India's tryst with semiconductors: Govt plans to rope in global bigwigs

No significant global player has participated in the first round of the investment incentive scheme

Last week, the government announced the names of four players who had shown interest in the first round of participation in the ambitious incentive scheme to set up fab and display fabrication plants in the country. But a closer inspection of the applications suggests that the excitement at this second attempt to make India a semiconductor hub may need to be tempered.

For one, the leading global semiconductor giants — TSMC, Samsung, Intel, GlobalFoundries, Micron or Infineon — were conspicuous by their absence. The Ministry of Electronics and Information Technology (MeitY) said talks to rope in some global bigwigs are on, as a result of which the deadline has been extended beyond February 15.

For another, among the four applicants were two lesser-known investment companies. One is Mumbai-based Next Orbit Ventures, whose founder Sanjay Jalan claims he will rope in Indian companies, Navratna public sector units and technology partners to build a $3-billion analog chip-making facility in the first phase, going up to $15 billion when it sets up two more companies to undertake digital chips and memory chips.

Jalan says he has tied up with a technology partner but could not divulge the name because of a non-disclosure agreement. According to MeiTY, the technology partner is Israeli-based Tower Semiconductor that has just a few weeks ago been bought by Intel.

The second player again is little-known Singapore-based IGSS Ventures, which says it is a “one stop semiconductor hub” but its founder Raj Kumar says he won’t talk before March.

Among the other Indian companies is refining, manufacturing and retailing giant Rajesh Exports, which wants to go high tech with forays into electric vehicles and display fab plants. Only aluminium-to-energy major Vedanta announced that it has tied up with Foxconn Technology in a joint venture to manufacture 28-nanometre chips. Foxconn will have a 40 per cent stake in the venture. Vedanta is also scouting for technology for LCD display units from LG, Japan Display and Sharp for its foray into display fab plant. The investment tag is a substantial $15 billion.

The four players have cumulatively promised to invest $20.5 billion. But the question is whether they have the ability to raise funds, get the partners and the technology (most are still memorandums of understanding) and the team in place to do so? Otherwise, the new effort by the government, which includes providing incentives that match what is given globally (30-50 per cent of the project cost), could go the way of earlier efforts to create fab facilities in the country.

For instance, in 2014 the government had offered attractive incentives and the two players selected had tied up with big names. So, Hindustan Semiconductor Manufacturing Corporation had partnered with STMicroelectronics and SilTerra while Jaypee roped in IBM and Tower (formerly TowerJazz). But both Indian companies failed to even raise 10 per cent of the proposed equity, which was one of the conditions for the incentives.

Now, analysts suggest that the government can replicate the successful model of getting Apple Inc and its vendors to set up a base in India by leveraging the Productivity Linked Incentive scheme to make India a manufacturing hub for them as an alternative to China. It can do so again in getting at least one global player on its own or in a tie-up with a deep-pocketed domestic player to change the game. It is worth noting that big groups such as the Tatas are absent from the initial round despite announcing plans to invest in semiconductors.

It is possible, analysts suggest, that India might be a bit late in attracting the large players — it should have launched the initiative when the chip shortage was peaking. But the four big chip makers —TSMC, Samsung, Intel and GlobalFoundries — have already announced investments of over $400 billion over three to four years, to reduce the global chip shortage.

TSMC, for instance, is investing $44 billion this year, which includes a new plant in Japan. Intel is putting in $7 billion in Malaysia for a chip and packaging unit apart from setting up new plants in the US and Europe. And Samsung, which is a large player in India in consumer electronics and mobiles, has announced plans to invest $200 billion in the next three years for new chip capacity.

The obvious question that is asked is whether the Indian market is big enough to justify fab foundry plants. Vedanta says it will focus on the 28-nanometre chips, which account for the bulk of the Indian market. It will also concentrate on fulfilling the needs of the domestic market.

Industry estimates put the size of the Indian market at $24 billion a year, and it is expected to double by 2025. But for the three applicants who plan to set up a foundry plant (they are contract manufacturers like TSMC) the market is much smaller. Says Satya Gupta, former India Electronics and Semiconductor Association chairman, said, “Out of this only $4 billion a year is supplied by foundries and the rest is with integrated device manufacturers (IDMs) such as Samsung and Intel. The market for foundry players will also double but growth of the sub-28-nanometre chip will be faster.”

He added that for foundries the 28 nanometre-plus market would go up from $2 billion to around $3 billion by 2025. But with the requirement for more state-of-the-art chips and high margin sub-28-nanometre will grow from only $1 billion to over $3.6 billion in the same period.

The market could get bigger if foundry players are able to woo fabless players like Qualcomm or Meditek to shift some contract manufacturing capacity they use from Taiwan to India. And that might need the government coming up with incentives for fabless players eventually. But, as Gupta pointed out, no foundry can do without exports — irrespective of the domestic market. In the immediate future, however, the success of the renewed new tryst with fab plants will depend on whether the four players can deliver the goods.