India’s semiconductor ambitions go beyond fabrication.
From the government’s ₹76,000-crore semiconductor incentive scheme to the deluge of domestic chip manufacturing project announcements, the emphasis has mainly been on developing fabs that can produce computer chips within India.
But fabrication is just one part of the semiconductor ecosystem.
Long before a chip reaches a fabrication facility, or finally powers an electric vehicle, industrial robot, or AI data centre, it must first be devised, engineered, and proven.
After it leaves the fab, it must then be incorporated into electronic systems that can operate in complex real-world conditions. These stages form a large and often forgotten portion of the semiconductor value chain.
Globally, this ecosystem is expanding rapidly. The demand for semiconductors is climbing across industries as artificial intelligence infrastructure, electric vehicles, industrial automation, and connected devices need increasingly advanced computing hardware.
According to the Semiconductor Industry Association (SIA), global semiconductor revenues could exceed $1 trillion by 2030 or as early as 2026, indicating the growing importance of chips in new technology systems.
According to a government press release in July 2025, India is home to ~20% of the semiconductor design engineers,making it one of the biggest global centres for chip design and product engineering.
As demand for semiconductors grows in artificial intelligence infrastructure and automotive electronics, the companies operating in the secondary layers of the ecosystem are quietly seeing new prospects emerge.
Within India’s listed market, a few mid-cap companies at present operate in these supporting layers of the semiconductor ecosystem.
Cyient and Avalon Technologies offer two different avenues of participating in this expanding technology cycle.
Cyient: Engineering the design layer of the semiconductor ecosystem
Before a semiconductor ever moves to a fabrication plant, it must first be devised, validated, and tested.
This phase of the semiconductor lifecycle, often called the design and engineering layer, is where India has a major presence in the global chip industry.
Based in Hyderabad, Cyient Ltd works in this layer of the semiconductor value chain. These services are quickly becoming crucial as semiconductor companies face growing improvement costs and increasing design complexity.
Cyient’s semiconductor capabilities include silicon engineering, Application Specific Integrated Circuit design support, semiconductor verification, and embedded product development, letting global tech firms farm out parts of the chip design process.
To make the most of this opportunity, the company launched Cyient Semiconductors, a subsidiary engaged in custom silicon solutions.
Not quite Tata Elxsi, but a different engineering niche
Cyient works in a competitive engineering services sector that includes well-known larger peers such as Tata Elxsi and L&T Technology Services.
While Tata Elxsi has developed strong expertise in automotive software and digital design, L&T Technology Services concentrates heavily on industrial R&D.
Cyient has always developed innate expertise in aerospace engineering, transport systems, and industrial product development, segments where engineering complexity often establishes higher entry barriers.
Such sector diversification lets Cyient tap into semiconductor demand across multiple industries rather than depending on a single tech vertical.
Stable engineering revenues, with chips as a growth lever
Cyient generated a consolidated revenue of roughly ₹7,250 crore in 9MFY26, with a net profit crossing ₹500 crore during the same period. In Q3FY26, it had a revenue of ₹1,848 crore, slipping ~4% YoY.
Its net profit for the quarter, excluding exceptional items, was ₹124 crore, 4% lower than the same quarter the previous year. This fall was due to a one-time provision to comply with new labour codes introduced this year, rising costs, and slower growth in the aerospace and railway sectors.
The average return on equity over the past three years has been 16%, while the stock price fell at a CAGR of 3% in the same period.
Cyient 3-Year Share Price Trend
Semiconductor engineering still signifies only one part of the company’s broader engineering services portfolio.
However, as the auto electronics, aerospace, and industrial automation industries incorporate more advanced chips into their products, the demand for chip design and authorisation services could slowly become a larger growth driver.
The risk: engineering demand follows global tech cycles
Despite its positioning within the semiconductor ecosystem, Cyient continues to be subjected to broader technology spending cycles.
Engineering services demand often grows and drops with product development budgets at global technology firms. When companies suspend new product launches or reduce R&D spending, the need for engineering outsourcing can decline.
Competition is another fundamental challenge. Larger engineering firms have a greater scale and broader expertise, making it challenging for mid-sized companies to hold a distinction without dedicated expertise.
For Cyient, maintaining its niche in complex engineering domains, especially aerospace and industrial systems, will be key as the semiconductor engineering market grows more competitive.
Avalon Technologies: Where chips become real machines
Chip designing is only one part of the technology cycle.
Before chips control an aircraft control system, an industrial robot, or a renewable energy installation, they must first be added to an electronic system that can run consistently in real-world settings.
This is where businesses like Avalon Technologies work.
Avalon specialises in producing complex electronic fabrications and integrated systems for global original equipment manufacturers.
It manufactures printed circuit board assemblies, electronic modules, and complete system integration comprising multiple semiconductor modules for aerospace, defence, clean energy, and industrial equipment sectors, where dependability and engineering precision are essential.
Not another Dixon-style EMS story
India’s electronics manufacturing services industry is dominated by companies such as Dixon Technologies and Kaynes Technology.
However, Avalon operates in a very different part of the market.
Dixon’s business model is developed around high-volume consumer electronics manufacturing, televisions, smartphones, and other mass-market devices.
Kaynes, meanwhile, has positioned itself as a diversified electronics manufacturing player serving sectors such as auto electronics and industrial systems.
However, Avalon’s focus is narrower and specialised. It works with highly complex electronics systems, for defence, space, and industrial equipment, where the order volumes are low, but the engineering difficulty is far greater.
This specialisation lets Avalon compete with its peers through its engineering capabilities and system integration expertise, instead of size.
Small scale, but riding a powerful electronics cycle
Avalon is still relatively small compared to its peers.
The company generated a consolidated revenue of ₹1,123 crore in 9MFY26, up 48.7% YoY, though notably lower than that of larger electronics manufacturers in India. Its profit after tax for the same period was ₹72 crore, marking a growth of 83.3% YoY.
In Q3FY26, its revenue was ₹143 crores, growing 36.1% YoY, while its profit after tax excluding exceptional items was ₹33 crore, up 35.9% YoY.
This growth was led by robust sectoral demand, a rise in high-value box-build solutions, expansion in the US operations, and the EMS market in India.
The average return on equity over the past three years has been 10%, while the stock price grew at a CAGR of ~57% in the same period. (397 in May ’23 – 930 in Mar ’26)
Several structural trends could support long-term growth. The defence, space, green energy, and industrial automation sectors are becoming increasingly electronics-intensive,
Moreover, as electronic intricacy grows, the number of semiconductor components inserted within these systems also increases.
At the same time, global companies are steadily diversifying their electronics supply chains. This shift has created new prospects for specialised manufacturers outside the traditional production centres.
For companies like Avalon, this blend of rising electronics complexity and supply chain diversification could establish a favourable long-term environment.
The risk: thin EMS margins and larger competitors
Despite these prospects, electronics manufacturing is still a challenging business.
EMS companies usually work with fairly thin margins, as customers usually seek low prices. So, increasing production while staying profitable becomes challenging.
Strong competition is another risk.
EMS players such as Dixon Technologies and Kaynes Technology are larger, and they have wider manufacturing expertise, which helps them secure large contracts.
For Avalon, keeping its position in the highly complex electronics manufacturing field, instead of competing directly in high-volume production, will be crucial to its long-term strategy.
Why the semiconductor ecosystem matters now
The global semiconductor industry is entering a new phase.
AI infrastructure, EV, industrial automation, and green energy systems are increasing the semiconductor content implanted in modern machines.
Chips are no longer confined to computers and smartphones; they are now central to everything from factory robots to aircraft electronics.
At the same time, governments across the world are seeking to rebuild semiconductor supply chains. The United States, Europe, and India are all spending heavily in national chip manufacturing capacity.
But fabrication plants are one segment of the large universe.
Before chips reach a fab, and long after they leave it, they pass through levels of design engineering, electronics integration, and system production.
Unlike semiconductor fabrication itself, these segments gain from engineering-driven intellectual property, long product development cycles, deep customer integration
and exposure to several end-user industries.
For companies sitting inside these levels, the semiconductor opportunity can rise gradually, through engineering contracts, electronics manufacturing orders, and system integration work tied to rising chip complexity.
The valuation question
India’s semiconductor narrative in the stock market is centred around fabrication project announcements, new government incentives, and large tech investments.
But the real opportunity may be in companies operating in the support layers of the semiconductor universe.
Businesses such as Cyient and Avalon Technologies are not pure semiconductor manufacturers. Instead, they operate in the engineering and electronics segments that support the chip industry.
Because of this positioning, they are often valued closer to their engineering services or electronics manufacturing peers, instead of being a part of the semiconductor theme itself.
That gap is what makes them interesting.
For Cyient, the semiconductor prospect lies in expanding engineering services tied to chip design and product development.
For Avalon, that chance may arise from incorporating semiconductor elements into increasingly complex electronic systems.
Neither company is a pure semiconductor bet, but both contribute in parts of the ecosystem where the demand could grow as semiconductor use develops across industries.
The bigger question for investors
India’s semiconductor ambitions may eventually be marked by the achievements of its fabrication ecosystem.
But the broader semiconductor cycle is already happening.
Engineering firms designing chips, electronics manufacturers integrating semiconductors into complex systems, and industrial technology companies embedding chips into machines are all participating in the same technology shift.
The real question for investors is not simply who builds the fabs.
It is which companies are already placed in the layers of the semiconductor ecosystem where value begins to accumulate first.
Because in technology cycles, the most powerful investment stories often start quietly, long before they become widely recognised.
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Disclaimer:
Note: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Archana Chettiar is a writer with over a decade of experience in storytelling and, in particular, investor education. In a previous assignment, at Equentis Wealth Advisory, she led innovation and communication initiatives. Here she focused her writing on stocks and other investment avenues that could empower her readers to make potentially better investment decisions.
Disclosure: The writer and her dependents do not hold the stocks discussed in this article.
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