- PVG Menon has strongly advocated setting up of National Electronics Mission directly under the PMO
- He is of view that both Fab and Fabless ecosystems are important for India
- He explained that any new attempt from India, in this direction, will be viewed with a lot of scepticism
The debate of India having its own semiconductor fab has been doing the rounds of newspapers since decades. There have been multiple failed attempts made in the direction too. Now, with the entire world looking to find an alternative to a ‘handful’ of countries making semiconductors, the debate has raised a lot of questions again!
But can India do it? Will India have a private sector semiconductor fab?
PVG Menon, Founder & CEO of VANN Consulting, shares his views with EFY Bureau.
Excerpts from the interaction
EB – Can you give an overview of the Semiconductor ecosystem and how does a Fab fit in there?
Ans – As an industry leader had once told me, “Semiconductors are the tailwind behind the entire electronics industry.” Simply put, semiconductors are to the electronic (products) industry what engines are to the automotive industry.
In my view, the semiconductor chip ecosystem consists of five main components:
- Integrated ODM’s who design, produce and sell their own chips – like Intel, Samsung, Micron etc.
2. Fabless semiconductor companies which design and sell semiconductor chips, but use a commercial Fab to manufacture them – like Qualcomm, Mediatek, nVidia etc.
3. Fabrication plants (“Fabs”) which make these semiconductor devices or “chips” for Fabless companies – like TSMC, Global Foundries etc.
4. Assembly, Test, Mark and Packaging (ATMP) companies which take the output from a Fab (called a “Wafer”) and cut it, package it and deliver working chips to the fabless company which designed them.
5. Advanced equipment makers, who supply highly complex and specialized equipment to the players in category 3 and 4 above – these are companies like Applied Materials, KLA Tencor, LAM Research etc.
India has considerable strength in R&D and VLSI design and verification, as well as embedded software. Most of the top semiconductor product and equipment companies have R&D facilities in India – either directly or via third-party partnerships.
We do not have any Indian company in category 1 (IDM) above. But almost all of them have captive R&D centres in India.
In category 2 (Fabless companies), we have companies like Saankhya Labs and Accord Systems.
Then there are SoC’s developed by academic institutions like IIT-Madras (the Shakti processor — https://shakti.org.in/ ) which has also seen working silicon.
We also had other Fabless companies which have been acquired for IPR, their team or for their clients.
A subset here is a large number of Services companies offering Services of varying degrees of sophistication and skill levels. They offer services in VLSI design, testing, verification, embedded software development, PCB design etc.
In category 3 (Fabs), we have a digital Fab called the Semiconductor Complex Ltd (SCL) at Chandigarh. This is a captive facility owned by the Dept of Space (DoS), and is not open to industry. SCL makes chips for India’s space and defence programs.
We also have two prototype Fabs at the Centre for Nano Science and Engineering (CeNSE) at IISc-Bangalore and the Centre of Excellence for Nanoengineering (CEN) at IIT-Bombay. Both work with industry and are doing excellent work.
In category 4 (ATMP) we have two companies – SPEL Semiconductors and Tessolve. But since ATMP is very closely downstream from a Fab, there is an eternal debate on whether they should come first, or the Fab should come first.
In category 5 (equipment suppliers), almost all the leading players have development centres in India.
Now to the question of how does a Semiconductor Fab fit in into the whole ecosystem?
Think of a series of concentric circles, with the Fab at the centre. The first outer circle would consist of companies which provide services to the Fab – like effluent treatment, pure gases, speciality HVAC etc. The next would consist of companies which work with the output from a Fab, like ATMP. As you radiate outwards, successive circles would include companies making PCB, connectors, wiring harness, sub-assemblies etc. Then would come companies making end products like computers, mobile phones, STB’s etc.
Remember each circle feeds off the previous one, and into the next one. But many of them have ecosystems of their own – ATMP, PCB, Systems companies (which need EMS) and so on.
EB – What is the benefit of the “ecosystem” as you put it for the semicon industry? Are there larger benefits beyond what is there for just the Fab?
Ans – Absolutely! I like to compare the quest to build a Fab, to the Space program in India. While the Space program was incredibly hard to put together, and we were fortunate to have some incredibly talented leaders and engineers who together built up a world class institution like ISRO, there are parallels we can draw.
For instance, the Space program requires huge amounts of work in complicated computations, algorithms, thermo-dynamics etc. Some of these were imported and rest were home grown.
Similarly, the semiconductor industry needs VLSI design skills, modelling and verification skills, highly specialized tools, knowledge of materials sciences etc. India has these across domains and a vibrant semiconductor industry would help to harness, hone and scale these.
Same is the case with some of the ancillary suppliers to a semiconductor Fab. Take waste water (effluent) treatment for example. The technology needed to treat the effluent from a semiconductor Fab is very advanced. A typical semiconductor Fab uses about 20-25 million litres of water a day. The input needs to be treated as Fabs use “ultra-pure water.” The output also needs to be treated significantly before it can be put back into the ground (water recharge), with considerable recycling taking place in intermediate stages. A typical Fab can recycle almost 75 per cent of its water, with some advanced fabs aiming for even higher recycling percentages.
Think of what if a subset of these technologies were used to treat the waste water of our cities in India. Cities like Bangalore for example are struggling with a rapidly depleting water table, with alarming forecasts about when water will run out. The kind of waste water treatment technologies that a Fab employs can easily be downscaled, and local city govts can deploy them to solve their water woes to a large extent.
Similarly, the HVAC or logistics requirements of Fabs are of an extremely high quality and precision. These would help to vastly increase productivity in other sectors of the economy as well, in addition to electronics.
These are just few examples, there are many more. The point is that many of these ancillaries to a Fab are horizontal technologies which have wide applications across industry sectors.
The vision is so crystal clear – but needs a Visionary Leader to drive this. That is why I strongly feel that it is time for a National Electronics Mission to be setup directly under the PMO, with a pan-ministry mandate to realize this grand vision.
By the way, this is how the US drove an agenda to come back as the leader in semiconductor manufacturing, and achieved success. The US and Taiwanese models are ones we have a lot to learn from.
EB – What are the main hurdles in setting up fab manufacturing units in India, and what could be the solution?
Ans – This is a very complex and painful question. There is a long and painful history and many unsuccessful attempts have been undertaken.
First of all, let us not forget that building Fabs is a game for “Big Boys”. The sheer complexity of designing and building a Fab, the amount of capital required, project management skills needed etc are so high, that only large companies should even get into this game. So let us be clear that companies attempting to put up Fabs are seasoned players who know how the system works, know how to plan and execute complex mega-projects, and have the ability to raise large amounts of capital. I might add that the kind of highly specialized engineering expertise needed to build and operate a Fab are not available in India – so at least the initial teams will have a large number of highly skilled expats.
India has tried several times to build Fabs with private sector players – for semiconductors, Solar and Display Panels. These efforts have been on-going since 2006-’07. Very large conglomerates have been involved, with marquee top-notch international collaborations. None have succeeded.
If one or two had failed, one could have faulted the private sector. When so many attempts have successively failed, I submit that it is time for Policy Makers to take a good hard look at why they are failing to meet the expectations of the private sector.
So many successive failures, and with so many different consortia and companies, clearly points to either serious policy shortcomings, or a massive failure of implementation.
First and foremost, setting up a Fab involves a massive investment. A Display Fab would start at around USD 2.5 billion. A semiconductor digital Fab (300 mm) would start at around USD 6-8 billion depending on the technology nodes. And remember that these also require on-going investments, and have huge operating costs – so both capex and opex are high. Factor in regular (expensive!) technology updates, and you realise that only companies with extremely deep pockets can play in this space. This risk is high, and so is the reward – if done right.
So there are huge risks and long ROI cycles for the company investing to set up the Fab. Obviously, the regulatory agencies and policy makers need to work extra hard to give confidence to the investors. Policy measures have to be industry friendly, transparent, rapidly executed and the investor has to have the confidence that the policies will be consistent and not flip-flop. The fiscal support being extended also has to be generous.
Evaluation of applications need to be efficient and in a time bound manner, and disbursals need to be handled efficiently, competently and quickly. Delay in disbursals means the companies incur huge working capital costs.
Second, both Centre and State have to work very closely together as the policies need to mesh together and support the investor putting huge money into these kind of complex high-tech mega-projects. It’s also worth remembering here that the Centre will have to pull the weight here, since micro-benefits to the State (eg employment) is not significant enough to justify large outlays from the State budgets. There are huge macro benefits from the Fab, but a State govt will ask hard questions about what are the localized benefits accruing to it for the investment from its side. States will have to be guided to bring in the entire high-tech manufacturing ecosystem, where there are near adjacencies with the Fab ecosystem. As an example, the kind of high precision ancillary industries required for a Fab would be of immense relevance for the aerospace and defence industry as well. So think of a scenario where aerospace companies are located in the same mega industrial cluster which houses the Fab. Many of the suppliers to the Fab will have ready takers for their specialised skills from these industries. Similarly for makers of ancillary components like PCB for instance. Many of the chemical suppliers to the Fab would also find customers in the PCB industry.
Third, India needs to cooperate and learn from countries like Taiwan, USA, South Korea etc on how to setup, nurture and grow a high tech manufacturing industry like semiconductors. All of them have supported, nurtured and invested into the building of what can best be described as ‘National Technology Infrastructure Assets’ in partnership with private industry.
In recent times, the USA has demonstrated to the world what I believe has been one of the most forward looking policies in this regard. The Private sector, Federal government, the States and Academia have all worked closely together to build up world class technology in this area – and this has been across successive administrations. It is this kind of determined and futuristic policy support that is needed to put into place world class National Technology Infrastructure Assets. It is no wonder that Intel, Texas Instruments, Global Foundries and now even TSMC are calling USA home. And this is something that is driven directly from the office of the President of the United States of America.
Fourth, there will be a massive push for exports. A digital Fab can never be successful by catering to purely India demand. However, there has to be a way to assure the investor into a private sector Fab of demand aggregation for the domestic market as every effort must be made to help the Fab operator to get maximum market share. One of the most important success factors for a Fab is about how much “loading” it has – i.e. how much is the capacity utilization. A Fab with a low capacity loading will lose a lot of money very quickly. And vice versa.
This is a complex problem and will require out of the box thinking, as well as implementation of existing statutes in letter and spirit. A pan-ministry approach is necessary to make this happen, as well as smooth the way for the private sector partner to succeed in the global market. Existing tools like the Public Procurement Order (PPO) as well as policy measures like the Phase Manufacturing Program (PMP) need to be vigorously implemented in letter and spirit. There will have to be more out of the box measures thought out to promote both internal and external demand.
Finally, is it worth fighting for setting up an enormously capital intensive Fab in India?
The answer is complex and involves both strategic and commercial considerations.
First and foremost the strategic intent. Today, Electronics plays a crucial role in the development of India. The pandemic has starkly highlighted just how crucial electronics is for India.
In India, the government is looking at Electronics as one of the critical enablers to drive an agenda of inclusive growth. The JAM trilogy, authentication of identity using biometrics, dissemination of information over mobile or television – all of these need Electronics to make it happen. Therefore, securing our supply chain for Electronics is critical to the growth of the Indian economy.
At the core of the electronics supply chain are three things – compute (chips), display (screens) and memory. All three require Fabs, but of different types.
Second, the size of the market opportunity. The global semiconductor industry was USD 481 billion in 2018. India’s electronics consumption is growing at an estimated CAGR of over 16 per cent. This translates to a growing demand for Compute, Display and Memory – all of which are 100 per cent imported today. Our consumption of semiconductors was an estimated USD 12 billion or so last year, and 100 per cent of these are imported. This exposes our supply chains to huge risk.
Finally import substitution and saving of foreign exchange. Electronics is today the second highest contributor to the Current Account Deficit (CAD – second only to petroleum imports. India’s young population, rising aspirations and the drive by the government to use technology as an instrument to drive an agenda of inclusive growth – all of this means that our national appetite for electronics is not going to diminish anytime soon. With the existing USD 12 billion import bill for semiconductors, growing at an estimated growth rate of over 15 per cent annually, this is a huge burden for India. The presence of an India Fab will not only help to reduce some of this burden – it will also help us realize the Prime Minister’s lofty vision of “Net Zero” import bill for electronics, by creating an powerful engine for exports as well.
EB – Given the long history of failed attempts, and the huge investments required, do you think India can successfully attract private investment into a Semiconductor Fab?
Ans – Bluntly put, I don’t think so. Too many failed attempts means that there is a credibility problem. No Fab can be built without collaborations with the best technology partners in the world. Almost all the players have been approached multiple times, and corporate memory is long. So any new attempt from India will be viewed with a lot of scepticism.
Having said that, let me add that I would be the happiest person to be proved wrong, and a private sector Fab is built in India. If that happens, we are putting in place technology infrastructure which will leapfrog India by decades, and will help future generations of technologists to unleash their animal spirits of innovation.
Let me put it this way. A completely fresh and extremely industry-friendly approach is needed to pull this off. Can it be done? Sure. But it needs to be blessed from the highest levels of decision making.
EB – One keeps hearing from a section of the industry that we should forget about dreaming about a Fab. Instead, we should focus only on making Fabless companies. What is your view on that?
Ans – One thing to keep in mind is that investing into Fabs or their ecosystem is NOT a substitute for investing into Fabless ecosystem. BOTH are needed for India.
Investing into a Fabless ecosystem is important. Back in 2012, at IESA, we had set out a vision that in 10 years we should aim to have 100 electronic product companies and 50 Fabless semiconductor product companies of global scale from India – in other words as a country we needed to have our own equivalent of a Sony, LG or Samsung, as well as our own Indian equivalents of a Qualcomm or Broadcom.
There is a wealth of talent available in India in terms of VLSI design skills, embedded software skills etc. What is needed is to make that transition to defining our own products. The software industry is trying to make that transition – by leveraging the talent and skills of India’s USD 190 billion IT-BPM sector to the next logical step of seeing what is needed to make a Microsoft, SAP or Intuit out of India.
India’s Semiconductor and VLSI and embedded design industry is around USD 20-25 billion today. Yet we have only a handful of fabless product companies from India – and none of them at global scale. Yet we have a USD 70 billion plus electronic products manufacturing industry in India, which consumes the semiconductor chips that are made outside India.
So sure we need to invest into Fabless product companies from India.
We have already spoken extensively on Fabs. In the end, let me just say that when India invests into making a Fab happen here, we are not making that investment for the next few quarters or years – but for the next generation. That’s where the vision and the dream lies, and that is why I believe we need a National Electronics Mission directly under the Prime Minister’s Office with a pan-ministry mandate and headed by a Visionary leader to drive it.