India sharpens its focus on foundries
By Russ Arensman, Contributing Writer -- 6/20/2006
While Rajendra Singh was working on his doctoral degree in physics in Canada during the late 1970s, he dreamed of one day returning to his native India to manufacture solar photovoltaic cells cheap enough to be installed on every rooftop in the country. But over the next few decades, as the focus of his career in U.S. academia shifted increasingly to semiconductor manufacturing, his homecoming plan slowly evolved.
Today, instead of manufacturing solar cells, his goal is to build India’s first modern 12-inch semiconductor fabrication plant to provide foundry services to multinational chip customers and the country’s burgeoning chip design industry.
“We want to leave a legacy—we want to be the creator of an industry that is not yet here,” says Singh, who currently splits his time between his duties as an electrical engineering professor at Clemson University and chairman of India Electronics Manufacturing Corp. (IEMC).
IEMC is one of several groups attempting to set up chip foundries in India (see “Move Over, China,” March 2006). Headed mostly by expatriate Indians who have worked in the U.S. technology industry, they hope to eventually replicate the success of Taiwan’s $35 billion semiconductor industry. Taiwanese industry veterans brought the expertise they gained from overseas back to their home country about 20 years ago and started a semiconductor industry there.
Joanne Itow, an analyst with Semico Research, says government support in the form of financial incentives and infrastructure improvements is imperative. But equally important, she says, is developing a “unique story” to attract investors and customers. The country’s booming economy and electronics market; large, skilled workforce; and relatively strong intellectual property protections offer some of the necessary ingredients.
Another enticement, says Gartner Dataquest foundry analyst Jim Hines, is proximity to India’s fast-growing chip design industry, which now boasts more than 100 companies, including subsidiaries of many of the world’s top chip makers. Says Hines, “When you compare India with China, that’s a clear difference.”
Government incentives
Government support for India’s technology industry has strengthened dramatically since the 2004 election of Prime Minister Manmohan Singh, an Oxford-trained economist and former central banker who has welcomed foreign investment and helped liberalize the economy. Recently, the government identified the semiconductor industry as a particularly high priority.
Finance minister P. Chidambaram declared during his annual budget speech to parliament in February that “the time is ripe to make India a preferred destination for the manufacture of semiconductors.” His 2006 budget calls for a three-year program to encourage chip makers to set up factories in India. A detailed national semiconductor policy is still being drafted, but the incentives for qualifying projects are expected to include tax breaks, loans and the option of equity investments through India Infrastructure Finance Co.
India will need to spend heavily to compete with other countries’ incentives. China, Ireland, Israel and Malaysia, for instance, reportedly offer much higher tax breaks to semiconductor makers than India currently does. And their largesse goes far beyond tax relief. Israel recently provided a $540 million grant to persuade Intel to build a $3.5 billion fab there.
Nonetheless, industry officials expect India to soon be much more competitive. Vinod Agarwal, chairman of SemIndia, which is planning a $3 billion fab in India, says he expects the new government policy to “level the playing field” with other countries. Deven Verma, chairman of Hindustan Semiconductor Manufacturing Co. (HSMC), which is planning its own $3.5 billion fab, expects India’s incentives to reach nearly the level of Israel’s. “It could easily be half a billion dollars if you’re doing a big fab,” he says.
At least some of those incentives are likely to come from India’s state governments. Andhra Pradesh, Karnataka, Tamil Nadu and Uttar Pradesh, among others, have been competing fiercely to attract the proposed chip projects, which could create thousands of jobs and other economic benefits.
Some of the project organizers are still weighing offers from various locations, but SemIndia recently signed a memorandum of understanding to locate in a “fab city” technology park outside Hyderabad, in the southern state of Andhra Pradesh. Quality-of-life considerations and easy access to the new Rajiv Gandhi International Airport, scheduled to open in 2008, contributed to the company’s decision. But SemIndia’s Agarwal says financial incentives also were an important factor. He says his company’s incentives package includes 1,200 acres, tax breaks and upgraded roads as well as attractive rates for communications, water, power and waste-treatment services.
Different strategies
All the proposed Indian fab projects thus far plan to operate as foundries, providing manufacturing services for other companies’ chip designs. But a key difference between the projects is their size and scope. Several groups are planning smaller, less costly 8-inch fabs, and others are proposing leading-edge 12-inch fabs. There are merits to both strategies, but some expect the Indian government’s forthcoming policy to support only the larger projects.
Verma says he expects “any foundries coming up in the next three years” to qualify for incentives. But IEMC’s Singh says government support will be limited to just 12-inch fabs. “They’re not going to put any money into the older fabs,” he insists. Government officials aren’t tipping their hand yet, but a recent Indian press report quoted an unnamed senior government official as saying that prospective fab developers will have to invest at least $1 billion in India to qualify for government loans and equity investments. If true, that could hurt some of the smaller projects’ chances.
Three of the five groups are planning 8-inch fabs, at least for their initial stages. Nano-Tech Silicon India broke ground outside Hyderabad in June 2005 on what was to be a $600 million 8-inch fab. But recent visitors to the site say that no construction appears to be under way. And despite sporadic Indian press reports about possible tie-ups between Nano-Tech and IBM (and more recently Intel), there have been no recent statements from the project’s organizer, Korean businessman Pyung June Min, to clarify whether his company’s technology and investment partners are still in place.
Another 8-inch fab was proposed last year by India’s Nest Group, a diversified electronics conglomerate that announced plans to build a $1 billion memory foundry in India’s Kerala state, with backing from Japanese partners. The company has said little about the project since then, however, and did not reply to inquiries from ELECTRONIC BUSINESS. Company officials have said they plan to open a chip design center this year and a chip test and assembly plant in 2007.
HSMC plans to start by relocating an existing 8-inch production line to India. The company’s $500 million first phase calls for taking over a 180- to 130-micron manufacturing process, and all the necessary fab equipment, from an as-yet-unnamed U.S. chip maker seeking to outsource some of its production. Verma says his group will continue producing chips for the seller after moving the operation to India. It also plans to use the 8-inch fab for technology development and engineer training while building a second, $3 billion 12-inch fab.
Even SemIndia, which aims to ultimately build a $3 billion 12-inch fab, plans to get its feet wet in India first with a chip assembly and test operation. Agarwal calls the assembly and test facility, scheduled to start construction this year, “the first logical step in our vision to make India a semiconductor manufacturing destination.” Semico’s Itow says that beginning with test and assembly is “not such a bad idea.” She says it may help a company establish trusted business relationships before getting into the actual foundry business.
IEMC, however, plans to start immediately with a 12-inch fab and technology for making 90-nanometer circuits. It’s likely to cost at least $3 billion, although the precise details—including location, investors and technology partners—are still being negotiated. Singh is adamant that state-of-the-art fabs and process technology will be needed to create a viable Indian chip manufacturing industry. “We cannot compete with older-generation technology,” he says, adding that many of the 8-inch foundries in China, Israel, Malaysia and Singapore are struggling to make a profit.
Chris Dieseldorff, an analyst with research firm Strategic Marketing Associates, agrees that the economics of 12-inch fabs can be more attractive, although the fabs cost more. “The 12-inch fabs are much more efficient,” he says. Besides lower per-chip production costs, they typically offer significant water and electricity savings.
The good news for India’s would-be chip makers, says Gartner analyst Hines, is that the foundry business is outgrowing the rest of the chip industry and there probably is still room for additional players. He notes, however, that whatever strategy they adopt, neither they, nor the Indian government, should expect quick success.
“Look at Japan, Korea and Taiwan,” Hines says. “It took them years of work and government support and investment to create their semiconductor manufacturing industries. It needs to be a long-term commitment.”
For more information on this topic:
India is not the new China
The secret of semi success
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