The Semiconductor 'FOMO' The current push to develop India into a semiconductor manufacturing hub through PLI and DLI schemes under the umbrella of India Semiconductor Mission (ISM) is a step in the right direction. However, the transition period for India to develop an end-to-end footprint in the semiconductor value chain will need a decade

The computer chip industry, a complex global ecosystem valued at half a trillion dollars, relies on a handful of fabrication foundries (fabs) that play a pivotal role. Amid a severe chip shortage, these fabs are under renewed focus. As India aspires to become a $5 trillion economy and strives for self-reliance, it seeks to integrate into the semiconductor industry. With a robust ecosystem of fabless companies excelling in chip design, India is positioning itself in the intricate landscape of semiconductor manufacturing.

The semiconductor industry comprises companies that design, fabricate, assemble, test, and supply semiconductors that are suitable for various applications. While India has been strong in design, the country would be making strides in fab manufacturing. In December 2021, the Indian government earmarked INR 2,30,000 crore to position India as global hub for electronics manufacturing with semiconductors as the foundational building block. An outlay of INR 76,000 crore was allocated for the development of semiconductors and display manufacturing ecosystem in India.

The government's PLI scheme has attracted major investments in the semiconductor manufacturing value chain which are expected to significantly increase India's semiconductor manufacturing capacity in the coming years. The current push to develop India into a semiconductor manufacturing hub through PLI and DLI schemes under the umbrella of India Semiconductor Mission (ISM) is a step in the right direction. "At present, India employs a total of 55,000 design engineers, which in turn is 20 per cent of the global chip design talent pool. Top semiconductor manufacturers have their largest R&D centers in India leveraging the high quality of talent to develop chip designs and provide engineering support," said Kathir Thandavarayan, Partner, Deloitte India.

Indian conglomerates and semiconductor startups need to work together to leverage the enablers as the world has recently undergone supply chain shocks exposing the underlying risks in the semiconductor global value chain.

Foreign Investments making a stride

Earlier this year, the government approved the US-based Micron's $2.75 billion chip assembly and packaging unit at Sanand in Gujarat. According to reports, by the end of October 2023, the government received a total of 45 applications under its INR 760 billion semiconductor and display manufacturing scheme. These applications cover five requests for the establishment of semiconductor fabs, two for display fabs, nine for the setup of compound and ATMP (assembly, testing, marking and packaging) facilities, and 29 for the design-linked incentive scheme.

A week ago, on the sidelines of American multinational semiconductor company AMD's launch of a global design center in Bengaluru, minister for electronics and IT Ashwini Vaishnaw said talks are on with Tamil Nadu, Telangana, Gujarat and Karnataka governments for setting up three more semiconductor chip fabrication units with the cumulative investments between $8-12 billion in next few months. Vaishnaw said they could see at least two good proposals for fabrication and OSAT (outsourced semiconductor assembly and test) in the coming few months. AMD inaugurated its largest global design center, the Technostar research and development campus in Bengaluru, as part of $400 million investment over the next five years in India.

Taiwanese contract manufacturer Foxconn had an agreement with the Vedanta group to set up a semiconductor and display production plant in India as part of a $19.5 billion joint venture. However, it pulled out of the JV, but the company's interest in semiconductors in India remained intact. Later, reportedly, Foxconn joined hands with French-Italian semiconductor company STMicroelectronics to set up the semiconductor plant in India.

The increased foreign investment will likely stimulate the growth of local semiconductor manufacturing and R&D capabilities. This means more investments in infrastructure, technology transfer and skill development. As a result, Indian companies and startups in the semiconductor space may experience accelerated growth and technological advancement. "The influx of foreign investment will also accompany the investment in R&D and technology transfer which would lead to the development of advanced technologies and more efficient manufacturing processes, benefiting the industry as a whole. The response of the indigenous semiconductor space in India to the surge in foreign investments is expected to be dynamic and transformative, potentially positioning India as a key player in the global semiconductor industry," said Kanishk Maheshwari, co-founder, Primus Partners.

How India can strengthen its domestic chip-making ecosystem

There is significant progress to be made in terms of R&D advancement as well as investing in setting up wafer manufacturing (front end) and ATMP facilities (backend) in the country. "With the proposed investment from foreign and Indian players, it is expected that ATMP for the matured nodes could be operational in the next 3-4 years. India is projected to develop an end-to-end footprint in the semiconductor value chain by the end of the decade, envisaging highly advanced R&D, semiconductor manufacturing and the supporting ecosystem for the products to be globally competitive," said the partner of Deloitte India.

Indian semiconductor firms have been at the forefront of technology innovation. The government's recent announcement to invest $2 billion to upgrade Semiconductor Lab in Mohali with the intent to develop the technologies and commercialize them, would prove to be a watershed moment towards Aatmanirbharbharat. Several other Indian companies are venturing in to the realm to strengthen the ecosystem.

Further, developing end-to-end chip-making skills is a complicated and long-term task requiring numerous processes and coordinated efforts across multiple sectors. "The multifaceted approach should focus on investments in R&D, skill development and education, global collaborations, government policies and incentives, infrastructure development, targeting niche markets, technology absorption, promoting indigenous design, government-industry collaboration, quality standards and certification, continuous technology upgradation are some of the areas that need to be prioritized," added the co-founder of Primus Partners.

To establish a strong domestic chip-making ecosystem, India should adopt a comprehensive and strategic approach, encompassing an established specialized semiconductor curriculum to address the demand for skilled chip designers, engineers, and technicians. "Leveraging the developments in the USA and EU would increase semiconductor production outside East Asia and require last mile support in ATMP. India would lap up this opportunity to set up OSAT facilities in the next 3 years and integrate with the global semiconductor value chain," explained Thandavarayan.

Under the Modified Semicon India Programme, fiscal Incentive of 50 per cent of the project cost is available to companies/consortia/ joint ventures for setting up of semiconductor fabs in India of any node (including mature nodes). Similarly, fiscal incentive of 50 per cent of the project cost is available for setting up of display fabs of specified technologies in India.

Why is back end chip-making gaining popularity?

The back end of chip manufacturing, particularly advanced packaging, is gaining importance due to its role in enabling miniaturization, improving performance, enabling heterogeneous integration, and addressing power efficiency and thermal management challenges in modern electronic devices. "These developments are crucial for the continuous evolution of semiconductor technology and the creation of breakthrough electronic products. For e.g. - memory, which is the principal use for 3-D stacking, and SoC use are expected to grow at a CAGR of more than 30 per cent in 3-D packaging. Manufacturers must also feel at ease co-creating new packaging solutions to attract and retain high-value fabless clients. While fabless players assume entire control of the chip-planning process prior to at-scale production, manufacturers can provide value," explained Maheshwari.

3D-IC and chiplet are two crucial areas of collaboration that match with India's desire to become a major global player in semiconductors. "India has a big opportunity to capitalize on it in terms of enabling the workforce. On a positive note, while the government is still reviewing bids to establish silicon fabrication units that generate wafers for chips, considerable progress has been made in another aspect of manufacturing—ATMP, or assembly, testing, marking, and packaging," he added.

The semiconductor fab manufacturing is critical for India for two major reasons: ecosystem development and supply chain resiliency. However, semiconductor fab manufacturing is highly capital intensive requiring long gestation periods. Establishing a wafer manufacturing (front end fab) requires investments up to $10 billion while an ATMP facility requires investments in the range of $2-3 billion. "Currently, matured ecosystems like the USA have outlined ambitious plans to diversify their supplier base as well as have strong onshoring plans for front end manufacturing facilities that create strong opportunities for India to set up OSAT facilities.These investments will facilitate a faster foray into front-end semiconductor manufacturing," said Thandavarayan.

Segments in which India can emerge as a leader

As semiconductor is an R&D intensive industry with a short technology life cycle, leading semiconductor companies continue to maintain their dominant positions by constantly pushing technology boundaries manufacturing high-end nodes in their home countries. "In this context, India would focus on the matured nodes, which range in size from 65 nm to 28 nm in the medium term including fab manufacturing," Thandavarayan added.

India would leverage the good presence in semiconductor design to emerge as a leading player in value added research covering material science, system-on-chip (SoC), electromagnetics, plasma chemistry, lithography, microelectronics and chip design.

India's automotive industry is growing, and semiconductor applications in electric vehicles, autonomous driving, and in-car entertainment systems present significant opportunities. Similarly, with the expansion of 5G networks, there is a rising demand for semiconductors in telecom infrastructure and devices. Smartphones, smart TVs, and other consumer electronic devices are significant markets where India can make strides in semiconductor manufacturing. The healthcare sector relies on semiconductors for devices like medical imaging equipment, patient monitoring systems, and diagnostic tools. India's renewable energy sector is expanding, with significant investments in solar and wind power projects. Semiconductor devices are essential in power electronics for renewable energy systems.

Eswara Rao Nandam, founder & CEO, Polymatech, India's first semiconductor chips manufacturer specialized in Opto- Semiconductors, said, "We are dedicating our efforts to Opto Semiconductor chips, initiating chip production with the goal of becoming a comprehensive end-to-end solution provider for Opto-semiconductors. Presently, our daily capacity is 1 million chips, and with the ongoing installation of new machinery, we anticipate reaching 6 million chips per day. Polymatech aspires to secure a leading position in the global Opto-semiconductor market, aiming to be among the top three by the conclusion of 2030."

The Chennai-based Polymatech plans to expand its production capacity to 10 billion chips by December 2024 from the current output of 300 million. "We have plans to invest $1 billion by 2025 in setting up new units and expanding semiconductor manufacturing capacity. By December 2023 the company will be reaching 2 billion chips," Rao added.

How far is India from becoming a global manufacturing hub?

The government is working to make India a global hub for chip manufacturing by developing a sustainable semiconductor and display ecosystem in the country program, allowing 100 per cent FDI in the ESDM, establishing the Electronics Development Fund, initiatives outlined in the National Electronics policy and the National Telecom policy, and schemes such as production-linked incentive scheme (PLI), SPECS and Electronics Manufacturing Clusters. "As per electronics manufacturing vision document 2.0, the aim is to attain the manufacturing capacity to the tune of $300 billion with export of $120 billion. The success of PLI for electronics sectors & sub-sectors, setting up of first chip making units in Gujarat, acquisition of Wistron by Tata group have set the tone for India becoming the global factory for electronics sector," said Maheshwari, co-founder, Primus Partners.

India also needs to partner with developed semiconductor ecosystems such as the USA, Japan and Taiwan in terms of technical support to cover the distance of manufacturing high end nodes having architecture of <7nm in half the time. "While India is on track to achieve these milestones, it would require 8-10 years to become a global manufacturing hub," said Thandavarayan.

According to Statista projections, the revenue in the Indian semiconductor market is set to reach a staggering $7.76 billion by the year 2023. Among the various segments in the industry, Integrated Circuits emerges as the dominant force, with a projected market volume of $3.34 billion in 2023.