How local chip manufacturing can transform electronics industry

- Advertisement -
- Advertisement -

With the government approving two semiconductor fabrication plants, the Indian electronics industry is looking forward to better days. A fab is estimated to contribute 23 times the investment made to GDP. Its transformative effect on the electronics industry is tremendous, and has a stronger multiplier effect than any other industry. Hence, it is a highly strategic game changer for India that will enable the country to leapfrog ahead by several years

By Srabani Sen

Friday, December 20, 2013: Just when the industry thought that its interests had been overlooked, the government sprang into action on September 12, 2013, and gave an initial approval to set up two semiconductor wafer fabrication (fab) units in the country. According to Dr Ajay Kumar, joint secretary, Department of Electronics and IT (DeitY), this is a historic decision and will change the landscape of the electronics manufacturing ecosystem in India. While the electronics manufacturing ecosystem and the electronics industry as a whole will feel the direct impact of local production, the Indian economy will also benefit from it. “A fab is estimated to contribute 23 times of the amount invested in it to GDP. Its transformative effect on the electronics industry is tremendous. It has a much stronger multiplier effect than any other industry,” he adds. According to Aninda Moitra, president and managing director, Applied Materials India, “These high value generation industries are essential for countries that need to grow at a significant pace for many decades.”

- Advertisement -

Welcoming the development, PVG Menon, president, India Electronics & Semiconductor Association (IESA), says, “The fab is a highly strategic game changer for India. The country will leapfrog by several years in the development of indigenous electronic products and help in developing the local semiconductor industry.” Menon also believes that the presence of a local fab in India would boost the country’s capability to build IP assets. “We believe that in terms of its impact and implications, the fab must be treated on par with India’s investments in her space and nuclear programmes,” he says.

The Indian electronics hardware industry and the Indian economy will directly benefit from the proposal. The semiconductor wafer fabs will have a catalytic impact on the development of downstream and upstream products, including ancillaries. They will also have a sizable impact on the development of the IT/ITES sector, particularly in very large scale integration (VLSI) design software, solutions and services. And they will bootstrap innovation and R&D, especially in the area of semiconductors. Besides, these fabs will help generate employment for 28.3 million (directly and indirectly) people by 2020, across various levels of competencies.

Critical for the electronics industry

The fact that India’s semiconductor market makes up 14 per cent of the country’s total electronics market indicates the magnitude of the opportunity lost due to the absence of local fabs. In fact, the disability costs associated with the absence of an ecosystem have been a very critical challenge, preventing electronics manufacturing in the country from taking off. “Fabs are at the core of ecosystem development and this strategic move shall have a ripple effect across the ecosystem. Global analysis shows that countries like Taiwan, China and USA have been able to build a fairly strong electronics ecosystem by setting up semiconductor fabs and using them as the moot point for bringing in the other ecosystem components,” explains Doraiswamy.

Domestic consumption of electronics is expected to reach US$ 400 billion by 2020, which translates into a chip market of around US$ 55 billion. The total semiconductor market in India was $6.03 billion in 2011 and is expected to grow to $9.7 billion by 2015. Right now, India imports over 65 per cent of its electronics products, including semiconductors.

India has already become the hub for semiconductor design with nearly 2000 chips being designed every year in the country. More than 20,000 engineers are engaged in various aspects of chip design and verification. India adds value by way of design, which accounts for a modest $10 billion. Ironically, chips that are manufactured outside India, mainly by the Asian countries, are based on the design work done in India. These chips eventually go into finished electronics goods that are worth more than $60 billion. The semiconductor manufacturing companies abroad generate revenue to the tune of US$ 15 billion from wafer manufacturing based on these designs. Chip packaging and testing companies also generate US$ 5 billion revenue based on the wafers manufactured from the India-designed chips.

According to Moitra, setting up a semiconductor fab will fill a critical manufacturing gap in the electronics supply chain in India. The National Policy on Electronics (NPE) projects a 15 per cent growth rate in the demand for electronics in India, compared to single digit growth globally. The continuing growth and aspirations of the middle class for global products is expected to fuel this growth. “Our analysis is that semiconductor consumption in India was valued at $8 billion in 2012 and is estimated to go up to $9.6 billion in 2013. With virtually no production in India, the current demand for semiconductor is being met through imports,” points out Moitra.

With the location of a fab in India, the country could achieve a degree of self-sufficiency in electronics, and partially reduce the very high supply chain risks that India is exposed to, without an alternative source for procurement,” says Menon.

The two fab proposals received 

The Indian government has already received two proposals—one is led by International Business Machines Corporation (IBM) and the other is led by Geneva-based STMicroelectronics NV. Isreal-based Tower Jazz will set up the facility and operate it with India’s Jaypee Group. STMicroelectronics, on the other hand, has partnered with Hindustan Semiconductor Manufacturing Corporation and SilTerra Malaysia Sdn.The IBM-Tower-Jaypee consortium proposes to invest Rs 263 billion (US$ 4.14 billion) to set up a facility at Noida in Uttar Pradesh. While technology partner IBM will hold 5 per cent equity, Tower will have 10 per cent stake.

The second group proposes to invest Rs 252.50 billion for a facility at Prantij in Gujarat. STMicroelectronics will hold 10 per cent equity stake in the unit. Both proposals are for manufacturing 40,000 wafers of 300 mm per month.

Hindustan Semiconductor will make chips with nodes of 90 nanometres (nm), 65 nm and 45 nm in the first phase; and 45 nm, 28 nm and 22 nm in the second phase. The consortium of Jaiprakash Associates, IBM and TowerJazz, on the other hand, proposes manufacturing chips with technology nodes of 90 nm, 65 nm and 45 nm in the first phase, and a 28 nm node in the second phase, with the option of manufacturing chips with a 22 nm node in the third phase.

Impact on the ecosystem

According to Menon, with the electronics industry expected to touch the $400 billion mark, where chips will account for over $55 billion, the entire industry is expected to be highly impacted. The biggest beneficiaries of semiconductor fabs will be the Indian companies that use semiconductor devices in very large volumes but are not dependent on cutting-edge technology nodes for their success. The other big beneficiaries are the fabless semiconductor companies that are targeting application segments, which use products planned for the technology nodes targeted for these fabs. These companies will also benefit immensely from the proximity of the design and semiconductor manufacturing ecosystem. Finally, EMS companies will find the proximity to a fab very useful for planning tighter inventory turns, etc.

Besides this, other major segments that will benefit are the telecom sector, the turnover of which is expected to reach around $153.5 billion by 2020; and the IT sector, whose systems and hardware are expected to grow to $54.4 billion by. 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 incomes, presents the opportunity for semiconductor companies to develop products in energy, telecom, wireless and medical applications for the domestic market and, potentially, for other emerging markets,” says Menon.

A local fab will also help existing IT and electronics hardware manufacturers to obtain essential components at a much lower cost. There is also a growing need for a communications infrastructure to cater to a burgeoning subscriber base and increased level of technological sophistication. This is also the case in sectors like automotive and aerospace, where semiconductor enabled features need to match global levels and cater to India-specific requirements. For these growing sectors, there are other indigenous needs that will be addressed by these fabs, including the need for microATMs, smart cards (for example, Aadhaar), possible e-passport designs, products for education, e-governance and other electronic products.

Semiconductor content in some common electronic systems
Selected electronic systems Semiconductor content (%)
Set-top box 35%
Digital camera 34%
DVD Player 30%
Multimedia PC 28%
Telecom equipment 28%
Smartphone 26%
HDTV 25%
PC 23%
LAN 15%
CD Player 13%
Car radio 8%
Video camera 8%
Color TV 3%

The different segments of the semiconductor ecosystem are VLSI design, firmware and software, front-end and back-end manufacturing and testing, supply chain and, manufacturing, and electronics assembly/production. Chip manufacturing is the highest value generating segment in the entire semiconductor value chain. Additionally, domestic semiconductor chip manufacturing capabilities will positively impact all other segments by enabling local firms to customise, design and manufacture products to meet local requirements. “This manufacturing complements the already established semiconductor design industry, which would leverage its strong design presence to convert some of the cutting-edge designs into products for the domestic market. It will also give a boost to the supply chain infrastructure that needs to be ramped up to cater to the requirements of a fab. This will even have a positive impact on the job market, with the several thousand opportunities the entire ecosystem will create,” opines Moitra.

The three-tiered semiconductor industry 

The global semiconductor industry can be broadly divided into three tiers. At the apex are the fully integrated companies like Intel, IBM, Toshiba and Samsung, which design and make the chips that go into the devices they make.In the middle are the fabless designers of chips, like Qualcomm, Broadcom and NVidia, which outsource the manufacturing to specialised chip-makers.

Companies in the third category are the foundries like Taiwan Semiconductor Manufacturing Company and Globalfoundries, which produce chips for clients.

 

What it takes to establish a fab 

Semiconductor manufacturing is highly capital-intensive. In this sector, technology cycles move at a very fast pace. Therefore, there needs to be a constant stream of capital and innovation to keep the industry moving forward. For any high technology industry, the foundation for competitiveness is technology differentiation. Companies need to embrace technological opportunities to benefit from innovations and remain competitive.

A skilled workforce is also imperative. Semiconductor manufacturing is a specialised area, for which we need to develop the talent ecosystem. Currently, there is a big gap in this area due to the lack of a hi-tech manufacturing ecosystem. There are initiatives to address the semiconductor design requirements through the National Skills Development Corporation and the special manpower development programme in VLSI, but these do not cover semiconductor manufacturing. Applied Materials has teamed up with IIT Bombay to launch India’s first hands-on semiconductor manufacturing certification course in 2012.

“To reach a more advanced level in chip manufacturing, India needs a scaled R&D facility to develop technologies and train manpower in both practical and theoretical aspects. India should follow the examples from around the world like IMEC in Europe, ITRI in Taiwan and IME in Singapore,” says Aninda Moitra.

Besides, the move will also help systems designers, software developers and chip designers to join hands and develop innovative, indigenous and cutting-edge technology products,” says Menon.

Though it will take about three years for the fabs to commence commercial production, Doraiswamy believes that the lead time can be used to develop other critical components of the ESDM ecosystem such as electronic components, ATMP, PCBA facilities, etc. “The setting up of fabs is expected to usher in increased investments in other sectors. For example, apart from semiconductors, the other basic raw materials of electronic products are the components. With the availability of chips through local fabs, making components locally will become more viable, and this will drive further investments,” she says.

The next task in the value chain after fabrication, is the ATMP. A local fab will drive increased investments in local ATMP so as to co-locate the fabrication, testing and packaging activities.

Given India’s dominance in the global chip design space, the setting up of fabs will encourage more local IP creation and the emergence of more fabless companies. The presence of local ATMP will help the fabless companies with enormous cost savings, as they are currently compelled to use the services of overseas fabs and ATMP for prototyping, prototype testing, etc. The local presence of the fab will also help in expediting development of indigenous processors and other core chips that are critical components of most electronic products. These ‘Made in India’ chips will also find a good market in other emerging economies in Africa, Latin America and South East Asia.

The local availability of core chips and other components shall make the cost of production of electronic products low and globally competitive, thereby creating huge export markets for ‘Made in India’ electronic goods,” adds Doraiswamy.

The incentive proposed by the Indian Government 
  • Companies that have proposed to set up fabs will get the incentives under MSIPS, along with some additional benefits
  • Deduction for expenditure on R&D under the Income Tax Act
  • In addition, fab facilities will be eligible for investment-linked deductions under Section 35AD of the Income Tax Act
  • The government will also provide viability-gap funding—-a financial grant to make the project commercially viable, which is in the form of an interest-free loan for 10 years.

The government, which will have an 11 per cent equity stake in the proposed projects, requires the technology providers to take at least a 10 per cent equity stake. More details of the incentives are still being worked out.

Impact on the supply chain

The presence of a local fab will have a highly beneficial impact on the supply chain. Almost all the elements of this supply chain will have to be upgraded to meet the stringent requirements that a fab will impose, and this will have a very beneficial ripple impact. It will also bring in new processes, technologies, and thereby enhance quality and reliability across the entire industry—all of which augurs well for India.

The semiconductor supply chain requires continuous access to specialty chemicals, ultra-pure water, uninterrupted power supply and trained technical talent that can keep the machinery running 24×7. A lot of these requirements are currently not available in the local ecosystem, and will need to be built up to meet the stringent requirements of a semiconductor fab. Once this is done, these facilities can also serve other adjacent hi-tech manufacturing industries like LEDs and displays, which share many common infrastructure requirements.

Speedy implementation needed

With the announcement of the support package for setting up of two fabs, the government has already signalled strong support to companies who want to make significant investments in setting up a fab. The government should now urgently invest in improving the quality of the country’s infrastructure. This would not only create the physical conditions suitable for semiconductor manufacturing in India but also build the confidence of investors to commit the large capital investments necessary for the fabs.

The government to focus on enabling permits and clearances that speed up the setting-up of infrastructure, uninterrupted power and water supply, improved transportation networks, etc. Additionally, the government has to look into the sustainability of this ecosystem. This can happen with the setting up of a large scaled R&D centre that will provide training as well as a forum for application development. This will act as the ‘vitamins’ that ensure a thriving ecosystem,” says Aninda Moitra.

According to Doraiswamy, setting up of a fab will go a long way in demonstrating India’s ability to ramp up local infrastructure capabilities within a short period of time, as fabs have superior infrastructure requirements. Thus, apart from tangible benefits like an improvement in our trade balance due to reduced imports for the electronics industry, intangible benefits like better positioning of India as a favourable destination for electronics investments are some of the positives that will emerge from the setting up of these fabs,” says Aninda Moitra.

However, the government’s focus now should be on identifying which process nodes, technologies and chips the Indian fabs plan on producing. This will ensure that the fab produces chips that go into some of the electronic products that will be in high demand across India in the near future—set-top boxes, LED lights, smart meters, mobile phones, PoS terminals, smart cards, medical devices, auto electronics, etc. “Given the current global capacity, it is essential to understand what chips are going to be in demand after the next 3-4 years and accordingly plan India’s fab roadmap to ensure its long-term profitability and success. While local consumption will definitely be a huge contributor, the fabs will not be able to rely solely on the local demand and, hence, a thorough assessment of what global chip demand will be like in the future is essential,” adds Doraiswamy.

Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine

- Advertisement -

Related Artcles

Exclusive

India, China Grow Amid First Global Cellular IoT Module Shipments Annual Decline

0
Several companies started local manufacturing in India. 4G Cat 1 bis emerged as the fastest-growing segment. Around 12% of the modules shipped in...

“More Chargers Provide Security And Confidence To Customers, Encouraging EV Adoption”

0
With an agenda to transform the EV industry, EarthtronEV has established 250+ charging stations on major highways across India. The company aims to interconnect...

5G RedCap To Transform IoT Module Shipments

0
Over 60% of IoT module shipments will originate from the Asian & Oceania region. Automotive sector is expected to be a significant driver. The...

Buzz

Montra Electric Boosts Amritsar’s Green Mobility with RAAHI Project

0
The initiative is a component of the City Investments to Innovate, Integrate, and Sustain (CITIIS) program, which falls under the auspices of the Ministry...

BYD Delays Vietnam EV Factory Plans

0
Vietnam's government announced in May that BYD plans to construct a facility for manufacturing and assembling electric cars in Phu Tho, a northern Vietnamese...
Keysight Technologies Pvt Ltd Logo

Keysight Acquires Spirent Communications For $1.46 billion, Outbids Rival Viavi Solutions

0
Keysight's offers 85.9% premium over Spirent's closing price on March 4, exceeding Viavi's 61.4% premium. Keysight expects new serviceable available market opportunities of...

Important Sectors

India, China Grow Amid First Global Cellular IoT Module Shipments Annual Decline

0
Several companies started local manufacturing in India. 4G Cat 1 bis emerged as the fastest-growing segment. Around 12% of the modules shipped in...

Montra Electric Boosts Amritsar’s Green Mobility with RAAHI Project

0
The initiative is a component of the City Investments to Innovate, Integrate, and Sustain (CITIIS) program, which falls under the auspices of the Ministry...

BYD Delays Vietnam EV Factory Plans

0
Vietnam's government announced in May that BYD plans to construct a facility for manufacturing and assembling electric cars in Phu Tho, a northern Vietnamese...
Keysight Technologies Pvt Ltd Logo

Keysight Acquires Spirent Communications For $1.46 billion, Outbids Rival Viavi Solutions

0
Keysight's offers 85.9% premium over Spirent's closing price on March 4, exceeding Viavi's 61.4% premium. Keysight expects new serviceable available market opportunities of...

Hyundai Motor Boosts EV Investment In Korea

0
The automaker stated that over half of the investment, amounting to 35.5 trillion won will be dedicated to new R&D infrastructure and EV assembly...

Manufacturing

BYD Delays Vietnam EV Factory Plans

0
Vietnam's government announced in May that BYD plans to construct a facility for manufacturing and assembling electric cars in Phu Tho, a northern Vietnamese...

JLR To Hire 250 Electrical Technicians For Future EVs

0
These new roles, part of a £15 billion investment, are in addition to 300 positions created last year by the British car maker. Jaguar Land...

Altmin India Partners With WMG To Advance Battery Tech

0
Altmin and WMG will collaborate to strengthen their global battery materials supply chain position by optimizing cathode materials and developing diverse cell designs across...

EVs To Cost Less Than Gas Vehicles by 2027, Says Gartner

0
Gartner predicts a faster decline in production costs compared to battery costs, which represent the most significant expense in an electric vehicle, accounting for...
MG

MG Motor To Set Up Battery Assembly Unit At Halol Facility

0
The company plans to investigate battery cell production in collaboration with external partners. Automaker MG Motor India is actively exploring the possibility of assembling and...