips and the role they play in modern electronics. Last year, car companies experienced a tremendous shortage of chips and could not ship cars despite demand. Companies like Nissan experience a fall in revenue because of “upstream supply chain issues”.

When you think of chips, you often think of computers or phones. Today, they cannot manufacture even your microwave and your washing machine without chips. Further, with the rise of “intelligent systems” and “IoT” everything from your light bulb to your door lock have chips embedded in it. It has come to a point where almost anything that you use which requires electricity or battery has Chips embedded in some part of the product.

Even the charger wire for the Apple iPhone has a chip embedded in the lightning socket which plugs into the phone. That chip helps verify the authenticity of the cable!

It would be an understatement to say that Chips have become important.

The pride of American Chip supremacy - Intel - has fallen by the wayside. The Silicon business has two parts - Design and Fabrication.

While the design is about cramming more transistors, more functionality and discovering multiple ways of performing the same computing more efficiently. Fabrication is about turning sand into that design.

Intel has always been a vertically integrated company. Meaning - their fabrication capabilities were meant only to serve the chips that they designed. Intel has fallen behind on fabrication - A LOT. While Taiwan Semiconductor and Manufacturing Corporation (TSMC) is currently on pace to startup the 5 Nm process, Intel is still transitioning from the 10 Nm to 7 Nm process. This has resulted in Apple moving away from Intel i-series chips to its own ARM chips manufactured by TSMC for their Macs.

90% of TSMCs manufacturing capacity is in China. This leaves most of the planet in a geopolitical quandary. While everyone wants to punish China for its behaviour; no one can. They face the potential of their locks and bulbs not being manufactured!

Intel’s new CEO soon realised that the Fabrication business has to be divorced from the design business.

The big news was that it was going to set up a foundry business—one that will contract manufacture chips—with two new fabs in Arizona. They will be run as a separate business unit with its own committed capacity. This is an important signal because a foundry has to be dedicated to serving its customers and can’t prioritize Intel’s own internal needs. I remember when the Taiwanese company Acer spun off its manufacturing arm as Wistron in 2000. Customers were a little wary initially, because both Acer and Wistron operated out of different floors of the same building in Taipei. The acid test came when there was a parts shortage—ironically, I think it was Intel microprocessors that were on allocation. Would Wistron short its U.S.-based customer, or would it short Acer? When it decided to short Acer, other customers really started to trust it. Intel’s will no doubt face a test like this down the road, and having a little independence will help it to make the right decisions.

Source: Forbes

Last year as COVID ravaged supply chains and the US was struggling, The Trump administration went with briefcases in hand to TSMC and handed them a USD 10 Billion cheque to set up their fabrication in - guess where - Arizona.

That notwithstanding, this opens up the possibility for especially western companies to have their fabrication done in America. With the 5G fiasco and push back being seen against Huawei, this will become an alternative. Further, companies like Apple will hedge their risks by having batches manufactured by Intel.

There was a time when almost all of Apple’s silicon was manufactured by Samsung. Then friends turned into foes. Apple moved all of its business to TSMC.

George Carlin used to describe American foreign policy as the “bigger dick foreign policy”. Now, watch the “bigger dick corporate strategy” in action.

Contract chipmaker TSMC said on Thursday it plans to invest $100 billion over the next three years to increase capacity at its plants, days after Intel announced a $20 billion plan to expand its advanced chipmaking capacity.

Taiwan Semiconductor Manufacturing Co, whose customers include Apple and Qualcomm, had already flagged a plan to spend of between $25 billion-$28 billion this year, to develop and produce advanced chips.

Source: CNBC

While you can outspend your competitor to success in the Silicon business. Money alone rarely solves business problems, much less geopolitical problems.

In the meantime, India is arriving fashionably late to the party - 30 years late!

The Indian government has decided to boost the country’s smartphone assembly industry as well as strengthen electronics supply chain by offering cash incentives of more than $1 Bn to each semiconductor company that sets up its manufacturing unit here. The government intends to cut down on its reliance on China for electronics supply chain and stable reliable suppliers.

Source: Inc42

Not only have we squandered all the talent to Intel, Apple, AMD and Qualcomm; we have major “upstream supply chain issues”. India never put the building blocks for any kind of high-tech manufacturing in place. This was because we heavily relied on services businesses. Most of the 90s and early 2000s were spent establishing large call centre companies and IT services companies. Manufacturing is not our strongest suit - precision manufacturing even less so.

Also, Apple recently found out that workers in India are not as pliant as the ones in China. They had part of their manufacturing facility vandalised by workers claiming they had not been paid overtime.

What would a Billion dollars mean to companies who have to invest 10s of Billions to get started with full-scale manufacturing?


Digital Payments

As a startup mentor, I used to hate the policies laid out by the RBI. It often meant dealing with the painful and cumbersome collection process, especially for recurring payments. It is easier to sell something that would cost Rs. 500 per month than to sell something that would cost Rs. 6000 per annum. But the former means collecting the money 12 times, which can end up costing you more than the Rs. 500 you will earn.

On the other side, I am also incredibly proud of the payment infrastructure and the safeguards that are in place in the country. This makes it very difficult to cheat a consumer, especially one that is not technically literate. The OTP, which makes the collection of recurring payments a pain, also protects consumers.

Now, with Credit Cards, it is possible to collect recurring payments much more easily since it is possible to take authorisation for recurring payments. RBI is coming for it.

What are these requirements?

Among the key guidelines, the RBI has now asked banks to send a pre-debit notification to their credit card users 24 hours before an actual debit to the credit card. This can be either through SMS or email, as chosen by the customer. The pre-transaction notification should, at the minimum, inform the cardholder about the name of the merchant, transaction amount, date/time of debit etc.

Also, on receipt of the pre-transaction notification, the cardholder should have the facility to opt-out of that particular transaction or the e-mandate.

There has to be a validity period for e-mandate, which will have to be provided at the time of registration of the e-mandate. The RBI has also called for certain audit-trail-related requirements that the merchant service provider and banks will have to meet.

During the registration process, the cardholder should be given an option to provide e-mandate for either a pre-specified fixed value of recurring transaction or for a variable value of the recurring transaction. In case of the latter, the cardholder will provide a maximum value of the recurring transaction and this has been capped at Rs 2,000 per transaction by the RBI.

A cardholder who wants to opt for e-mandate facility on the card should undertake a one-time registration process, with AFA validation by the issuer.

Among other guidelines, the issuer will have to provide the cardholder an online facility to withdraw any e-mandate at any point of time, following which no further recurring transactions should be allowed for the withdrawn e-mandate.

So, till such time that card issuers and merchants adhere to these norms, e-mandates cannot be given by the customers for payment to service providers.

Source: Indian Express

I think the guidelines are awesome for consumers and will bring India to the forefront, at least in terms of consumer protection. I do not suppose ANY country does things the way RBI is suggesting it be done.

Every bank failed to comply by the 31st March 2021 and they have extended the deadline for another 6 months with an admonishment.


Rock and a Hard Place

Pharmaceutical majors often approached a horse stable outside of Pune for testing their compounds. The owner of the ranch thought, why can’t I do this myself? And hence was born Serum Institute of India (SII).

There is no comparison to SII in the world. For starters, it is a private enterprise. Think of it as the Saudi Aramco of the vaccine business.

Serum makes vaccines for measles, tetanus, diphtheria, hepatitis and many other diseases. It specializes in generic versions, exports to 170 countries—and estimates that two-thirds of the world’s children are inoculated with its vaccines.

Source: NPR

Two-thirds of the children in the world is no small feat! This is also because SII is one of the sole manufacturers of low margin vaccines.

In August last year, as vaccine candidates were coming around for COVID-19, SII got into bed with AstraZeneca and became the largest manufacturer of the Oxford-AstraZeneca vaccine. It had some inherent advantages, including not needing -70 degree temperature for preservation.

The past few months have been great! The government has used the large production capacity to engage in diplomacy. The government even has a dashboard on the Ministry of External Affairs site to showcase all the countries to whom we have donated vaccines. It includes an impressive 84 countries.

This is not something new, though.

The first relates to India’s formidable reputation as the “pharmacy of the world“. It has actively contributed to meeting global demand for vaccines, over the counter medicines, and low-cost generic drugs. The relatively low manufacturing costs make Indian products affordable throughout the world.

Almost 20% of India’s pharmaceutical exports, valued at $17 billion, are to Africa. Southern and western regions of Africa are the largest importers of Indian medicines. These include antiretroviral (ARV) drugs that cost only a fraction of those produced by Western companies.

The second relates to capacity building and collaboration in the health sector. Leading Indian healthcare providers are collaborating with African partners. Some have opened or plan to open speciality hospitals across Africa.

Source: Quartz

As the next wave of COVID cases rises in India, both the government and SII are in a precarious position. Do they keep exporting and using the vaccines to further diplomatic agenda or do they divert all the capacity to Indians and inoculate the country from further economic turmoil?

The world’s largest vaccine maker, based in India, will be able to restart exports of AstraZeneca doses by June if new coronavirus infections subside in the country, its chief executive said Tuesday.

But a continued surge could result in more delays because the Serum Institute of India would have to meet domestic needs, Adar Poonawalla warned in an interview with The Associated Press.

Source: LiveMint

In the meantime, the EU seems to have completely botched up their vaccine distribution drive. This is without even managing to donate or contribute anything to anyone. The Americans hogged all the Pfizer and Moderna supply - Despite Anit-vaxxers. The Indians kept their supply to themselves and to distribute to 84 other countries it would seem. The Europeans would rather die than subject themselves to the Chinese or Russian vaccine.

And the little that came in as supply to the EU was exported, to the UK of all places, or stashed away in warehouses in Italy by those who hope to make a profit when prices went up!



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