India’s locally sourced semiconductors to cross 17% by 2026, IESA

Only 9% of India’s semiconductor components were locally sourced in 2021.

However, the government’s ‘Make in India’ and PLI policies for semiconductors is expected to be a game-changer for the space, driving local sourcing further. With this, local procurement will grow by over 17% by 2026. As per the report, some of the primary growth drivers include accelerated digitization, dependence on complex electronic systems to process vast amounts of data, and the increasing use of technologies like AI.

Furthermore, the report also highlighted that 80% of the total revenue in the Indian semiconductor industry stemmed from mobile phones, smart wearables, IT, and other industrial components. Additionally, with the telecom industry preparing to rollout 5G technology by deploying cloud networks, the demand for semiconductors is expected to skyrocket. The report also focused on how the semiconductor demand is boosting the Auto industry and will give rise to EV Segment.

The report, “Global Semiconductor Manufacturing Supply Chain Report” focused upon the criticality and sustenance of the semiconductor manufacturing supply chain. Globally, from USD 440 billion in 2020, the semiconductor manufacturing market comprised of materials, equipment and services is likely to touch USD 1 trillion by 2030.

The 3 important pillars of the ecosystem being the semiconductor manufacturing equipment, materials (chemicals, minerals, and gases) used in the manufacturing process, and services across the semiconductor manufacturing value chain, the overall global opportunity across these elements is estimated to be USD 550-600 billion by 2030. This report estimates an opportunity of about 80B $ for the Indian industry by 2030. Also, the report reveals the opportunity for innovation and research in the Semiconductor manufacturing equipment – submodules, consumables and spares for the MSME industry in India.

IESA’s report also found that the evolving and volatile nature of the current geopolitical events will play a crucial role for industry players as they will need to seek sourcing partners beyond their existing suppliers. Besides, the growing adoption of sustainable manufacturing practices is also compelling manufacturers to broaden their supplier network. And according to IESA, India could well emerge as the latest innovation partner and a significant supplier in the next 10 years.

This immense potential complements India’s goal of reaching USD 1 trillion in export value by 2030. Besides creating a business opportunity for the Indian industry, the report also points at the strategic importance for India to play a relevant and significant role in the semiconductor manufacturing supply chain.

“The demand for semiconductors is growing astronomically worldwide. However, taking multiple factors into consideration, including the pandemic and the global geopolitical events, the manufacturing of the components is heavily impacted. IESA’s reports were aimed at analyzing the market situation, manufacturing supply chain, and prospects for India. They highlight the key aspects and offer detailed insights. While the local production is currently low, India has immense potential to become a leading supplier in the coming years, provided the talent pool and resources are utilized correctly. If this is done, the semiconductor market can be a major contributor to economic growth, and India’s dream of becoming a USD 5 trillion economy can be fulfilled,” said the spokesperson for IESA.

Key highlights:

The India semiconductor market 2019-2026

• The Indian electronics and equipment market is valued at USD119 billion in 2021. It is forecasted to grow at a CAGR of 19% from 2021 to 2026 to reach USD 286 billion in 2026. The Electronic System Design and Manufacturing (ESDM) sector in India will play a major role in India’s end equipment market growth.
• The Indian semiconductor market was valued at USD 27,154 million in 2021 and is expected to grow at a healthy CAGR of 16% from 2019 to 2026 to reach USD 64,050 million in 2026 representing 22% of the total end-equipment revenues.
• Only 9% of India’s semiconductor components were locally sourced in 2021. The government’s recent ‘Make in India’ and PLI policies for semiconductors should transform the landscape in the coming years to drive local sourcing trends. As a result, the local sourcing share is expected to grow to over 17% by 2026.
• In terms of semiconductor components, processor, memory and connectivity are the key components, contributing to 66% of the semiconductor revenue in 2021. Growth drivers include increasing digitalization, dependence on complex electronic systems to process huge amounts of data, and the rise of artificial intelligence.
• Mobile and wearables, IT, and industrial are the leading segments in the Indian semiconductor industry, contributing around 80% of the revenue in 2021.
• Mobile and wearables is the biggest contributor to the Indian semiconductor industry in 2021. Mobile devices have become a primary tool for Internet connectivity given that broadband and laptop/PC penetration remains low. In the last five years, the digital transformation has accelerated with the availability of cheap mobile Internet and has connected a big part of the Indian population. The smartphone market in India has been growing steadily and is already the second-biggest smartphone market in the world, behind China.
• The telecom market in India, which is in the process of preparing for the 5G rollout, deploying cloud network functionality and expansion of network coverage, will bring about a surge in demand for semiconductors. The present valuation of the semiconductor market for the telecom segment is more than USD 2 billion and it is expected to grow at a CAGR of 34% for the period 2021-2026.
• The industrial segment is one of the largest segments that is driving the semiconductor market in India. The present valuation of the semiconductor market for the industrial segment stands at $2.35 Bn and it is expected to grow at a CAGR of 20% between 2021 and 2026. The major drivers of growth in the industrial sector are increased FDI, the Make in India initiative, the PLI scheme, the infrastructure bill, Digital India and other modernization projects.
• India’s automotive semiconductor industry will also witness steady growth in the coming years. The industry, comprising commercial and passenger vehicles, ranks fifth largest in the world. It is expected to become third-largest by volume by 2026 after China and the US. Ongoing efforts to embrace cleaner and greener vehicles will provide an impetus to the automobile industry to adopt advanced technologies. This will boost the demand for semiconductor components in the country.
• To achieve India’s semiconductor vision, a robust, indigenous technology ecosystem must be developed. The focus must be renewed on incentivizing the design ecosystem in the country in a manner that may have cascading effects to help create a stronger foundation for design-led manufacturing and allied sectors.

Global semiconductor manufacturing supply chain

• The criticality and sustenance of the semiconductor manufacturing supply chain is of paramount importance for governments and industry stakeholders alike. The global semiconductor market is estimated to reach US$ 1 trillion by 2030 from the current levels of US$ 440 billion in 2020.
• The global semiconductor manufacturing supply chain is mainly pivoted around 3 important pillars of the ecosystem, which includes the semiconductor manufacturing equipment used in the fab/foundries and TMPs/OSAT’s, materials (chemicals, minerals and gases) used in the manufacturing process and services across the semiconductor manufacturing value chain. The overall opportunity across these elements of the semiconductor manufacturing supply chain is estimated to be US$ 550 – 600 billion by 2030 from the current levels of US$ 180 – 200 billion.
• With the existing evolving nature of geopolitical events it will be critical for the industry players to look at sourcing partners beyond the existing suppliers/geographies which have been involved in the semiconductor manufacturing supply chain to ensure that supply chain risks are mitigated.
• Also, the emerging importance of adopting green manufacturing process, green sources of supply and circular economy led manufacturing approach is also compelling the existing players to look beyond their existing partners and switch to newer geographies. India could well emerge as this new innovation partner to mitigate the risk of supply chain issues and also evolve as a strong and significant supplier to the global semiconductor manufacturing industry over the next 10 years.
• India has the potential to become a significant supplier to the global semiconductor manufacturing supply chain across semiconductor equipment ecosystem, materials and services. There is a potential opportunity for India to serve up to US$ 85 – 100 billion of the US$ 550 – 600 billion annual global opportunity by 2030. This is nearly 17% of the global market requirement.
• India’s potential to cater to the global semiconductor manufacturing supply chain very well complements India’s vision to reach US$ 1 trillion in export value by 2030. The Semiconductor industry led exports could well be another important sector for the government in its vision to scale up exports and contribute to nearly 10% of the export outlook by 2030.
• Equipment companies rely on a limited group of sub-system suppliers which involves several risks, including a potential inability to obtain an adequate supply of required components, reduced control over pricing and the risk of untimely delivery of the components and subassemblies. The MSMEs in India are ideally suited to partner with the sub-system suppliers of these global semiconductor equipment manufacturers. This opportunity will enable the MSME growth in line with the government’s vision of upscaling the MSME industry in India.
• The leading firms in the equipment manufacturing space such as Applied Materials, LAM Research have presence in India in the form of technology/engineering centre while others have marketing offices in India.
• India has many of the chemicals, minerals, gases used in semiconductor manufacturing which have been used by different segments of the Indian industry such as pharmaceuticals, paints, automotive, etc. The Indian materials industry will have to improve the quality and purity of these materials (chemicals, gases, minerals) to be of semiconductor manufacturing grade.
• Services and skills segment includes areas like fab services, ATP services, semiconductor manufacturing equipment services, supply chain services, automation services and skills aligned with the semiconductor manufacturing industry. Global semiconductor equipment manufacturers have demonstrated this capability with technology/engineering centers based in India wherein the local workforce is meeting the requirement of the global market demand.
• India can provide services to large semiconductor companies in Industry 4.0 implementation as India is one of the major countries which occupies large pool of talent in artificial intelligence, big data, cloud computing and IoT. India has with its local supply chain professionals the capability to effectively manage the global market demand on a consistent basis.
• India’s participation in the global semiconductor manufacturing supply chain will create an opportunity for india to position itself as a high end/value add supplier to the global market, create new avenues for exports, strength the MSME sector, potential to create high level of skilled jobs and therefore contributing to the overall growth of the economy.

Media Brief