Will Chipmakers & Investors Respond to India’s Request for Local Fab?

India wants a local semiconductor fabrication industry and has asked technology providers and investors to submit proposals to a government agency set up to oversee the development of the industry in the world's second most populous country.

The India government took the unusual step of taking out an advertisement on this subject in the Economist magazine, asking “technology providers and investors” to submit proposals by the end of July to its ministry of communications and information technology. Interested parties can get additional information here.

India's approach is both unorthodox and fascinating. The country wants to deepen its role in the high-tech market, building on the expertise of many of its software and consulting firms, which have attracted huge patronage from Western OEMs and telecommunications service providers. Also, India has recently been concerned about the potentials for foreign security violations of its military systems and government infrastructure. A local semiconductor fab is therefore being seen as a frontline defense against hackers and other high-tech intruders.

What is the government promising in return for the establishment of a semiconductor fab in India? The country has set up a committee that would “assess and recommend the quantum of government support in physical/financial terms for translating the interest into semiconductor fabs,” P.S. Narotra, a senior director in India's department of information technology, said in the Economist ad. Here are further details provided by the government:

  • Huge demand.
  • India, with over 1.2 billon people, nearly half of them in the 20-to-49 age group, is one of the fastest growing electronics markets. This demand for electronics hardware is currently about $45 billion and is expected to cross $400 billion by 2020. This translates to nearly $50 billion in semiconductor demand.

  • Favorable policy framework.
  • 100 percent foreign direct investment (FDI) is permitted in semiconductor fabs. The government of India is in the process of developing a policy framework to provide preference for domestically produced electronics goods in government and government-influenced procurement. Apart from financial and fiscal incentives for capital investment in the projects, the government of India will also provide assistance for setting up of a world-class infrastructure for the semiconductor fabs and their ecosystem units.

  • Government procurement of electronics.
  • The government of India is enabling multibillion-dollar investments in programs that are major consumers of electronic goods, like countrywide rollout of 3G, WiMax, and 4G; broadband to more than 6 million villages; and a National Knowledge Network with 100Gbit/s connectivity for over 20,000 colleges and research institutions.

This all sounds interesting, but semiconductor fabs are not only expensive but also require an extensive support system and a large market for the output. Plus, the rank of companies that can afford to spend the amount required has narrowed in recent years as many firms adopt the so-called fabless manufacturing strategy.

It's possible some organizations will take the bait if it is big enough, but they will also have to overcome technology transfer restrictions many Western nations impose on high-tech companies wishing to establish operations overseas. This will most likely be a challenge because of India's stated reason of producing primarily for domestic consumption. I would be interested in why any company would want to take up the offer and whether the incentives are sufficient to attract top-notch players.

8 comments on “Will Chipmakers & Investors Respond to India’s Request for Local Fab?

  1. Nemos
    July 11, 2011

    Yes, India's approach is both unorthodox and fascinating. I will keep in mind the second part of the sentence and say that it doesn't matter the way (in a logical terms) but the result you want to achieve , and in particular, India it seems that wants to be in the list of the countries that produce electronics.

    (It would be great if my country will do the same moves)

  2. saranyatil
    July 12, 2011

    Interesting article,

    I would say its a good move from India, constantly there has been great levels of interest seen for electronics there and things may get complicated once demand increases specifically for hardware.

    This also will add great value to the country. People in India are intersted in research and also there is huge upgradation for developments in the field of electronics.

    I would be interested in why any company would want to take up the offer and whether the incentives are sufficient to attract top-notch players.

    Since Semi Fab is evolving They might be ready to hire people by paying good salary may be 50 % more plus they can give loads of benefits like they can share the establishment cost and also they can catre to different countries with cheaper logistics.

    July 12, 2011

    It is unusual to state that the output of these fabs is primarily intended for domestic consumption.  I do not believe India produces a large proportion of the electronic gadgets it consumes so the initial statement confuses me.  Fabs are normally set up to:

    – satisfy demand of local PCB manufacturers and hence reduce cycle times and costs (any of the Chinese fabs)

    – to serve worldwide markets with leading edge devices (like Taiwan fabs)

    – satisfy governement strategies for self reliance and pride (Korea and Chinese fabs)

    – take advantage of government grants and lower costs (like defunct UK fabs)

    I am not sure the India model fits any of these so I expect the strategy will change soon.  However I do expect India will be a decent sized player in silicon fabs.

  4. Jay_Bond
    July 12, 2011

    This is an interesting approach to looking for investors. It seems like in todays global era you need to do something to make yourself standout. India did just that. One thing that would still trouble me is India's infrastructure. Getting a company or multiple companies to commit will be a good thing, but they are going to require a steady power and water supply. Will they be able to give them a reliable source for manufacturing?

  5. garyk
    July 12, 2011

    CHINA would be the only investor, but they want to control all the manufacturing and they probably don't trust INDIA if they haven't already set INDIA up with a Local Fab manufacturing operation.

    INDIA build your own! Then you only have worry about selling your chips. Everyone be be willing to buy INDIA manufactured chips? INDIA has a very strong technical base?

  6. Barbara Jorgensen
    July 12, 2011

    I applaud India, but I fear that one fab will not be enough. It's the classic chicken-or-egg scenario: if you build a fab, will the rest of the ecosystem follow; or do you need the ecosystem to justify the building of a fab? If India were to develop the next level of fab technology I could see it happening, but a “me too” fab would be a waste of valuable resources.

  7. Taimoor Zubar
    July 13, 2011

    Just like China, India also has a large population of young people with a fairly high rate of unemployment. I think there is adequate supply of cheap labor to manufacturers both in the skilled and unskilled category. This should be another key attraction for investors to invest into fab manufacturing in India.

  8. SemiMike
    July 14, 2011

    In the 1950's, Carnegie Institute of Technology hosted INSTEP, the Indian Steel Education Program.  They trained Metallurgists to make steel.  India had no iron ore, no coal for coke, no support infrasctructure, but they wanted a steel plant. Does anyone know how that home-run idea worked out?

    Japan, Taiwan, Korea, Singapore, models included much infrastructure development over many years and also ran the COUNTRY like a COMPANY. They did build metals and chemical plants and infrasctructure and then fabs.

    India can do all that, given the complete understanding of all it takes and the leadership to make it happen.

     But fabless companies do quite well using existing foundries, and India has many design students that could create a market for chip making before they fund a large foundry complex like TSMC.  What about Silicon supply?  What about gases, chemicals, 24 hour by 365 day electricity, water, support for tool maintenance?  All possible eventually, all imports for short term. I am not sure that India has the water and energy it takes for heavy industry, any comments on that problem?

    But certainly India needs SOME kind of high tech manufacturing base that can bring back home the many talented Indian engineers who are displaced globally by China's rise.  So I vote yes…with caution..and some heavy infrascture improvement up front…particularly electrical supply reliability.

    They have only to ask the thousands of successful Indian engineers and businessmen that have migrated or were taken by the British to run Asian operations, or were educated in US. 

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