Explained: How Tata’s semiconductor foray could boost its other businesses

Currently, the entire world is experiencing a shortage of chips and semiconductors that have become essential not only for new-age technological products like smartphones and computers, but also for traditional sectors like automobiles.

Mumbai-based conglomerate Tata Group, which has already forayed into manufacturing of hi-tech electronics, is now planning to enter semiconductor manufacturing. The decision comes at a time when the Covid-19 pandemic caused, and later exacerbated, a global shortage of chips and semiconductors.

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Why is Tata Group foraying into semiconductor manufacturing?

Tata Sons chairman N Chandrasekaran recently said: “At the group, we have already set up a business to seize the promise of high-tech manufacturing of electronics, precision manufacturing, assembly and testing, and semiconductors in the medium term”.

The conglomerate has also recently acquired a stake in Tejas Networks, which is involved with manufacturing of telecom equipment. In addition to these, the Tata Group has already laid down its plans for a digital foray through a super-app and has acquired stakes in consumer internet firms like BigBasket, 1mg.com and CureFit.

Why is the timing significant?

Currently, the entire world is experiencing a shortage of chips and semiconductors that have become essential not only for new-age technological products like smartphones and computers, but also for traditional sectors like automobiles.

Several carmakers in the world have delayed deliveries of their vehicles and even pushed the launch of new vehicles because of chip shortage. Tata Motors’ UK-based unit Jaguar-Land Rover has also done so. For the Tata Group, while a foray into chip-making would mean entering a lucrative business that can find customers not only in India but across the world, it would also be significant for captive use with Tata Motors, Tata Power, etc.

What is behind the global chip shortage?

Chips — or semiconductors, which are the brain-centre of any electronic technology — have found themselves to become a rare commodity in the post-Covid era, with several large factories in countries like South Korea and Taiwan being shut down, creating a huge pent-up demand that these foundries were unable to satisfy after opening up.

The pandemic caused a surge in demand for electronic devices such as smartphones, laptop computers, etc the manufacturing and logistical bottlenecks meant that the situation was only exacerbated. This shortage, which began last year, is expected to go on till 2022, and to prevent a future situation like this, a number of companies are planning to reduce their dependence on the only few large factories that supply to the whole world.

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