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India charting a new geopolitical reality-Building an entire semiconductor ecosystem

The interim Union Budget 2024, presented by the finance minister on February 1, 2024, went out of its way to provide impetus to the Indian semiconductor industry. Allocation was increased to support semiconductor and display manufacturing by 130 percent to Rs 6903 crore. Fiscal incentive of 50 percent of the project cost is provided to companies for setting up of semiconductor fabs in India of any node size, and for setting up of display fabs of specified technologies in India.

Last year too, a non-planned allocation of Rs 3000 crore had been made in the Union Budget 2023. At that point of time, India’s positioning was more toward lower-cost semiconductor manufacturing and lesser expectation on higher, an order of magnitude higher, cost of Si-based CMOS fab. A Rs 76,000-crore incentive scheme for semiconductor and display manufacturing ecosystem had been announced in December 2021.

As of now, the only proposal that has received the Union Cabinet approval is Micron Technology’s Rs 22,500-crore plan for a new assembly, testing, marking, and packaging (ATMP) unit in Sanand-Gujarat. PLI incentives of Rs 11,000 crore have been sanctioned, with Micron’s investment being Rs 6260 crore. The plant in phase one, scheduled to commence production by December 2024, is to test and package semiconductor chips, procuring the manufactured chips from other companies that will send their chips for testing before shipping. The second phase is planned for the latter half of the decade.

While, the high priority allocated to the program is commendable, to get the projects off the ground, a lot more funds allocation will be required in the full budget of 2024 after elections. Manufacturing semiconductors is no mean feat.

Arun Mamphazy, an independent semiconductor analyst based in Maryland, USA, believes most of the Rs 6903 crore allocated is likely to go for the Micron ATMP. “Anyway, Rs 1500 crore is too less for Si fab, if at all, it may be compounded, or more likely it’s just a random number to not forget fabs,” says Mamphazy. According to the government release, Rs 4203 crore has been earmarked for incentives for ATMP, Rs 1500 crore is designated for semiconductor fab or electronic chip plants that will spur the compound semiconductors and sensors manufacturing, Rs 900 crore support for the Mohali-based SCL, and Rs 200 crore for the design-linked incentive scheme to add to design and IPR development in India.

Danish Faruqui, CEO of Fab Economics, a US-based boutique semiconductor ecosystem consultancy with broad macroeconomics capabilities, agrees. He finds the Rs 3000 crore – “the Rs 1800 crore budget allocated for compound semi/display/ATMP/OSAT manufacturing and only Rs 1000 crore for an order of magnitude higher CapEx-intensive Si-based CMOS fab manufacturing along with Rs 200 crore for design part of the value chain” – highly inadequate.

And the 2024 timeline declared by Ashwini Vaishnaw, Minister for Communications, Electronics & Information Technology, at the recently held Vibrant Gujarat Summit, that India plans to produce the first locally-made chip by the end of 2024, thanks to Micron’s ATMP facility in construction in Gujarat is implausible.

“A timeline of 3.2 years for India’s first production-ready 28nm fab is possible,” says Faruqui. “We at Fab Economics have granularly estimated the timeline for a model production-ready 28nm fab in India across all stages, i.e., subfab construction, fab construction, fab facilitation, fab equipping, equipment quals/line quals, site-level technology transfer, site certifications for major 28nm end markets, fab productization (NPD, NPI, CS), fab production-ready certification with full loop 28nm silicon and high volume manufacturing onset,” adds Faruqui.

Agrees Micron CEO Sanjay Mehrotra, “the first ATMP facility in India will be operational only by early 2025.”

Ajit Manocha, president and CEO of SEMI, too expressed surprise. “2024 timeline is a mistake, as it would take 6–9 months for the construction to finish, and it would require a bit more than a year for the facility to be operational.”

“The lack of a semiconductor ecosystem in India would be the major barrier to India’s semiconductor ambition,” adds Manocha. Making chips involves hundreds of steps that pull on advanced lasers and chemical manipulations to create tiny pathways for electronic signals that do the most basic calculations for a computer. Costs are astronomical.

Besides, India lacks the talent required for the semiconductor industry.

“India will require an additional pool of at least 20 lakh deep-tech engineers by 2030 to meet its growth aspirations for the semiconductor and electronic design manufacturing sectors,” says K. Krishna Moorthy, CEO and President, India Electronics & Semiconductor Association (IESA).

Faruqiui agrees, “It is extremely important to accurately forecast the semiconductor talent requirement at a national level to inform the national-level talent strategy and roadmap; otherwise, the talent crunch can derail the entire semiconductor roadmap even after spending billions in subsidies. Even 10–20 percent shortage of the required FTE for semiconductor sites is enough to stall or stop its progress, and we are talking about a potential gap as high as 60 percent.”

The Indian market dynamics
The Indian semiconductor market is valued at Rs 2.62 lakh crore in 2023, and is likely to grow at a CAGR of 17.1 percent over the next five years. And semiconductor component imports have gone up from ₹67,497 crore to nearly ₹1.3 lakh crore in FY23.

The government has implemented various measures and policies. Make in India initiative, production-linked incentive (PLI) scheme, design-linked incentive (DLI), chips to startup (C2S), the scheme for promotion of electronic components and semiconductors (SPECS), and the Semicon India program are some of the initiatives taken by the government to support the industry.

Apart from Micron’s plan, other players have also displayed interest. As at the end of October 2023, the government has received a total of 45 applications – five requests for the establishment of semiconductor fabs, two for display fabs, nine for the setup of compound and ATMP facilities, and 29 for the design-linked incentive scheme. The proposals are being evaluated by MeitY and India Semiconductor Mission.

Tower Semiconductor has resubmitted its proposal to set up 65nm, 40nm chip fab. Foxconn has communicated to the Indian government that it hopes to establish four to five semiconductor fabrication lines, investing over USD 1.2 billion in India. HCL Group is presenting a proposal to the Center for the establishment of an ATMP unit at an estimated project cost of Rs 2000 crore. Tata Group is working actively toward setting up an OSAT and a foundry. AMD inaugurated its largest global design center, the Technostar R&D campus, on November 28, in Bengaluru, as part of a Rs 3300-crore investment over the next five years. Sahasra Semiconductors has set up a semiconductor assembly, test, and packaging unit in Bhiwadi. CG Power and Industrial Solutions of the Murugappa Group, has applied to MeitY to establish an outsourced semiconductor assembly and test (OSAT) facility with an investment of Rs 6600 crore. Kaynes Technology’s via subsidiary Kaynes Semicon is set to invest Rs 2800 crore to start a semiconductor OSAT and compound semiconductor facility at Kongara Kalan in Hyderabad. Vedanta is awaiting approvals for setting up a semiconductor fab in Gujarat. SCL is being modernized at an investment of Rs 900 crore.

At least four to five leading suppliers of components and materials to the semiconductor sector are also poised to take a similar course of action. Simmtech and Air Liquide that specialize in providing printed circuit boards and high-purity industrial gases for chip manufacturing are currently engaged in discussions with the central government to initiate their operations in India. Larsen & Toubro plans to set up a subsidiary in the domain of fabless semiconductor chip design at an investment of Rs 830 crore.

India and Japan formally signed a memorandum of cooperation to bolster the semiconductor sector in both countries. Rapidus Corporation, headquartered in Tokyo, will be an important part of the MoU. Qualcomm Inc. plans to outsource manufacture of semiconductor chips to India, when the country has set up its own fab plants and OSAT facilities.

Further, Applied Materials has announced a gross investment of Rs 3300 crore in India over the next four years for development and commercialization of technologies for semiconductor manufacturing equipment that includes a collaborative engineering center in Bengaluru. Lam Research Corporation, based in Fremont, has also announced its commitment to train the next generation of semiconductor engineers in India. The program aims to educate up to 60,000 Indian engineers in nanotechnologies over a 10-year period. The US Semiconductor Industry Association and India Electronics Semiconductor Association (IESA) are identifying immediate industry opportunities to facilitate long-term strategic development in complementary semiconductor ecosystems. India and EU, under the framework of EU-India Trade and Technology Council (TTC), have signed an MoU on semiconductor ecosystems aiming to foster a resilient supply chain and promote innovation. Micron Technology, Inc. and the New Age Makers Institute of Technology (NAMTECH), an ArcelorMittal Nippon Steel India education initiative, have formalized an MoU to partner on advancing the development of the world-class talent pipeline that is projected to quadruple to a capitalization of Rs 9 lakh crore by 2030. The MoU was signed at the Vibrant Gujarat Summit.

In a very short period of time, India has managed to forge strategic alliances for semiconductor collaborations with multiple nations’ leading semi-value chains, including the US, EU, Japan, and Taiwan. With adequate partner support and enablement of required success factors, India is on track to becoming self-sufficient across multiple Si-based mature node processing in the next 6 years and a wafer-level and product-level (via ATMP facilities) major exporter to the world within 10 years.

That said, semiconductor fabrication facilities take years to build and cost billions of dollars. From the decision to add a new fab, it takes even the most efficient manufacturer more than three years to build the semiconductor clean room, install equipment, and ramp up production to a high yield.

India has no history of fabbing chips and virtually none of the hyper-specialized engineers and equipment needed to start. Still, it says it will make them here – and soon. It took TSMC and other Taiwanese companies decades, driven by government spending and countless billions in capital investment, to get where they are.

And chip-legend Morris Chang, founder of Taiwan Semiconductor Manufacturing Company, cannot be ignored, “From the beginning, the semiconductor industry has been a fast-paced and unforgiving industry. Once you fall behind, catching up becomes considerably difficult!”

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