Around the same time last year, Gartner Research chief analyst Bryan Lewis had re-ignited the IT industry?s age-old debate on whether India can join the foundry club, when he proclaimed, ?Investing in fab plants in India does not make economic sense.? His rationale was that the world would see an excess capacity of fabs by 2009 and India would do better to focus on its strengths?design and software that goes into chips, rather than compete against those who had better economies of scale.
The same question is popping up once again, as companies like Reliance, Moser Baer and Videocon Industries unveil plans to invest about Rs 65,000 crore in chip manufacturing. Most thought India had missed the bus when Intel decided to put off its plans to set up a plant in India to manufacture, assemble and test silicon processors. Instead, it went to China with a $2.5-billion fabrication facility. Ironically, it had sought a $50-million upfront subsidy from the government. The much-talked about chip manufacturing forays of
SEMIndia or Hindustan Semiconductor Manufacturing Corp?s seem nowhere near completion. Stung by the setback, the government framed a special incentive package scheme last year for semiconductor manufacturing?following the trend of many Asian countries?offering a capital subsidy to investors setting up chip manufacturing units. The recent investment proposals are an outcome of that.
While industry is enthused about its chances of finding the missing link?manufacturing?in the semiconductor ecosystem, it continues to tow a cautious line. Manufacturing chips is a different game altogether, which requires different skill-sets and a different business environment, insiders feel.
For one, such industries are highly capital intensive and have to deal with constantly changing technologies. Secondly, a fab requires all sorts of infrastructure, including basic things such as uninterrupted water and power supply in addition to the land provided at attractive rates by the government. Certainly, none of the state governments could boast of meeting these infrastructure needs.
Several questions thus arise. Is it really viable to set up fabs in India? Aren?t we a bit too late and have already missed the opportunity? Even if it commences, won?t manufacturing be restricted to lower-end? Can?t the demands of the semiconductor industry?projected to grow to $40 billion by 2016?be met from imports? In a nutshell, what could be the best semiconductor strategy for India under the prevailing circumstances?
First, let?s glance through the big-ticket proposals unveiled recently. Corporate behemoth Reliance Industries plans to lead Rs 30,152 crore in investments over 10 years in chip and liquid-crystal display factories. The first proposal envisages setting up of a semiconductor wafer fabrication plant with assembly, test, mark and packaging facility. Another proposal is to manufacture poly-silicon, single crystal/multi crystalline ingots, solar grade wafers and modules with a capacity of 1 giga watt.
Videocon Industries is also planning to set up an LCD fabrication plant with an investment of about Rs 8,000 crore. Other proposals include Signet Solar Inc?s to set up solar photovoltaic and associated products manufacturing plant with an investment of Rs 9,672 crore and Moser Baer PV Technologies India Ltd?s proposal for silicon cells, modules and thin film concentrators facility, with a Rs 6,000-crore investment. KSK Energy Ventures Pvt Ltd intends to set up a solar panel facility with an investment of Rs 3,211 crore while Titan Energy System Ltd proposes to set up a solar cells manufacturing unit with an investment of Rs 5,880 crore.
?The government has given an in-principle approval to five other projects worth a further investment of Rs 27,634.87 crore . Yet another five proposals, also worth between Rs 23,687.03 crore and Rs 27,634.87 crore are under active consideration. The in-principle allotments have been given to five other Indian companies, which include Chandradeep Solar for an R&D unit, Neotech Solutions, Photon Energy Systems, Surana Ventures and RamTerra Solar Pvt. Ltd for several PV modules unit,? says Poornima Shenoy, president, India Semiconductor Association (ISA).
This might sound impressive, but one must remember that these are mere proposals and not concrete plans. Secondly, all these investments are envisaged over a period of 10 years. In effect, it means that there would be no fabs up and running at least till 2015. Thirdly, the proposals received are for manufacture of wide variety of items like polysilicon, single/multi-crystalline ingots, wafers, solar cells, solar photovoltaic modules (SPV) liquid crystal display (LCD), integrated circuits-advanced logic/memory/embedded system on chip including assembly, test, mar and packaging facility for semiconductor devices.
Typically in a fab, these products are seen as run-of-the-mill and at the lower-end. If the trends are any indication, the next generation chips would have multifunctional processors cores. Fab units in China and Taiwan are not set up to capture the software that goes into the chips. Isn?t there an opportunity for India round the corner?
Analysts stress that Singapore and Malaysia have testing and assembly units, so India should continue to do what it does best: software. Besides, India could only qualify for testing and assembly facilities and not full blown fabs to begin with. Testing and assembly combined with software expertise would be a great proposition, they say.
?I do not believe we have missed the bus on manufacturing in semiconductors. These are capital-intensive projects and we have done the right thing by not jumping into investing in fab(s) as a matter of national ego but take a more cautious approach and do so to generate positive returns,? says Pradip K Dutta, president of Synopsys India.
Without any doubt, India is a growing market for electronic products and is expected to reach $363 billion by 2015, growing at a CAGR of nearly 30%. There is a strong link between semiconductors and electronics, with chips driving the innovation in electronic equipment. Having emerged as a major design centre for integrated circuits (ICs), field-programmable gate arrays (FPGAs) and systems-on-chips (SoCs), this growth pattern is indicative of the potential of the domestic semiconductor industry.
According to industry experts, the demands for designs have increased from the Indian semiconductor industry. With the rate of consumption increasing at the end market, companies are under pressure to bring down the cost of chips. And, with the increase in profitability in testing and marketing, the country is yet to tap the full potential in testing and packaging industry, they feel.
On the technology front, Texas Instruments India managing director Bobby Mitra feels that the focus is increasingly shifting into application processing. ?There is a trend towards media convergence in the wireless handset. An example is having internet, camera, music, TV, video and gaming on a handset.?
Similarly, JA Chowdary, president TiE, Hyderabad says that only solar module manufacturing activities are centred in the country and that too, at the module level and not at the silicon level.
Meanwhile, outsourcing in the semiconductor industry is bound to fix the right chips on the board with both design and chip industries establishing captive houses in the country. In all probability, the country is poised to see a success story of a ?Golden Triangle? to be established between Hyderabad, Bangalore and Chennai. While Bangalore hopes to become the design hub, Hyderabad is set to be the hub for chip manufacturing and Chennai is expected to gives its share in the manufacturing sector.
A survey conducted by Frost & Sullivan for ISA found that an in-country commercial fab would lead to the boost of consumer electronics in India, taking the country?s global share of the electronics industry from 2.8% currently, to 11% by 2015.
ISA feels that the ecosystem for commercial fabs in India exists. It has a sophisticated chip design industry, with 130 companies and its strengths in software are globally recognised. The combination of chip fabs, chip design and software will not only reduce costs but also shrink the time-to-market of semiconductor products.