Is India Truly Poised to Emerge as a Global Semiconductor Hub?

In December 1947, the United States achieved a breakthrough by successfully developing the first semiconductor amplifier. Meanwhile, India had recently gained independence. Today, a significant shift is evident. Despite being delayed by several decades, international industry leaders are actively contributing to propel India toward its semiconductor ambitions. However, the key now lies in sustaining this momentum, given that experts suggest that achieving a complete end-to-end semiconductor fabrication capability in India will likely span two decades.

Semiconductor devices, commonly known as chips, serve as integral components in a wide array of electronic products, ranging from smartphones and televisions to automobiles, space vehicles, and military armaments. Over the past couple of years, the globe has faced a substantial shortage of these chips due to the ongoing Covid-19 pandemic. Unlike typical cyclic scarcities that last up to a year, the current shortage is anticipated to persist until early 2024.

The root cause traces back to the pandemic’s onset when automakers scaled down their orders for semiconductor chips due to diminished sales. Simultaneously, the demand for digital devices surged as remote work became the norm. This surge encompassed smartphones and other electronic goods like PlayStations, with people seeking indoor entertainment during lockdowns.

Mark Papermaster, Chief Technology Officer of Advanced Micro Devices (AMD), notes, “The severity of shortages experienced during the pandemic is unprecedented. It was a highly exceptional situation,” he tells Forbes India.

Semiconductors have assumed a role as crucial as oil reserves, a determinant of geopolitics for decades. This scarcity has prompted both companies and the Indian government to amplify domestic chip manufacturing efforts and secure chip supplies. Currently, more than 60 percent of the world’s semiconductor production originates from Taiwan, which poses a potential threat to the US, particularly with concerns about China’s influence.

During Prime Minister Narendra Modi’s visit to the US in June of this year, among various agreements between the two nations, a standout highlight was the collaborative advancement of semiconductor technologies. A Memorandum of Understanding (MoU) on the Semiconductor Supply Chain and Innovation Partnership was signed between US President Joe Biden and PM Modi. This MoU seeks to coordinate semiconductor incentive programs in both India and the US.

In response to these developments, Micron Technology, a US-based chip manufacturer, unveiled plans to invest up to $825 million in establishing a semiconductor assembly and testing facility in Gujarat. This investment capitalizes on fiscal incentives provided by the Indian government, with the central government offering 50 percent fiscal support for the total project cost and the state of Gujarat providing incentives amounting to 20 percent of the project cost. The facility’s operational commencement is projected for late 2024.

Gursharan Singh, Senior Vice President of Global Assembly and Test Operations at Micron, expresses, “After more than a year of discussions with Indian government officials, Micron is pleased to bring its industry-leading assembly and test capabilities to be a part of this transformation in India’s semiconductor industry.”

During the same visit, PM Modi engaged with Gary Dickerson, CEO of Applied Materials, who disclosed a $400 million investment plan spanning four years. This renowned semiconductor toolmaker has been active in India for two decades and seeks to establish a new engineering center in Bengaluru with this investment.

Srinivas Satya, Country President of Applied Materials India, explains, “Our aspiration is to witness the establishment of large-scale manufacturing facilities here. This won’t materialize overnight; it usually takes around three years to establish a factory.” He adds that India’s strategy of combining policies, government incentives, and investments in research and development positions it attractively to draw global semiconductor companies.

Navigating a Course

In December 2021, the Indian government unveiled a $10 billion stimulus to promote the domestic production of semiconductors. The initial trio of proposals submitted to the India Semiconductor Mission hailed from IGSS Ventures, based in Singapore; the International Semiconductors Consortium (ISMC); and a partnership involving Vedanta Group, led by Anil Agarwal, and Taiwan’s Foxconn. All three encountered obstacles while endeavoring to establish their manufacturing facilities.

However, the collaboration between Anil Agarwal’s Vedanta and iPhone manufacturer Foxconn faced a setback, leading to Foxconn’s withdrawal from their agreement to invest $19.5 billion in a semiconductor plant in India. Despite this, both companies shared the spotlight, alongside representatives from Micron, AMD, SEMI, Cadence, and Applied Materials, at the second SemiconIndia conference held in Gandhinagar, Gujarat, in July. This event also saw the presence of Prime Minister Modi.

Addressing conference attendees, AMD’s Papermaster announced an infusion of $400 million over the next five years to expand research, development, and operations in India. This investment encompassed the establishment of a new AMD campus in Bengaluru, set to become the company’s largest design center globally.

Jaya Jagadish, SVP and Country Head of AMD India stated, “Our engineering teams in India play a pivotal role in the development of every major AMD product, spanning a diverse portfolio of CPUs for PCs and servers, data center GPUs, gaming GPUs, and more.” AMD India has been operational for over two decades.

Following the discontinuation of the Foxconn-Vedanta deal, Foxconn recently entered into a Letter of Intent (LOI) with the Karnataka government. The agreement entails an investment of Rs 5,000 crore in two projects: the manufacturing of semiconductor equipment and phone enclosures. The world’s largest contract electronics manufacturer is collaborating with Applied Materials to produce semiconductor equipment.

Young Liu, Chairman, and CEO of Foxconn, expressed his confidence in India’s commitment to nurturing an indigenous semiconductor ecosystem. He noted, “Success, however, hinges on various stakeholders within and outside of India collaborating, working tirelessly, and persevering through challenges.” This statement was shared with Forbes India.

Concurrently, Vedanta is in negotiations with three firms to onboard them as technology partners for their extensive plans, including the establishment of a foundry fab and outsourcing assembly and testing electronics hubs. An optimistic Anil Agarwal shared, “Within 2.5 years, we will present you with Vedanta-made chips produced in India.” He made this assertion during the SemiconIndia 2023 event.

Vedanta has committed a total of $20 billion to establish semiconductor, integrated glass, and display fabs in India. “This will unfold in multiple phases, with the Dholera Special Investment Region in Gujarat selected as the site for our fabs,” stated David Reed, CEO of Vedanta Semiconductor.

On June 1, the India Semiconductor Mission initiated a fresh application round for setting up semiconductor and display fabrication units, inviting proposals for incentives. This time, the government removed the 45-day submission window, opting to evaluate applications as they arrive.

Currently, the demand for semiconductors in India stands at approximately $24 billion, met entirely through imports. Projections suggest this demand could soar to $100 billion by 2025. Factors driving this growth include increased semiconductor content in consumer electronics and vehicles, including electric cars, the adoption of 5G and IoT devices, and more.

To support semiconductor manufacturing in India, the government has introduced initiatives like production-linked incentives (PLIs) and design-linked incentives (DLIs). The sector could benefit from additional incentives, tax advantages, and streamlined regulations to attract further investments.

Establishing semiconductor manufacturing facilities in India necessitates substantial investments in power, water, and transportation infrastructure. While countries like China, Taiwan, and South Korea have already solidified their positions as semiconductor manufacturing hubs, India faces fierce global competition. Developing a complete domestic value chain for semiconductors will demand significant time and capital, given that a substantial portion of the value chain currently lies outside India.

To mitigate import dependency, the focus should shift toward developing a local value chain for semiconductor manufacturing. Chandranath Dey, India Head of Operations and Business Development at JLL, recommends incentivizing raw material production, promoting semiconductor equipment suppliers and contract manufacturers, and embracing emerging materials, processes, and technologies.

The Semiconductor Industry Association reported on August 4 that global semiconductor sales reached $124.5 billion in Q2 2023, reflecting a 4.7% increase from Q1 2023 but a 17.3% decline from Q2 2022. June 2023 saw global sales of $41.5 billion, a 1.7% uptick from the previous month.

Globally, the domain of advanced semiconductor manufacturing technology features a select few major players, with one dominant figure. This landscape doesn’t inherently incentivize these players to invest in India, as Nilaya Varma, co-founder of Primus Partners, explains. Challenges encompass sourcing appropriate human capital, cultivating a vendor base in India, building robust export infrastructure, and fostering partnerships that ensure ongoing investments with strong technical capabilities.

Varma further notes, “Other entities seeking to establish operations here would initially need to import everything, from equipment to manpower, and invest in building the ecosystem. This calls for financial incentives and policy stability from India to assure returns on investment—an ongoing challenge.”

In the past, the semiconductor sector held little strategic national importance. However, the perspective has shifted post-Covid-19 and the global semiconductor shortage, prompting policymakers, including those at the PM’s office, to recognize the sector’s strategic significance. Prithvideep Singh, General Manager of CDIL Semiconductors, underscores this shift, asserting that backend manufacturing, or Assembly, Test, Mark, and Tape (ATMP), plays a pivotal role in India’s strategic foothold within the market.

Continental Device India Limited (CDIL), based in Delhi, has been manufacturing semiconductors in-house since 1964. The company’s founder, Gurpreet Singh, established the firm in collaboration with Continental Device Corp. of Hawthorne, California. CDIL’s manufacturing facility in Mohali boasts an installed capacity of over 250 million units and produces devices from the ground up. Today, a majority of their production, around 70%, caters to local consumption—a significant shift from previous years when 50-60% was exported.

Singh emphasizes that past efforts have concentrated on high-profile mega-fab projects, which make for impressive headlines but are capital-intensive endeavors. He affirms, “Today, the government recognizes that ATMP, or backend manufacturing, is an integral part of the semiconductor value chain and can serve as the cornerstone for India’s strategic foothold in the market.”

Maintaining Forward Momentum

To foster the growth of semiconductor manufacturing in India, experts emphasize the necessity for a concentrated effort on enhancing the ease of conducting business and offering incentives. The intricate process of designing and producing semiconductors stands as one of the most intricate ventures in the contemporary world. Achieving precision at the atomic level, where even the tiniest speck of dust can disrupt production, is imperative.

Given the multifaceted complexity demanding specialization, resources, and talent that no single nation can singularly provide, the global supply chain for chip manufacturing and design remains interlinked to a substantial degree. For India to fully unlock its domestic potential, collaboration with international counterparts becomes paramount. Commencing chip production at mature nodes for applications like automotive holds logic. India’s progression from these initial stages to more advanced nodes necessitates strategic alliances with established global stakeholders, as articulated by Ajit Manocha, CEO of SEMI, the industry association.

The thriving semiconductor industry requires numerous manufacturing hubs and a diversified supply chain to optimize its expansion. With projections indicating almost a twofold increase in revenue by the decade’s end, the industry is geared to support emerging applications incorporating greater chip utilization, such as autonomous systems, intelligent medical devices, 6G communications, and pervasive AI integration. In this context, India’s objective should encompass capturing a substantial portion of this burgeoning market, as asserted by Manocha.

The sector confronts a talent deficiency as it endeavors to expand manufacturing to accommodate this projected growth. The trajectory ahead hinges on workforce development initiatives and skill-oriented training.

Presently, Indian universities lack state-of-the-art infrastructure labs for conducting research, consequently limiting the entry of numerous students into this field. This challenge is elucidated by Professor Rao Tummala of Georgia Tech University, a member of the advisory committee of the India Semiconductor Mission. While acknowledging governmental efforts, he highlights the need for adequate infrastructure, expertise, and resources for successful implementation.

Fabs, as proven in operational economies, wield transformative power by fostering employment opportunities and generating substantial revenues for the nations involved. Manocha underscores this by referencing recent extensive subsidy and incentive programs, reflecting global policymakers’ comprehension of the immense investment needed to secure a share in semiconductor manufacturing. India’s course demands perseverance, as continuous investment in the sector is imperative to harvest its rewards.

With a limited window of opportunity coinciding with the global geopolitical landscape, the need to facilitate the sector’s entry into India is evident. However, ensuring the sector’s success mandates a far-sighted vision and comprehensive governmental backing, encompassing not only initial financial aid but also long-term consensus on policy stability, as aptly concluded by Varma of Primus Partners.

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