India Semicon industry to go ‘fab’: CyberMedia Research

• Union Cabinet gives in principle approval to set up two chip manufacturing plants
• Estimated investment Rs. 25,000 crore
• To add to the strategic importance of US$ 70 billion domestic consumer electronics sector
• Speed of implementation, increase in local manufacturing across sectors to be ‘key’

Bangalore/Gurgaon : The recent decision of the Indian Union Cabinet to set up two semiconductor wafer fabrication (fab) manufacturing units in India is a ‘giant leap’ for the sector. So far, India had been content to play an ancillary role in the global semiconductor supply chain mainly due to consumption of semiconductor materials, particularly in telecom, as very few types of electronic equipment were manufactured locally.

According to Faisal Kawoosa, Lead Analyst, India Semiconductor Practice, CyberMedia Research, “Setting up a fab unit is an indicator of the government’s seriousness to establish a mature semiconductor industry. It would help India graduate from a supporting market to a chip manufacturer.”

“Investing US$ 5 billion in the two fab units means empowering this strategic sector and driving market segments that contribute to the growth of the entire ecosystem. Development of the semiconductor industry would also provide a boost to the country by increasing the volume and value of domestic manufacturing, conservation of foreign exchange, and a fillip to research and development, excellence and quality centricity”, Faisal further added.

India is a large consumer market and as per the Electronic Industries Association of India (ELCINA), the India electronics market touched US$ 70 billion in 2010 and will grow at approximately 30% annually to reach US$ 158 billion by 2015. This growth would be propelled by a large middle class consumer base purchasing electronic devices like desktop computers, laptops, mobile handsets, media tablets, LCDs, DVD players and so on. Presently, raw materials for manufacturing consumer electronics in the country are imported while some vendors only assemble their products in India using components imported from countries such as China and Taiwan.

Given this growth in consumption of electronic equipment, the proposed fabs should reach break-even within a short span. However, for this to be possible this step must be supported by strong local manufacturing as on their own, the fabs would not be able to make a significant difference. Export opportunities for the fab units would be minimal as there are already well-entrenched players around the world, against whom it would not be feasible to compete on price alone.

“A key for the success of the semiconductor industry in India would be how soon the proposed fabs are made operational. If the exercise takes several years to conceptualise and plan, it would not yield effective results, because of the volatility of the global electronics markets, both in the consumer electronics as well as the enterprise segment”, stated Anirban Banerjee, Associate Vice President, Research and Advisory Services, CMR.

“The Government of India needs to view the semiconductor industry as a priority sector so that it is implemented on a fast track basis. The road map should envisage the development of manufacturing facilities as well as sectors where the locally produced chips would get consumed. Besides, the industry should not skew its focus towards a particular end-market, for instance, solar energy panels,” Anirban added.

“The two key signals that the industry would do well to watch out for in the next few months are – the time frame in which decisions are taken and implemented, and the approach towards maintaining heterogeneity of the semiconductor industry. This will decide to a large extent the long-term prospects of the India semiconductor sector”, Faisal concluded.

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