India takes a giant leap on the semiconductor manufacturing front

The Union Cabinet has approved the establishment of three semiconductor units under the incentive scheme, ‘The Programme for Development of Semiconductors and Display Manufacturing Ecosystem in India’ announced on December 21, 2021 worth Rs 1.26 trillion of investments. All three units will start construction within next 100 days.

The approved three semiconductor units are:

1. Semiconductor fab with 50,000 wfsm capacity
Tata Electronics Private Limited (“TEPL”) will set up a semiconductor fab in partnership with Powerchip Semiconductor Manufacturing Corp (PSMC), Taiwan.

Investment. This fab will be constructed in Dholera, Gujarat. Investment in this fab will be Rs.91,000 crore.

Technology partner. PSMC is renowned for its expertise in logic and memory foundry segments. PSMC has 6 semiconductor foundries in Taiwan.

Capacity. 50,000 wafer starts per month (WSPM)

Segments covered
High performance compute chips with 28 nm technology. Power management chips for electric vehicles (EV), telecom, defence, automotive, consumer electronics, display, power electronics, etc. Power management chips are high voltage, high current applications.

2. Semiconductor ATMP unit in Assam
Tata Semiconductor Assembly and Test Pvt Ltd (“TSAT”) will set up a semiconductor unit in Morigaon, Assam.

Investment. This unit will be set up with an investment of Rs.27,000 crore.

Technology. TSAT semiconductor is developing indigenous advanced semiconductor packaging technologies including flip chip and ISIP (integrated system in package) technologies.

Capacity. 48 million per day

Segments covered. Automotive, electric vehicles, consumer electronics, telecom, mobile phones, etc.

3. Semiconductor ATMP unit for specialized chips
CG Power, in partnership with Renesas Electronics Corporation, Japan and Stars Microelectronics, Thailand will set up a semiconductor unit in Sanand, Gujarat.

Investment. This unit will be set up with an investment of Rs.7,600 crore.

Technology partner. Renesas is a leading semiconductor company focussed on specialised chips. It operates 12 semiconductor facilities and is an important player in microcontrollers, analog, power, and System on Chip (‘SoC)’ products.

Segments covered. The CG power semiconductor unit will manufacture chips for consumer, industrial, automotive and power applications.

Capacity. 15 million per day

Strategic importance of these units
India already has deep capabilities in chip design. With these units, our country will develop capabilities in chip fabrication.

Advanced packaging technologies will be indigenously developed in India with today’s announcement.

Employment potential
These units will generate direct employment of 20 thousand advanced technology jobs and about 60 thousand indirect jobs.

These units will accelerate employment creation in downstream automotive, electronics manufacturing, telecom manufacturing, industrial manufacturing, and other semiconductor consuming industries.

The one proposal that did not go to the Cabinet today was Tower. It is a complex proposal in the sense that they are a foundry company, and is not a classic joint venture kind of a model. The company wants a 100 per cent investment, with the option of an Indian partner later on. The plan is for a significant build out an 80,000 wafers per month, fab.

Projects in the offing.
A $2.7 billion assembling plant by US semiconductor major Micron was given the greenlight last year.

Additionally, semiconductor equipment maker Applied Materials has said it would invest $400 million to design chipmaking machinery in the country and Microchip Technology has committed a $300 million investment to expand its semiconductor R&D footprint in India.

Indian conglomerate Vedanta and Taiwan’s Foxconn are also in the fray.

After making the announcement, Ashwini Vaishnaw, Minister for Communications, Electronics & Information Technology commented, “It is a remarkable achievement. It is a giant leap. Now, we are targeting to become a major player in the semiconductor value chain by 2029… PM Modi actually wants us to work on a 20 year vision for semiconductors. This will help drive up electronics manufacturing from $105 billion currently to $300 billion in the next few years.”

Added Rajeev Chandrasekhar, Minister of State for Electronics and Information Technology, “The government has received proposals worth a total of $26 billion in the semiconductor sector. The figure does not include proposals made in the display segment and those that have been rejected.

If you look at the policy, proposals said it has to be a company operating and managing a foundry currently or a company that has a licensing agreement from a foundry. Essentially, today what we are seeing is, all of these proposals are essentially foundry partners.

So Renaissance is a semiconductor company, Microns is a semiconductor company, TSMC is a semiconductor company, Tower is a semiconductor company. And so none of these are really licensed third party plants. This is certainly consistent with what we thought in the early days.”

The industry welcomed the announcement. “The Union Cabinet’s approval on the establishment of three semiconductor units under the India Semiconductor Mission is a positive and commendable development. This is a progressive step for India and the strongly emerging manufacturing ecosystem in the country. We believe this serves as an excellent example for our nation towards attaining self-sufficiency in line with our Hon’ble Prime Minister’s vision of ‘Atmanirbharta’ and will further inspire India’s goals to become a global manufacturing and supply chain hub. Moreover, with the output from these facilities being poised to benefit various sectors and segments, it is expected to provide a fillip to the ‘Digital India’ mission through increased technological prowess and advancement of the indigenous industrial ecosystem, besides generating employment and attracting more investments in the country.” said Lt. Gen. Dr. S.P. Kochhar, Director General, COAI.

“The emergence of Bharat as a global semiconductor mfg. destination no longer seems to be a distant dream.By 2027 we will have the FAB and OSAT units producing. By the end of the decade we may have more than 10 fabs and 20 OSAT units in production besides many semiconductor product design companies,” said Pankaj Mohindroo Chairman ICEA.

Backgrounder
In December 2021, the government had rolled out a Rs 76,000 crore chip incentive scheme, under which the Centre offered half the amount of a plant’s capital expenditure costs as subsidy. The proposals cleared on Thursday will all receive 50 percent of their CapEx costs from the Centre. Then there are schemes like the production linked incentive (PLI) plan for smartphone and laptop manufacturing, where again, the government is offering a subsidy to companies on the basis of their sales bills.

India’s chip incentive plans are focused on boosting all three aspects of the semiconductor ecosystem – packaging units called ATMP facilities; assembly and testing projects called OSAT plants; and full-scale foundries that can manufacture chips.

Semiconductors are highly complex products to design and manufacture, that provide the essential functionality for electronic devices to process, store and transmit data. No other industry has a similar level of investment in both R&D (22% of annual semiconductor sales to electronic device makers) and capital expenditure (26%), according to a report commissioned by the Semiconductor Industry Association, thereby making semiconductor fabrication an extremely capital intensive business with high entry barriers.

Closed ecosystem
The global semiconductor chip industry is dominated by some countries and a handful of companies — Taiwan and South Korea make up about 80 percent of the global foundry base for chips; and only one company, the Netherlands-based ASML, produces EUV (extreme ultraviolet lithography) devices, without which it is not possible to make an advanced chip. Cambridge, UK-based chip designer Arm, where Nvidia is a stakeholder, is the world’s biggest supplier of chip design elements used in products from smartphones to games consoles.

It’s a nearly closed manufacturing ecosystem with very high entry barriers, as China’s SMIC, a national semiconductor champion that is now reportedly struggling to procure advanced chip-making equipment after a US-led blockade, is finding out. In this market, Nvidia, which comprehensively dominates the chips used for high-end graphics-based applications, has come to dominate multiple end-use sectors including gaming, crypto mining, and now AI.

There are some challenges, too. Other countries, like the US and EU, also sense the semiconductor opportunity and have rolled out more lucrative incentive schemes than India, a major reason why the country is having to first focus on more mature nodes like 28 nm and older and why cutting edge nodes like those used in smartphones and laptops are still out of reach. TSMC is currently making chips with a node size of 3 nanometres. It is unclear how many decades India may take to be able to attract companies such as TSMC that can manufacture chips of such levels of sophistication.

Second is the talent pool. While India is the biggest back office for design engineers of all major chip companies, skilled talent that can work on factory floors of a fabrication plant is still hard to come by. Although it can be argued that having a foundry will allow engineering students to train at a domestic fabrication facility rather than having to travel to countries like Taiwan and Korea to gain first-hand experience of the process — which could spur more engineers to join the stream in India.

India also currently lacks in original research in semiconductor design, where the future of the chip is decided. The government, however, is aware of that shortcoming and is in the process of setting up a R&D lab at Semiconductor Laboratory (SCL) in Mohali. It is working on a Rs 10,000 crore modernisation plan for the organisation, and a large chunk of that will go towards setting up the Bharat Semiconductor Research Centre, where a majority of the research will focus on developing chips that can address India’s unique needs and demands.

India, which is seeking to rival countries such as Taiwan in chipmaking, expects its semiconductor market to be worth $63 billion by 2026, but does not yet have a chipmaking facility.

CT Bureau