[Apple Shockwave](25) India Faces 'False Hope' in iPhone Chip Production

Apple Focuses on Indian Consumer Market
India Hopes for Apple Chip Production
Cook and Indian Prime Minister Meet Consecutively at White House
Foxconn Cancels India Semiconductor Investment Announcement
Is India's Sudden Computer Import Regulation a Stubborn Move?

Editor's Note[Apple Shockwave] is a content series that explores the upheaval caused by Apple entering the semiconductor market. You might wonder why Apple is involved in semiconductors. Apple is no longer just a company that makes smartphones and computers. After long efforts starting from its founder, the late Steve Jobs, Apple has designed world-class semiconductors used in mobile devices. If Intel was the leader in the PC era, Apple has become the top predator in the mobile era semiconductor ecosystem. Amid the global semiconductor supply chain crisis and massive investments in semiconductor production facilities, we will carefully examine the upheaval and prospects in the semiconductor market brought about by Apple Silicon to broaden our readers' insights. Apple Shockwave will reach readers every Saturday. After more than 40 installments, it will be published as a book.

"The pioneer who moves quickly will reap the benefits. We are rolling out the red carpet." (Narendra Modi, Prime Minister of India)

"Designed by Apple in California, Assembled in China." This phrase was once engraved on Apple products and is still used today.

In its early days in the 1980s, Apple produced PCs in the United States, but since then, the formula has been design in the U.S. and production overseas. A representative example is the iMac, which Steve Jobs introduced after his return to Apple, produced at LG Electronics' factory in Gumi, South Korea.

Apple products are mainly assembled in China, Vietnam, and India, but most components are also produced outside the U.S. In particular, the semiconductors used in iPhones, iPads, and Mac computers are designed by Apple and manufactured in Asia, specifically by Taiwan's TSMC. Recently, Apple's contract to purchase chips produced domestically in the U.S. from semiconductor company Broadcom made significant headlines.

The U.S. government’s semiconductor law (Chips Act) was pushed to bring back the core semiconductors Apple uses in its A and M series, which have been used since the iPhone's launch, to the United States. Accordingly, Taiwan's TSMC, Samsung Electronics, and Intel are establishing foundry lines in the U.S.

India Challenges South Korea and Taiwan After Producing iPhone Chips

Apple CEO Tim Cook attended the opening ceremony of Apple's first store in India last April and demonstrated an Indian-style greeting. [Photo by AP]

So far, only South Korea (Samsung Electronics) and Taiwan (TSMC) have produced A chips for the iPhone. No other country has had this experience. Only the world’s first and second largest foundry companies have supplied or are supplying Apple’s chips. Naturally, the U.S. has never done this either.

The first experience belonged to Samsung. In fact, Apple used chips developed almost entirely by Samsung. After patent disputes with Samsung, Apple gradually shifted its supply to TSMC, and since the iPhone 7, all A series chips have been produced exclusively by TSMC.

The situation where only Taiwan and TSMC produce Apple chips is already expected to change. Although delays are expected again due to workforce issues, TSMC’s Arizona plant in the U.S. is confirmed to produce chips for Apple. Tim Cook has also declared that he will use Made-in-America chips. Since TSMC is building a factory in Japan following the U.S., Japan is also likely to aim for Apple chip production.

Which TSMC factory?located in Taiwan, the U.S., or Japan?will produce Apple chips and by which process is a complex issue. TSMC has reaffirmed that its roots are in Taiwan. The latest chips produced with cutting-edge processes are most likely to be manufactured in Taiwan. Apple has leveraged its purchasing power to prioritize TSMC’s latest processes. Amid expected price increases for chips produced in the U.S., TSMC founder Morris Chang even argued in a New York Times interview that the U.S. government should provide subsidies for chip purchases.

While the U.S. has imposed semiconductor export restrictions on China, there is a country dreaming of semiconductor production: India. India, pursuing economic power while standing against China, has set semiconductors as a new goal.

India is the market Apple is focusing on after China. It is considered a market that will determine Apple’s future performance. Tim Cook personally attended the opening event of Apple Stores in India, showing great effort.

The perspective inside India is different. India dreams not of being a consumer market for iPhones but of production. The goal is even set as semiconductor production, not just iPhone assembly. This goal is led by the national leader, Prime Minister Narendra Modi.

Cook Heads to the White House, Meets Indian Prime Minister Two Days in a Row

On the evening of June 22, Tim Cook donned a tuxedo and headed to the White House. His visit was not for product or policy announcements but to attend a dinner. It was the first state dinner for Indian Prime Minister Narendra Modi’s official visit to the U.S. Indian-American Sundar Pichai, CEO of Google, and Satya Nadella, CEO of Microsoft, also attended the dinner.

Apple CEO Tim Cook arrived at the state dinner held at the White House on June 22 to welcome Indian Prime Minister Narendra Modi and raised his hand. The flags of the United States and India are visible in the background. Photo by Reuters Yonhap News

Cook had experience attending a White House state dinner during the Trump administration. At that time, there were many questions about why he was invited, but this time the purpose was clear.

Apple regards India as the market following China. With China’s economy in decline, India is Apple’s new growth engine. In April, Apple opened its first Apple Store in Mumbai, India’s capital. Cook personally attended the opening event, focusing on winning over Indian consumers. The results were clear. Apple’s sales in India increased, as confirmed in its performance. Cook announced during the Q1 earnings report that Apple recorded its highest-ever sales in India, and during the Q2 report, he said that although Apple set a new sales record in India, the market share is still small, so there is great potential.

Cook met with Prime Minister Modi again at the White House the day after the dinner. While it was likely at India’s request, Cook must have considered the meeting with Modi important enough to dedicate two consecutive days.

The CEOs of American tech companies gathered at the White House discussed cooperation with Modi and India. Most attendees were from software companies. Although many Indian executives lead American tech companies, the semiconductor field is different. It is hard to find star-level Indian executives among core semiconductor companies. The only notable example is Sanjay Mehrotra, CEO of memory semiconductor company Micron.

Sundar Pichai, CEO of Google, Tim Cook, CEO of Apple, and Narendra Modi, Prime Minister of India, met at the White House.
[Image source=AP Yonhap News]

In contrast, the semiconductor field is led by Taiwanese-American figures such as Morris Chang, Jensen Huang, and Lisa Su, which is enviable.

Prime Minister Modi’s goal is clear: to establish semiconductor factories in India. He dreams of India becoming a semiconductor production hub like South Korea and Taiwan. Since taking office, Modi has led the 'Make in India' policy, recognizing that India must increase manufacturing capacity to compete with China.

Modi did not initially focus on semiconductors. The semiconductor supply chain crisis triggered by COVID-19 stimulated him. The Indian government announced a plan in 2021 to provide $10 billion in subsidies for the semiconductor industry. The current $23 billion semiconductor industry aims to grow to $80 billion by 2028.

Last month, Modi attended the semiconductor-related event 'Semicon India 2023' held in his home state of Gujarat.

In front of executives from major U.S. semiconductor companies such as Micron, Cadence, Applied Materials, and AMD, Modi declared:

"The pioneer who moves quickly will reap the benefits. We are rolling out the red carpet."

Companies responded with investment commitments. AMD plans to invest $400 million to establish an AI research organization in India. Micron plans to invest about $800 million to build memory semiconductor assembly and testing facilities.

Ajit Manocha, president of the Semiconductor Equipment and Materials International (SEMI), said in his speech that "India has secured a foothold for semiconductor production for the first time in history, combining geopolitical factors, domestic policies, and private sector capabilities."

While there have been achievements, there are also disappointments. The plan to attract foreign companies to set up semiconductor production lines with Indian government subsidies has hit a red light.

The fab construction plan promoted by the International Semiconductor Consortium (ISMC) in cooperation with Israel’s foundry company Tower Semiconductor is stalled. The plan is adrift after Tower was acquired by Intel.

Foxconn’s Semiconductor Factory Plan, Which Raised Hopes for Apple Chip Production, Falls Through

Taiwan’s Foxconn’s plan to establish semiconductor and display factories in India has hit a critical snag. Foxconn announced in early last month that it canceled the plan to build semiconductor and display factories in India.

Indian Prime Minister Narendra Modi (right) is shaking hands with Foxconn CEO Liu Liangwei at the 'Semicon India 2023' event.
[Image source=Reuters Yonhap News]

Foxconn is Apple’s manufacturing partner. To resolve supply chain issues and reduce dependence on China, Apple started iPhone production in India last year. Foxconn planned to invest $19.5 billion in cooperation with Indian conglomerate Vedanta. The scale of investment was exceptional. However, this project was effectively canceled as Foxconn withdrew. Analysts say negotiations with European STMicroelectronics, which was to provide semiconductor manufacturing technology, have stalled. Vedanta Group Chairman Anil Agarwal said they are looking for partners in the semiconductor field, but the situation is difficult. Business Insider reported that Foxconn’s announcement dealt a blow to Prime Minister Modi.

Fabless semiconductor design companies and fabs (fabrication plants) are different areas. Fabless companies can leave anytime, but fabs, semiconductor production facilities established in one location, cannot move. India wants fabs rather than fabless companies. However, companies are more interested in assembly and testing rather than fabs. The abundant low-wage labor in India makes semiconductor packaging businesses, like those in South Korea, Hong Kong, and Malaysia in the 1960s and 70s, more advantageous. Analysts say that India’s inconsistent policies and high import tariffs are barriers to introducing semiconductor facilities. Naturally, attracting fabs is not easy.

Meanwhile, the Indian government abruptly announced on the 3rd that imports of computers and servers now require permits. Previously, PCs could be imported freely. Although the government did not explain, analysts believe this is a policy to nurture domestic companies. PC manufacturers such as Apple, Samsung Electronics, Dell, and Asus are affected. Since semiconductor production is difficult, this policy likely aims to encourage domestic production of PCs and servers.