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Should India Get Into Semiconductor Manufacturing?

Over the last decades, India has made a strong splash in the software, programming, and IT consulting markets. Now, with demand for electronics surging in the country amid rising security concerns, the government is directing its attention to the semiconductor sector with plans to spark the local production of chips for the domestic market.

The government is particularly concerned that critical information technology infrastructure in the country could be vulnerable to attack from foreign sources, including hackers and hostile governments. Recent reports that Chinese hackers have infiltrated some government Websites in the West have raised worries in India, especially because the two countries still have a troubled border region and are suspicious of each other's intentions.

India believes the development of a robust domestic semiconductor fabrication sector would help in reducing its vulnerability while also helping to boost the local high-tech industry. “India badly needs a semiconductor fab, and we have not invested in this area, and we should seriously think about it,” said Madhavan Nair, former chairman of the Indian Space Research Organization during a keynote speech at the annual Indian Semiconductor Association conference held in Bangalore last month.

Observers point to surging increase in demand for electronics as another reason India should step up boldly into the production of chips for the industry. Demand for electronic goods in India is expected to reach $11 billion by 2014, up 83 percent from nearly $6 billion in 2010. Even more explosive growth is seen over the next decade as more of the country's 1.21 billion people get access to the Internet thanks to smartphones, laptops, and tablet computers becoming more affordable.

Some Indian companies are already actively seeking opportunities to set up fabs in the country with the support of foreign chip vendors. Hindustan Semiconductor Manufacturing Co., for instance, has reportedly explored opportunities to secure expertise for domestic chip production with such companies as Infineon Technologies. Router and set-top box vendor SemIndia is said to be seeking to partner with Advanced Micro Devices to set up manufacturing operations in India.

While Indian companies are exploring options for increasing domestic production of semiconductors and other electronics components, the government has stepped in as well, but so far with mixed results. Its plan for a government-backed “fab city” in Hyderabad seems to have lost momentum, and the focus has since shifted away from general semiconductor production towards silicon for solar power.

Industry observers have criticized the Indian government for falling so far behind China and Taiwan in encouraging the development of a vibrant electronics sector. They point to limited government incentives and have urged the government to set up funds dedicated to investing in local semiconductor production. Some local observers have also stepped up criticism of foreign companies operating in India, including many that have long had sales, marketing, and research units there but which have not established fabs in the country.

India is itself not an easy location to set up such facilities. Even though government is providing a single-window system for clearing the documentation related to setting up new businesses, it is still far from perfect. The country is noted for the sore absence of angel fund investors, efficient power supply, clean water for fab units, and poor waste management, warehousing, and road network infrastructures. On the other hand, India has some key advantages, including the availability of experts in VLSI design and semiconductor manufacturing, a vast internal market, low-cost engineering resources, and a stable economic environment.

Semiconductor manufacturing is a very risky business, but it’s essential for a region of India's size and capacity. For global companies, the Indian market is still too small to warrant setting up a fab. As a result, both investors and semiconductor vendors have refrained from getting into direct investment or even partnerships with Indian companies.

Local Indian companies simply do not have the technology or the money to get into a huge project like this. This means that they need the backing of a global institutional investor or a semiconductor vendor. Will they get involved?

45 comments on “Should India Get Into Semiconductor Manufacturing?

  1. AnalyzeThis
    April 21, 2011

    I think the idea of India getting involved with semiconductor manufacturing sounds great in theory, but as you mention, there are numerous, NUMEROUS challenges involve.

    You mention the infrastructure issues, which are indeed numerous. Even if you address those, semiconductors are not typically the type of business you can just start from scratch. You will need help from foreign chip vendors. And then things get tricky, as there’s only a short-list of potential partners that would be suitable for this specific situation. There are also numerous cultural/political issues as well.

    In the end, you’d think that long-term that some sort of semiconductor manufacturing HAS to start up in India to meet the potential demand of the market. But will we start to see progress any time soon? Will any global investor or vendor get involved? At this moment, especially given the way the economy is… I very much doubt India will be getting into semiconductor manufacturing in any significant way within the next 5-6 years.

  2. Nemos
    April 21, 2011

    Despite the difficulties that India has to surpass, I believe India should get into Semiconductor manufacturing.

    China has a big role to the semiconductor sector why not India?

    Always there are ways to do the same thing, and the challenge for India is to choose the hard but proper way and promising for the future.

  3. shamala
    April 21, 2011

    Yes, India should plan to get into manufacturing from a perspective of creating highly skilled and manufacturing jobs, but Plan really well, have a great long term strategy and a contingency plan for the investments made to build such infrastructure and also discuss some commitments from potential customers.

  4. tioluwa
    April 22, 2011

    i think anything is possible once we put our mind to achieve. To more, power and infrastructural problems are the least of all challenges. Once there is a market (and India has the market, both home and abroad) all investments, with careful planning will yield. Not to mention the wealth of technically competent man power that india has. The question i believe is wether or not india wants a semiconductor fabs industry.

  5. Adeniji Kayode
    April 22, 2011

    Yes, India should get involved in semiconductor manufacturing. If china is making a move in that area, why not India.

    No doubt they have so much challenges and many thing are not in place yet  but talking of what they have, they have the Man power to make a success out of this.

    Local Indian companies simply do not have the technology or the money to get into a huge project like this. This means that they need the backing of a global institutional investor or a semiconductor vendor. Will they get involved?

    I am sure India will get investors as soon as they are ready.

  6. SunitaT
    April 22, 2011

    India will eventually Get Into Semiconductor Manufacturing, just wondering why they are delaying the inevitable. India should take cue from Chinese government which has decided do increase semiconductor production. I think China and India entering semiconductor manufacturing will be a very good thing that will happen for semicondcutor industry because it will bring diversity to supply-chain model.

  7. prabhakar_deosthali
    April 22, 2011

    With the recent report showing that 63% of the world semiconductor fabs are in the earthquake prone zone ( Japan & Taiwan), the companies in this zone should actively think India as an alternate location to distribute their manufacturing and thus reduce the risks associated with natural disasters. These companies with their eablished expertise in setting up and runningg semiconductor fabs can easily find Indian investors to pump in the required money and also help them in liasoning with the Indian Govt. in setting up the fabs in India. This way the current imbalance of the fab facilities can be removed.

  8. Adeniji Kayode
    April 22, 2011

    tirlapur: I sure agree with you. Both India and China have made a name in the world of technology. Entering the semiconductor industry will definately improve the supply chain

  9. Wale Bakare
    April 22, 2011

    @Prabahakar_deosthail you seem to be right in context to location and population – Indian should be next of focus for high – tech assembly and  supply. Indian's success in software development cannot be under -estimated. The impact of the country's contribution to software industry in the world has been so enormous positively – semiconductor sector undoubtedly indian will perform well.

    Nevertheless, government needs to throw its weight behind the major players in semiconductor industry locally. In my opinion, i think this is missing which as a result slowing down the sector's development.

     

  10. jbond
    April 23, 2011

    I think India has many advantages to becoming a player in the semiconductor business. At the moment their negatives stand out much more than their positives. Even if they found the funding for investments, they still have serious issues with clean water, reliable power sources, a solid infrastructure and many other hurdles to overcome. If India can find a way to make improvements in these fields, they would definitely be more than capable of supporting manufacturing businesses.

  11. electronics862
    April 23, 2011

    Over the past 20 years, India has built up its design expertise and experience engaging with global ecosystem partners. Now Indian companies are capable and confident of building products locally. In addition, India is one of the fastest growing semiconductor markets in the world in terms of domestic consumption. A growing consumer base with increasing disposable income presents the opportunity for semiconductor companies to develop products in energy, telecom, wireless and medical applications, for the domestic market and potentially other emerging markets.

  12. electronics862
    April 23, 2011

    In addition, India can leverage its strengths in embedded design and software development and large domestic market to attract global companies to shift their development and production base into India. This growth in manufacturing has already attracted global electronics manufacturers and electronic manufacturing services companies to setup manufacturing facility in India.

  13. Himanshugupta
    April 24, 2011

    The reason for the delay is already mentioned in the article:

    The country is noted for the sore absence of angel fund investors, efficient power supply, clean water for fab units, and poor waste management, warehousing, and road network infrastructures

    This does not mean that India cannot setup world class fab. Indian government usually takes quite long to decide when it comes to investing such a large amount of money (from its pocket) to high tech projects. Hopefully Indian govenment wakes up in time and start funding sooner.

  14. Ms. Daisy
    April 24, 2011

    Prabhakar:

    I definitely agree with you about India's potential. The answer to the articles question of “Should India get into semiconductor manufacturing?” is Why Not? Many writers agree on the strength in this sector in India, such as design expertise and and their experience to engage the global market; coupled with India being one of the fastest growing semiconductor domestic consumer for developing products for its energy needs, its, fast growing telecommunications, and medical applications.

    The demand is there and the growth in India's middle class also increases this demand. The will by the government of India to invest in this emerging opportunity even on a small scale will be a good start and a magnet for investors who may want to relocate from Japan and taiwan. Yes there are weaknesses in basic infracstructure for this venture to be successful, but this is the area of investment the Indian government need to look into.

    When there is a will there is always a way!! 

  15. Kunmi
    April 25, 2011

    I do agree that india has a lot of potential to invest in this huge project. Due to many challenges that may be facing the country, it will be a worthwile investment if the Indian govenrment can throw more flesh to the finance. Though it may look challenging but India is like a virgin land for the growth of Semiconductor business

  16. Mydesign
    April 25, 2011

       Dennis, as I stated there are many challenges involved. After experiencing the threat from neighboring countries, government is very keen in promoting the industry and ISA (Indian semiconductor association) is very much backing government’s policies. Some of the state governments are also coming up with special economic zones (SEZ) for investment in semiconductor industry and Fab city is one among such initiative with a venture capital of Rs. 2000 crore

  17. Mydesign
    April 25, 2011

       Nemom, surely India also may be in picture within a couple of years. Even though India and China are neighbors, we cannot compare each other. India is a democratic country having 1.21 billion populations and first priority is always for citizen’s welfare rather than any industrialization. Initially we are lagged for foreign investments and now in a ramp for investment and many are in pipe line. The Chinese government has been playing an active role in creating fab-less design companies in China, they are also actively inviting Indian companies like Cosmic Circuits to set up their unit in Suzhou Technology Park.

  18. Mydesign
    April 25, 2011

       Shamala, for any industrial growth long term plans and goals are very much needed.  But for certain years we had lagged and now there are clear cut visions for 2015, 2020 & 2025. It is estimated that more than 25,000 peoples are working in VLSI design and many multinationals create world class products from India. Almost all the top US, European, and Japanese SC companies have their subsidiaries in India. In semi conductor area we are lagging only in fab units.

  19. Mydesign
    April 25, 2011

       Tioluwa, you are right. Everything is possible if we keep our soul and mind intact. From individual perspective its fine, but from government point of view it’s not at all positive always, especially in a democratic country.  India has a substantial market in electronics equipment. According to industry estimates, India’s electronic equipment consumption is likely to grow by 7.5 % in 2011 and by 11 per cent by 2015. This gives an excellent growth opportunity for semiconductor companies.  All most all major companies have their own subsidiary groups in India for design, development, assembling and testing works. Nobody has any doubt about countries talent pool and its growing day by day.

  20. Mydesign
    April 25, 2011

        Tirlapur, yes eventually it will happen. Now government is keen to promote policies, guidelines and creating necessary infra structure. We know that the infra required for semi conductor industry is entirely different from the software industry. Once, it gets ready surly companies will come forward for investment. I don’t think Indian companies will get in to any sort of tie ups with Chinese companies because of various reasons and restrictions from government side because of security issues.

  21. Mydesign
    April 25, 2011

        Prabhakar, that’s a nice idea in view of recent happenings in Japan. I think ISA and government has to take initiative for marketing such facts to the investors. When compare with Japan, china or Taiwan, India is one among the safest place from natural calamities. While consider the internal market, we needed minimum 3-4 fab units and government has to assure the investors for ROI. Fabless companies are usually of medium size of, say 150 to 200 people to create $100M revenue. A significant part of this strength is in design, sales, and marketing.

  22. Mydesign
    April 25, 2011

        Wale, you are right. India had built a reputed name in software sector because of the talent pools and network connectivity. We know that the infra required for semi conductor industry is entirely different from the software industry. Initially government focused much on IT/BPO sector and now it seems the diversification of attention to other areas like Semiconductor, automobile sector etc. Government is very keen in promoting semiconductor industry and wants to be in self reliable at least for military sector.

  23. Mydesign
    April 25, 2011

      Jbond, you are right. India has many advantages like vast internal market, talent pool, raw materials etc. Now the government has a clear cut vision and policy about the semiconductor growth too. But when we analyze “why still nothing happened?’’, we have to look negative factors too.  At the same time lots of investments are happening in IT/BPO sector. I think if companies are coming forward for investment in semiconductor, majority of hurdles can be rectified and solved. The investment atmosphere is also ample good. Surly within a couple of years, India will be placed in global semiconductor map.

  24. Mydesign
    April 25, 2011

        Electronics862, I agree that these are real facts and India is enriched with all these resources and stuffs. Even though basic infra is a problem, government is ready to provide necessary amenities for those who are ready for investment. But still why nothing has happened, why?   In my opinion, this is mainly due to the lack of vision by investors. In other words they had failed to foreseen the growth of internal market and requirements. Now the situations are changing and companies are coming forward for investments in semiconductor sector. All most all major companies have their own subsidiary groups in India for design, development and testing works for embedded sector. Nobody has any doubt about countries talent pool and its growing day by day.

  25. Mydesign
    April 25, 2011

       Himanshugupta, you are right, government is taking long time for taking decisions. The same thing happened for “Indian semiconductor policy 2007” also. Still it’s not implemented in its full pledge way. The same delay is happening for proposals and approvals from government side. Even though there are single window systems for investment approvals, red tapisom is a major issue.

  26. Mydesign
    April 25, 2011

        Daisy, there is no question of whether India needs or not. While considering the internal market and demands, definitely needs.  In my personal opinion and considering the requirements, India definitely needs 3-5 fab units. Indian has almost all basic factors like raw materials, skilled manpower, internal requirement etc.  Semiconductor fabrication units (fabs) require investments of $ 3-5 billion and a well developed ecosystem with a world class infrastructure to compete with global hubs like USA, Taiwan, China, Singapore etc.

         In addition, fabs require co-location of the ecosystem to be efficient. That is, all the players like raw materials suppliers and support infrastructure should be located in the same area near the manufacturing base for easy access. Finally, there are significant technology challenges to be considered when setting up a fab. For a fab to manufacture at the latest process nodes, there is a tremendous amount of high tech knowledge collaboration that needs to take place with industry partners.

  27. Mydesign
    April 25, 2011

       adeniji, surely India will be in semiconductor manufacturing sector, within a couple of years. India has both pools of talented manpower and vast internal market, which is growing day by day. Once the infrastructure is ready, hope investments will happens in fab area also. I think now it’s only the startup problem and will be in full gear within a couple of years.

  28. Mydesign
    April 25, 2011

       Kunmi , that’s the real thing happened. Due to various other challenges and issues, government didn’t realize that semiconductor as one of the key area for investment. Initially government much focused on IT/BPO sector for investment and infra. But after recession, government started the diversification of attention to other sectors like semiconductor, automobiles etc.  Yes India has lots of potential in semiconductor growth and marketing ,due to its vast internal market.

  29. Himanshugupta
    April 25, 2011

    It might just be a coincedence but there is also an article on the same theme on EETimes: http://www.eetimes.com/electronics-news/4215358/India-launches-yet-another-fab-initiative

    Some cheers for the fab supporters. Although, committees come and go in India without bringing any substantial change.

  30. Nemos
    April 25, 2011

    “India is a democratic country” That is very important and is one more argument to those who say China has a role to Seimiconductor Manufacturing why not India.

    I didn't mentioned it before because I didn't want to do a political comment.

  31. Mydesign
    April 25, 2011

       Nemom, it’s not political. When it comes for development issues, democracy has its own limitations. Democracy means by the people and for the people, so the priority goes to citizens welfare rather than industrialization or commercialization. Even if government has vision and policies, then also it may not be happens in democratic situations. But in china the situation is entirely different and government is the sole authority to decide and implementing the decisions.

  32. Mydesign
    April 25, 2011

       Himanshugupta, thanks for sharing the info. I had already included these details in my previous blogs. A similar movement from government side happens in 2005 and 2007, but both reports are still in papers. Hope this time; it would be in a working model

  33. Anna Young
    April 26, 2011

    Like you mentioned Toms, considering all the challenges and possible hick ups, if the India government is able to effectively shape the basic infractructure and it's clear that with further future plans, its able to continue the development of these infrastructure to ensure the system is working, no investor would  refuse to get involved in the development of the electronic semiconductor manufacturing sector in India. There's pool of talents, resources, raw materials – why not? I would like to see India get involved and develop it to full blown workable industry.China is, why not India too.

  34. Mydesign
    April 26, 2011

         Ann, you are right. India has all the resources including talents, resources and raw materials.  We are lagging only in infrastructure and now the Government is trying to build up the infra from scratch. Once it’s get ready, I don’t think any investors would refuse to invest.  We have that hope and looking for the flourished greenery.

  35. larry@meetvc.com
    April 26, 2011

    Yes,  When there is a will there is always a way  &  India government's long-term commitment to Fab development is   critically important   

  36. Adeniji Kayode
    April 27, 2011

    I certainly agree with you Toms that investors will see this as a good investment and definately take the opportunity.

  37. Mydesign
    April 27, 2011

         Adeniji, we are also having similar hopes. Hoping to revive its semiconductor manufacturing efforts, India recently unfolded a new blueprint for the construction of two local wafer facilities. The government has proposed the establishment of a committee to identify technologies and investors to lead the effort.

  38. Mydesign
    April 27, 2011

       Larry, that’s right and depends on case to case. Government’s key goal for fabs includes developing policies for encouraging access to Indian-made electronic products along with the creation of an Electronic Development Fund. India has a plan for construction two fabs and the expected cost is about $5 billion. According to government sources “The wafer fabs will have catalytic impact on development of downstream and upstream products”.

  39. Ms. Daisy
    April 27, 2011

    Nemos:

    I agree, India's long history of being a democratic state is an asset. I also see the intent of the government to invest in semiconductors as a plus. Toms report of the government's proposed establishment of a committee to identify technologies and investors is a step in the right direction. A good package of India may attract the “Angel Investors”, but the government also need to look at basic infractures that will support this venture. No investor want to have to deal with the inconsistent electricity and lack of constant portable water that are potential added costs.

  40. Mydesign
    April 28, 2011

        Daisy, for any industrial growth infra structure and basic amenities are very much needed and without that, nobody is going to invest. So the primary focus should be on similar line and now government is trying to do something for the same. If infra is ready, more investors can get attracted. One thing is very clear that India have the potential for semiconductor growth and market, it’s only a matter of exploring the opportunities.  On the other hand, government has to clear the atmosphere for that.

  41. Mydesign
    May 2, 2011

      Rich, you are right, but still nobody had explored the treasure. The Indian Semiconductor Association (ISA) is formed in 2005 and it’s the premier body, representing Indian Electronic System Design and Manufacturing (ESDM) industry.  Now there are more than 150 members –both domestic and multinational enterprises. ISA works closely with the Government as a knowledge partner on the sector, both at the centre and at the state level. More details about ISA is availabile at  http://www.isaonline.org

  42. Mydesign
    May 3, 2011

          In order to catalytic the semiconductor manufacturing efforts, government recently unfolded a new blueprint for the construction of two local wafer facilities, which is expected to cost about $5 billion. The government has proposed the establishment of a committee to identify technologies and investors to lead the effort. Along with identifying technologies and potential investors, the committee will recommend the level of government support for the fab project and the mix of grants and subsidies, before July 31.

         Key goals of the fab effort include developing policies for encouraging access to Indian-made electronic products along with the creation of an Electronic Development Fund. The fund would provide grant money to build electronic manufacturing clusters. The government said the fab initiative also will seek to develop “localized content & value addition.”

         The fab initiative is the latest in a series of efforts designed to build up an Indian electronic hardware industry. Previous efforts have failed to produce tangible results, partly as a result of an on-going debate over whether India needs a domestic chip industry. The Indian government estimates that the creation of a chip making industry within India will help create 3 crore direct and indirect jobs by 2020.

  43. Mydesign
    May 6, 2011

        By fearing the possibility of rogue programs getting embedded in imported chips that could compromise security of critical installations, Indian government is planning to two chip-manufacturing units with an investment cost of $250 billion. Right now, there are no chip manufacturing facilities in India and the DIT has recently received the Cabinet's nod for the project. The facilities will be set up either exclusively under the Defence Research Organization and a defence public sector unit or through a public-private partnership.

        Plans include setting up a semiconductor unit (Fab-1 ) with established technology to support fabrication of chips to meet the requirement of high volume products as well as the requirement of the fab-less design companies on pay-per-use basis. This activity may involve either setting up a plant in India with established technology or acquiring an existing fabrication abroad and its eventual relocation to India. The government support needed for either of the options will be negotiated,” a department of information technology statement said.

        Fab-2–the second phase of the project — will entail a greenfield state-of-the-art semiconductor fabrication unit. This would imply giving equity or grant to an established integrated device manufacturer to set up the unit in India. To begin with, the department will set up an empowered committee that will identify technology and investors for the facilities. This committee will recommend the sequence and priority between the proposed Fab-1 and Fab-2 facilities.

         India is already a hub for semiconductor design with nearly 2,000 chips being designed every year and more than 20, 000 engineers engaged in chip design and verification, which generates nearly $2 billion in revenues for the chip design services. The semiconductor manufacturing companies abroad are generating revenues to the tune of $ 15 billion from wafer manufacturing based on these designs. Chip packaging and testing companies are generating $5 billion revenue based on these wafers produced for the India designed chips.

  44. Mydesign
    May 9, 2011

        Andhra Pradesh state government has given green signal for a consortium of professionals (Vittal Innovation City -VIC), headed by N Vittal, to set up a Special Economic Zone at the Hardware Park developed by Andhra Pradesh Industrial Infrastructure Corporation (APIIC).  The SEZ will have Infosys chairman emeritus N R Narayana Murthy, UID Project chairman Nandan Nilekani and former ICICI chairman Narayanan Vaghul as key advisors and A Gururaj as its managing director.

        The SEZ will focus on the electronics (telecom, photo-voltaic, consumer electronics and industrial electronics), technical textiles sectors and will have a university, and research and development centre. It will also house sectors such as aviation and helicopters, aerospace, media, biotechnology, health care, nuclear medicine and IT. According to the commitment, it proposes to invest Rs 1,500 crore in the first two years and another Rs 1,500 crore in the next two years. The estimated business revenue inflow in the first 18 months would be to the tune of Rs 10,000 million and Rs 20,000 million in the subsequent 36 months with 5,000 direct employments in 3-5 years.

         A Gujarat cadre retired IAS officer, Vittal had earlier set up the Gujarat Vittal Innovation City (GVIC) in Gujarat in 2009 in which Gujarat Industrial Development Corporation has a 50% stake. GVIC was instrumental in India setting up its first Korean Industrial parkcum-Technology Zone in GVIC.

  45. utttampal19
    November 25, 2013

    It would be great to have a semiconductor fab in India, which would
    take around 5 years to solidify.

    In the same lines, it's worthwhile to mention about a startup in
    India, establishing india's first nano semiconductor fab in
    Gandhinagar named De Core Nano Semiconductors Ltd. It houses crystal
    growth, processing, fabrication & material characterizing of Gallium
    Nitride wafers and manufacturing LED's and high power devices.

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