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India Enters Wafer Production Game

Back in the spring, a spate of reports in the industry and mainstream press (and here at EBN) covered India's intentions to get into chip manufacturing. Though India has long had a major presence in software and circuit design, efforts to build a ground-up supply chain have run into land disputes and funding problems. The cost of building a chip factory can run to 11 figures in US dollars.

A few days ago, however, The Wall Street Journal reported (subscription required) that plans to build two fabs have received government approval. One is being built by a consortium headed by the Israeli company Tower. The other is being built by STMicro, a French-Italian effort.

Similar efforts have already been successful in much smaller countries — Malaysia comes to mind. But a key aspect of the Indian effort is different. The goal appears to be to manufacture circuits for a booming domestic electronics market, not the export market. Rather than building the base of a supply chain to compete in the global IT market, India is building toward itself and its own needs.

Does such an effort make sense now? It appears to. The Deccan Herald reported this month that India is consuming $7 billion of (imported) semiconductor-based products a year. That figure is projected to grow more than 700 percent to $55 billion by 2020. The Herald said that Indian design houses would be working with local fabs, rather than sending their designs abroad. Other growing Indian industries fed by the electronics supply chain (such as auto manufacturing, which uses a lot of integrated circuits) would like to cut chip costs.

The unknown in all this is what it means for supply chains outside India over the long term. If the Indian electronics industry became self-sufficient, a domestic IT market that is expected to grow from $24 billion to $42 billion in the next decade would get a lot more competitive. A chipmaker in China or Taiwan currently can count on Indian business generating a major chunk of its demand. Imports make up as much of 65 percent of the electronic goods consumed in India, according to India's Economic Times. That number is expected to fall (quickly) when the subcontinental giant's first two fabs come online.

If that happens, more will come — at least, that's the plan. India's government, seeking to incentivize manufacturing, has taken the normal steps of waiving various taxes. It has lowered tariffs on imports of machinery for chip plants, making it cheaper to build the expensive factories in India (for the moment) than it might be in a competing nation that taxes factory parts more stiffly. The value of the incentives is believed to be as high as $3 billion.

It's no surprise that countries compete for business, but India's potential scale, both as a market and as a manufacturing force, suddenly makes the conversation very different. Targeting 65 percent of the market in the second most populous country on Earth is a swing for the fences (or hitting for six, to use a more regionally appropriate metaphor).

Earlier efforts, going back at least to 2008, have failed. This time, it looks like things are serious. If so, chipmakers in China and Taiwan will have to supply chips better, cheaper, or faster than their new rivals in India, or one of the world's fastest-growing IT markets will be happy to handle the demand itself.

36 comments on “India Enters Wafer Production Game

  1. Daniel
    September 26, 2013

    “Similar efforts have already been successful in much smaller countries — Malaysia comes to mind. But a key aspect of the Indian effort is different. The goal appears to be to manufacture circuits for a booming domestic electronics market, not the export market.”

    Marc, the initial aim is to address the domestic market and later to export market. As the domestic market and consumerisation is huge, that itself is challenging.

  2. Daniel
    September 26, 2013

    Mark, in hardware sector, government is keen on native products especially for military and avionic/space departments. They have a plan for Indian Microprocessor too and it's in pipe line.

  3. Marc Herman
    September 26, 2013

    Sure. But that's itself notable, I think, because few places have the luxury of a domestic market like India's. Malaysia exports in part because it must; India's effort is important precisely because it represents enormous potential capacity parallel to enormous proven demand. China and the US are the only two obvious parallels. Steps toward the world having another example on that scale is clearly a big deal. Thanks for your comment.

  4. prabhakar_deosthali
    September 26, 2013

    In my opinion, this is a ver prudent move ( though albeit late) by the Indian Government. I was actually expecting that a private business house to enter into this arena long back ,considering its huge business potential and the money power that these business houses like Tatas , Birlas and Ambanis are weilding.

     

    The move by the govt seems with the basic aim of controlling the dollar outflow as both the oil and Electronics are draining  quite a lot on Inda's Foreign exchange reserve.

    If the plan gets executed as planned then this is surely going to create a major flutter in the Electronic Supply Chain scenario

  5. Himanshugupta
    September 26, 2013

    Jacob, the electronic export bill is huge in India, as Marc rightly points out, and it is bound to grow further. I think the whole idea is cut the export bill and further there are defence and strategic interest that India wants to protect so there is a need for Fab. I do not think that India's Fab will be able to meet all the demands that domestic market has as the Fabs will not be high-ends.

  6. Himanshugupta
    September 26, 2013

    Marc, i think it is a valid question whether India's entry to Fab is too late. Most of the people think that India should have entered in this business in last decade itself but Indian bureaucracy is tough to beat. I hope that this time government/private players could cut the deal and break the ground in next year itself.

    As far as competition to Chinese and Taiwanese fabs are concern, i do not thinks there will be much competition with them as the interests will be much different. I think the idea will be cater to the not-so-high tech sector, defence and strategic interest sectors. But if Indian fabs could break-even within 5 years then it will boost the confidence of the local players.

  7. ahdand
    September 27, 2013

    Looks like India has decided to take on every possible opportunity to rule most of the markets. I'm pretty sure they have a good plan on this.

  8. Daniel
    September 27, 2013

    “I think the whole idea is cut the export bill and further there are defence and strategic interest that India wants to protect so there is a need for Fab”

    Himanshu, that's one of the reason. The main point is safeguarding the Military devices from Spy threat and later it will get establish to domestic and international markets.

  9. Daniel
    September 27, 2013

    “But that's itself notable, I think, because few places have the luxury of a domestic market like India's.”

    Marc, you are right. The domestic market in India is very high because of its vast population (1.2 Billion) and consumerization.  That's the main reason most of the foreign home appliance companies are targeting Indian market as the primary market.

  10. Daniel
    September 27, 2013

    “i think it is a valid question whether India's entry to Fab is too late. Most of the people think that India should have entered in this business in last decade itself but Indian bureaucracy is tough to beat. I hope that this time government/private players could cut the deal and break the ground in next year itself.”

    Himanshu, if truly speaking it's too late because up to 2010 the primary focus was on IT and ITES sector. In 2008 government started initiatives for Fab units but nothing was successful because of various reasons. Now I think government is very keen on some fab manufacturing units and starting by short listing 2 units.

  11. Daniel
    September 27, 2013

    “The move by the govt seems with the basic aim of controlling the dollar outflow as both the oil and Electronics are draining  quite a lot on Inda's Foreign exchange reserve.”

    Prabhakar, am not sure about this dollar flow because it's a latest addition. But I know this projects and proposals are in pipeline from 2010, as part of security measure for military. That's the one reason government initiated the Indian version of microprocessor development and latest hardware policy.  

  12. Himanshugupta
    September 27, 2013

    Jacob, if India can break the ground after raising all the required money and get all necessary government approval within next year then in itself will be an achievement. It is long way ahead for India to become a serious Fab establishment among the work especially after 45Billion USD inverestment plan in NY states. But let's hope for the best for Indian chip ecosystem.

  13. Himanshugupta
    September 27, 2013

    Nimantha, unfortunately there is no plan right now in place. The approval is just “in-principle” approval. Participating consortium need to come up with detailed plans and raise the necessary money.

  14. Rodney Brown
    September 27, 2013

    Marc, how big a factor in the success of this effort will the rising cost of labor in China be?

  15. Nemos
    September 27, 2013

    It was expected to have a similar progress for India, well done. India if not right now but in the coming years will be one of the greatest electronic manufacturers if the government will play fair and to the right direction. Take a look around the world , look at the academic world …..

  16. Hailey Lynne McKeefry
    September 27, 2013

    @Jacob, that's not suprising–it makes sense that a made in our country stance would come from military and aerospace sectors. Can you tell us the name of the company that is making the microprocessor?

  17. Hailey Lynne McKeefry
    September 27, 2013

    @Prabhakar, what do you think held private businesses back from getting into this? I agree that it seems like a lucrative opportunities.

  18. Hailey Lynne McKeefry
    September 27, 2013

    @Himanshugupta, How long do you predict this growth will take? Are we years away? I also find myself thinking that the availability of the fab, even if it isn't sufficient to the whole need, may spur innovation and creativity amongst designers and OEMs. Do you agree?

  19. Hailey Lynne McKeefry
    September 27, 2013

    @Himanshugupta, I'm not sure it's fair to blame bureaucracy, even though i know you are right that it is a huge force in India. However, i have to think that other countries have a lot of bureacracy too.

  20. Hailey Lynne McKeefry
    September 27, 2013

    @Marc and @Jacob, the market size is tremendous… it's a good starting point.

  21. Houngbo_Hospice
    September 27, 2013

    India has the potential of becoming a major player in the world economy. But it will begin change of atitude in the leadership and the training of the right skills.

  22. Houngbo_Hospice
    September 27, 2013

    @Himanshugupta

    “unfortunately there is no plan right now in place…Participating consortium need to come up with detailed plans and raise the necessary money.”

    Seems like the implementation of the project is light years away. Let hope that the indian government will not miss this great opportunity of becoming a player in the water production game. The people of India diserve that.

  23. ahdand
    September 29, 2013

    @Hospice: They do indeed but the political interference in that region is really high. If that happens (which is highly possible) then the whole project will be a waste. 

  24. Himanshugupta
    September 29, 2013

    @Hailey, from what i hear or read there is a lot of uncertainity still with the project. However, the bureacracy has not been all to blame. Such a big initiative cannot be taken by govenment alone and Indian semiconductor industry does not have deep pockets but hopefully market will come to senses and support the initiative.

  25. Himanshugupta
    September 29, 2013

    @Hospice, the local semicon veterns are telling that the full project plan should be ready anywhere between 9-12 months. Then if the things are put on fast track, it will take 18-24 months to finish the production/equipment buying etc. So, we are atleast 3 yrs away and looks like it will not be before 2017.

  26. Hailey Lynne McKeefry
    September 29, 2013

    Ceratinly there are a lot of moving parts here… fingers crossed that the initiative will move forward.

  27. Houngbo_Hospice
    September 29, 2013

    @Himanshugupta, Let's hope for the best. We can expect some delay in the implementation of the project, but let hope that it will eventually come to realization as soon as possible.

  28. ahdand
    September 30, 2013

    @Hospice: Why do you think there will be a delay in implementing the process ? I think the time frame will not be a problem even though its bit complex

  29. Anand
    September 30, 2013

    We can expect some delay in the implementation of the project

    @Hospice_Houngbo, I totally agree with your opinion. General elections will be held in 2014 and this will greatly impact the policies that will be implemented and thus inturn will delay the implementation of the projects. 

  30. Anand
    September 30, 2013

    Such a big initiative cannot be taken by govenment alone and Indian semiconductor industry does not have deep pockets but hopefully market will come to senses and support the initiative.

    @Himanshugupta, I really hope big companies like Reliance, Tata etc will collaborate with government to make this project reality. 

  31. Anand
    September 30, 2013

    The move by the govt seems with the basic aim of controlling the dollar outflow as both the oil and Electronics are draining  quite a lot on Inda's Foreign exchange reserve.

    @prabhakar_deosthali, good point. True government is trying everything possible to control the dollor outflow but the implications of this step will take lot of time to reflect in the currenccy terms because this project will take lot of time for completion.

  32. Anand
    September 30, 2013

    The move by the govt seems with the basic aim of controlling the dollar outflow as both the oil and Electronics are draining  quite a lot on Inda's Foreign exchange reserve.

    @Nemos, it would be too early to say if this project will make india greatest electronic manufactureres because we had many such initiatives planned by the government earlier but none of them were successfull.

  33. Daniel
    October 6, 2013

    “if India can break the ground after raising all the required money and get all necessary government approval within next year then in itself will be an achievement. It is long way ahead for India to become a serious Fab establishment among the work especially after 45Billion USD inverestment plan in NY states. But let's hope for the best for Indian chip ecosystem.”

    Himanshu, that's the past story. Now all government departments and missionaries are like fast moving wheel, so if everything goes well we will have it by end of 2014

  34. Daniel
    October 6, 2013

    “that's not suprising–it makes sense that a made in our country stance would come from military and aerospace sectors. Can you tell us the name of the company that is making the microprocessor?”

    Hailey, government had formed a study group for this project and they had submitted the final version to cabinet for final approval. Once after it gets approval, most probably the project goes to either BEL or CDAC.

  35. Daniel
    October 6, 2013

    “the market size is tremendous… it's a good starting point.”

    Hailey, no doubt about that. After China, India has the biggest domestic market

  36. Hailey Lynne McKeefry
    October 7, 2013

    @anandvy, i think that big companies will jump in–if there's clear advantages to them.  This may demand a marketing effort, or sales effort, from teh Fab. I can see, however, that having fabs in certain locations might be a draw.

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