India’s Chip Dreams, Dipped in Private Sauce
“It is very important to get this foundational industry in our country… It is similar to the steel, or chemical industries – which give way to downstream industries…we will see manufacturers of mobile and laptops, electric vehicles and automobiles, even the mic you’re interviewing me with!”
That’s IT Minister Ashwini Vaishnaw explaining India's intent behind realizing its semiconductor dreams. On 13th March 2024, Prime Minister Modi virtually inaugurated three new semiconductor facilities approved by the Government of India last month, under its flagship semiconductor production-linked incentive (PLI) scheme, modified in October 2022.
These are big developments for us at Digital Republic, which we’ll cover over two editions. Realizing India’s chip production ambitions will necessitate front-end fabrication capabilities as well as assembly, testing, marking, and packaging (ATMP) at the backend. Today, we set the stage with a one-stop resource on the nature of private investments in India’s semiconductor industry, what with all the heady announcements of partnerships being thrown around.
The Big F-Word
First up: a fabrication facility worth INR 91,000 crore (~ USD 10.9 billion), proposed to be set up at Dholera, Gujarat, by Tata Electronics Private Limited (TEPL). Semiconductor fabrication or “fab” facilities are the most capital intensive and high-risk aspects of chip production.
TEPL’s fab is a greenfield venture established with Taiwan’s Powerchip Semiconductor Manufacturing Corporation (PSMC) as its technology partner. While TEPL is set to bring its manufacturing expertise to the table, PSMC’s technology portfolio to produce 28-nanometre (nm) chips – used for compute as well as markets such as electric vehicles, automotives, telecommunications, defence, and consumer electronics – will be made available.
This investment is significant for three main reasons. For starters, TEPL’s proposal for a fab facility is the first one to have received final governmental approval under the PLI. A number of fab proposals have preceded this — most notably, the joint venture between Taiwan’s Foxconn and India’s Vedanta, and those from IGSS, and ISMC — which fell through in July of 2023. Next, given its proposed output of 50,000 wafer starts per month (WSPM); a unit used to measure the output of a fabrication plant, TEPL’s facility could mark India’s foray into large-scale domestic fabrication of chips for commercial purposes. In stark contrast lies the SemiConductor Laboratory (SCL) – India’s primary fab facility – which produces up to 750 WSPM, with its use limited to strategic sectors like defence and space.
Finally, and most interestingly, while the project in Gujarat has received official GoI approval and a go-ahead to commence construction, it appears that certain specifics surrounding the investment are yet to be determined. In an interview with the Economic Times, PSMC’s Chairman Frank Huang stated that the two corporations have not yet determined the investment contribution to be made by PSMC, and that, thus far, its decision to participate is limited to technology transfer. This detail surrounding the project’s approval is fascinating when put in perspective of a key reason for the Vedanta-Foxconn joint venture proposal being held up in 2023. While the erstwhile joint-venture had sought to bring in European chipmaker STMicroelectronics as their technology partner (as is necessary for availing PLI incentives), a Reuter’s report revealed that that the GoI and STMicroelectronics had conflicting objectives vis-a-vis the tech transfer. It was reported that the Government sought more details and preferred that the partner bought a stake in the venture, which STMicroelectronics was reluctant to do given India’s nascency in the market.
Gujarat’s Growing Assembly Line
Second: an ATMP unit worth INR 7,600 crore (~USD 9.1 billion), proposed to be set up at Sanand, Gujarat. It is a joint venture between India’s railway manufacturer CG Power and Industrial Solutions, Japan’s Renesas Electronics Corporation, and Thailand’s Stars Microelectronics. While the investment breakdown for the three corporations is USD 205 million, USD 15 million, and USD 2 million respectively, their corresponding share of total equity capital is 92.34 %, 6.765 %, and 0.9%, respectively. The project specifically proposes an output of 15 million assembled and packaged chips per day, spread across a wide range of products, ranging from legacy packaging to the advanced packaging of specific chips manufactured for automotive, consumer, industrial, and power applications.
In CG Power’s proposed unit, Gujarat has successfully secured its second ATMP investment, the first being US chipmaker Micron Technology’s commitment in 2023 to invest USD 825 million (30% of the total) towards an ATMP facility, over the course of a seven-year period.
Moreover, with three big semiconductor facilities coming up in in close proximity to one another (Sanand and Dholera are under 100 kms apart), it is only a matter of time before Gujarat becomes home to a cluster of semiconductor units. In fact, Indian manufacturer Kaynes Technology’s most recent decision to take its ATMP investment worth INR 2,850 crore (~USD 344 million), out of Telangana and into Gujarat, only five months after it had broken ground, suggests a similar inclination.
Nevertheless, Telangana is still a lucrative state for ATMP investments. For example, Hyderabad-based Advanced System in Package Technologies (ASIP) and Korea’s APACT Limited have recently announced their intention to set up an ATMP facility worth INR 890 crore (~USD 107.4 million) in Hyderabad’s Electronics Manufacturing Cluster (EMC). This facility is set to provide complete turn-key ATMP solutions such as package design, bumping, assembly, testing, and dropshipping, to name a few. Although pending GoI approval, the facility is anticipated to commence its operations by 2025.
Looking East
Third: an ATMP facility worth INR 27,000 crore (~USD 3.26 billion), proposed to be set up by TPEL at Jagiroad, in Assam’s Morigaon district. What is most striking about this investment is its location, which is reportedly the reason why the project’s PLI approval was stalled for nearly 6 months. While Assam might not be an investor’s first preference for setting up a semiconductor unit, the Tata Group has cited factors such as the access to abundant water and green energy. Assam’s clean water can be turned into UPW [ultra-pure water] suitable for semiconductor sites. In addition, its “pollution-free environment [is] conducive to expat workers who will be required for the initial phases of semiconductor greenfield project due to the dearth of such talent in India.”
TPEL has advanced packaging technologies (APT) on its Assam roadmap, which entails an assortment of approaches for packaging chips in a manner that boosts their computational capability, whilst lowering their power consumption and cost. To top it off, Assam’s geographical proximity to existing semiconductor ATMP hubs including Taiwan, Malaysia, Vietnam, and Singapore will prove to be advantageous in the long run.
Explaining the Surge
Over the past two years, India has emerged as a lucrative destination for investment in chip production, for both, foreign and domestic private companies. There are three potential reasons for why this might be the case. First, the GoI’s decision to modify the PLI scheme in October 2022 – it offered the 50 percent financial incentive under the scheme for producing any chips whatsoever, and not exclusively those produced using 28 nm technology or lower. This has lowered technical barriers for applicants like the need to secure tech partners capable of transferring cutting-edge technologies. Next, the government’s PLI has been extended to chips produced via older technologies (such as 45 nm and above), making it more attuned to India’s own semiconductor needs. After all, chips produced with the use of older technologies account for a large portion of India’s domestic demand. And finally, money attracts money. Although obvious, the recent surge in private investment is a product of rising investor confidence, especially in efficient clusters such as the one emerging in Gujarat.
So there you have it – a starter pack on private investments in India’s semiconductor industry.
In next week’s edition, we will take a similar look at the private investments flooding India’s chip design and R&D space, with insights on the way forward. As always, for any comments or suggestions, please do write to us at digitalrepublic@evamlp.com
Have a great weekend.
Best,
Shruti Mittal
Evam Law and Policy
Thanks for the informative work Shruti. Looking forward to reading more about the domestic developments in this critical industry.
Great article Shruti! Very insightful and well written.