Long read: When Semiconductor Manufacturing Went East and Chip Design Followed

Vik’s newsletter follows a logical stream of thought to reach the conclusion that, “This storm of events has opened the doors to India becoming equivalent to what Southeast Asia was in the 1960s: a place to outsource chip design at low cost – relinquishing America’s last stronghold in chips: design.

Today, India is well poised to take its spot as the fabless design capital of the world.

A large fraction of the tech workforce of a company is already from India whether they are physically working in the US or India. As a country, India is predominantly English-speaking, produces about a million engineering graduates each year, and provides a talent pool that performs the same engineering roles at a fraction of the US cost. Additionally, India’s politically neutral stance with the US makes it a better choice compared to China, which also produces a copious amount of engineering talent each year.

Several major American chip companies already have a significant footprint in India – in the major metropolitan cities of Bengaluru, Chennai, Hyderabad and Noida. For example, Intel India has 13,000 employees accounting for about 15-20% of the total workforce and is the largest design center outside the United States. Nvidia has anywhere between 4,000-10,000 employees (10-30%) of its workforce in India. A snapshot from Cadence’s 2024 annual corporate impact report shown below says that India has an even higher percentage of employees than in America. …”

Vikram Sekar reach this conclusion by making three logical points sequentially. Firstly, he explains how semiconductor manufacturing came to East Asia thanks to labour cost arbitrage:

“Outsourced Semiconductor Test and Assembly (OSAT) has been dominated by Southeast Asia since the 1960s primarily because they provided services at an order of magnitude lower than American chip makers could possibly manage in the US. As Chris Miller writes in Chip War,

In 1963, its first year of operation, the Hong Kong facility assembled 120 million devices. Production quality was excellent, because low labor costs meant Fairchild could hire trained engineers to run assembly lines, which would’ve been prohibitively expensive in California.

Silicon Valley’s famous taskmaster, the late Charlie Sporck, soon expanded Fairchild’s production to Taiwan, Malaysia, Singapore and South Korea because the cost of labor was even lower than Hong Kong…”

It is this labour arbitrage that Morris Chang relied upon when he set up TSMC in Taiwan but TSMC’s business really took off because: “Carver Mead and Lynn Conway described a set of “design rules” which, if followed, meant that anyone could design chips, it was a “Gutenberg moment” for semiconductors, as Miller puts it in his book. The fabless company model was born.”

The second point which contributed to India being well placed to become the chip design capital of the world was the reliance of the “largest chip companies in the world – AMD, Nvidia, Apple, Texas Instruments, Qualcomm – to name a few” on Indian talent:

“With every passing decade, foreign born engineers have evolved to occupy a larger fraction of the workforce. Right about twelve years ago, foreign labor took a majority in the IT industry. This includes both software and hardware, but the ratios should broadly apply even if just looking at people working on chips. Extrapolating to present day, foreign labor dominates the technology industry…The only way America has been able to sustain the level of foreign-born talent is through its H1B visa program…”

And that brings us to the third point which is contributing to India being well placed to become the chip design capital of the world:

“The suddenly imposed $100,000 for a new H1B visa increases the cost of hiring fresh graduates by 2x with the added uncertainty of even getting a spot in the limited quota of H1B visas available. This leaves US tech companies with a few choices:

It does not take a fortune 500 CEO to make the reasonable choice here.”

However, before you open that bottle of Dom Perignon to hail the birth of ‘Viksit Bharat’ (especially in the wake of India’s success in making the 180nm process node Vikram-32 microprocessor), Vik Sekar reminds you that there a couple of hurdles for India to overcome: