Semiconductors in India
Last month we noted that India had been again working toward attracting a leading LCD producer to build a fab in the country, offering considerable financial incentives, but has had little luck, making it the second attempt over the last few years to develop a display ecosystem in India. It seems that the Indian government has also been doing the same with semiconductor companies, having instituted a more aggressive policy last year and taking EOI’s starting at the end of last year. The EOI deadline however has been extended twice and local headlines have indicated that various global semiconductor producers have expressed interest in the plan (and incentives) but the 20 entities having submitted documentation, are mostly financial institutions or private equity firms rather than actual semiconductor producers.
Among the applicants are Foxconn (2354.TT), who has considerable assembly capacity in the country, but not semiconductor production expertise, and Next Orbit Ventures (pvt), an investor group based in Abu Dhabi, but large foundries are also evaluating incentive plans from the US, China, Taiwan, Japan Malaysia and Europe, many of which are more lucrative than the 25% incentive on capex that India is offering, and the Indian government’s highly bureaucratic path toward narrowing the field is a turn-off to foundries that are used to dealing directly with the most senior government officials. The real problem however is that India has no real semiconductor ecosystem, which is an absolute necessity for the top semiconductor producers and while the Indian government believes they can ‘buy’ their way into the semiconductor business, that approach has failed in the past.
The semiconductor market in India is still small, less than 5% of the global total so the attraction of localized semiconductor production is not present, leaving the only real attraction for large semiconductor companies as India’s commitment to building out an infrastructure that would support a real semiconductor production campus, and while the top few foundries would not want to anger the Indian government with outright refusals, they would likely be more interested in what the Indian government plans to do to develop that infrastructure over the next few years than the incentives offered today. India would likely be better served by attracting smaller producers using more mature processes in order to develop the suppliers and back-end providers that would eventually attract the primaries but the Indian government seems to be more interested in a big win than a longer term project. With the increased demand for semiconductors, everyone wants a fab in their neighborhood, and producers will use that advantage to generate the best possible deals. Taking a shot on a new and unproven country is likely not in the cards.
Among the applicants are Foxconn (2354.TT), who has considerable assembly capacity in the country, but not semiconductor production expertise, and Next Orbit Ventures (pvt), an investor group based in Abu Dhabi, but large foundries are also evaluating incentive plans from the US, China, Taiwan, Japan Malaysia and Europe, many of which are more lucrative than the 25% incentive on capex that India is offering, and the Indian government’s highly bureaucratic path toward narrowing the field is a turn-off to foundries that are used to dealing directly with the most senior government officials. The real problem however is that India has no real semiconductor ecosystem, which is an absolute necessity for the top semiconductor producers and while the Indian government believes they can ‘buy’ their way into the semiconductor business, that approach has failed in the past.
The semiconductor market in India is still small, less than 5% of the global total so the attraction of localized semiconductor production is not present, leaving the only real attraction for large semiconductor companies as India’s commitment to building out an infrastructure that would support a real semiconductor production campus, and while the top few foundries would not want to anger the Indian government with outright refusals, they would likely be more interested in what the Indian government plans to do to develop that infrastructure over the next few years than the incentives offered today. India would likely be better served by attracting smaller producers using more mature processes in order to develop the suppliers and back-end providers that would eventually attract the primaries but the Indian government seems to be more interested in a big win than a longer term project. With the increased demand for semiconductors, everyone wants a fab in their neighborhood, and producers will use that advantage to generate the best possible deals. Taking a shot on a new and unproven country is likely not in the cards.
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