Top chips makers reluctant to respond to India grants

In light of the global semiconductor demand surges and chip companies looking to avoid the risks from the trade war and supply chain storage, the India government has recently provided new incentives to global semiconductor companies to set up fabs in the country, after a similar move failed a decade ago. But most of the global leading semiconductor companies still stay unresponsive due mainly to a lack of a complete ecosystem in South Asia.

The new incentives are part of the Scheme for Promotion of Manufacturing of Electronics Components and Semiconductors (SPECS), which was released in April 2020. In SPECS, the India government will offer a 25% financial incentive for the companies that invest in the semiconductor industry in India.

By the deadline of early 2021, around 20 companies had submitted their EOI (express of interest) letters; but most are private equity funds, financial investors or venture capitalists including Next Orbit Ventures from Abu Dhabi. Taiwan’s Foxconn Technology Group was reportedly also among the applicants, according to The Ken, a digital publication based in Bangalore, India. The publication said Foxconn did not respond to its inquiry for comment.

It remains uncertain who those potential investors are.

This is the second time that the India government incentivizes investments in building fabs. The first time was in 2011. The government even issued a letter of intent (Lol) to two groups at that time. One was led by India-based Jaypee Group and supported by IBM and Tower Semiconductors, with plans to construct a fab in Noida, and the other was headed by China’s Hongxin Semiconductor Manufacturing (HSMC) with ST Microelectronics and Silterra Malaysia as partners for building a fab in Gujarat, The Ken reported. Both groups ended up in failure, due to different reasons.

Leading chips makers, like TSMC and Intel, remain less interested in operating fabs in India as the country still lacks substantial conditions for such fabs, according to The Ken. The semiconductor demand in the Indian market is still too small for those semiconductor companies, which aim for the global market. The India Electronics and Semiconductor Association (IESA) also pointed out that the global semiconductor consumption reached US$439 billion in 2019; but India was only US$21 billion.

Secondly, India doesn’t have a complete semiconductor ecosystem, such as buyers, OEMs, sales channels, and third-party backend service providers. As a result, international foundries usually claim much higher fabrication quotes for India-based IC designers, putting them at a disadvantage to compete with other rivals abroad, according to Prag Naik, CEO of India chipmaker Saankhya.

Some big enterprises and the India government agencies do not even consider India-designed IC products for their high price. India-designed ICs cost US$5 per unit, but the Taiwan-designed ones only cost US$0.5 per unit, according to The Ken, citing an industry insider.

Prakssh Mallya, MD of Intel India, has recently told Economic Times and Fortune India that India still has a long way to go in semiconductor development. He stressed that a complete semiconductor ecosystem requires many different elements, not just a fab, and added that India’s current Production-Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing is the right way to construct a sound IT ecosystem in the country. DigiTimes Asia