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Building the ‘missing link’ in India’s semiconductor chain

Building the ‘missing link’ in India’s semiconductor chain
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First Published: Wed, Apr 11 2007. 05 09 PM IST

Updated: Wed, Apr 11 2007. 05 09 PM IST
An article by President A.P.J. Abdul Kalam, his former colleague at the Indian Space Research Organization (Isro), convinced Devendra Verma to set up a microchip factory, or a fabrication plant, fab in short, as it is known in industry lingo. That was in 2005.
In the last week of March, the Verma-promoted, California-based Hindustan Semiconductor Manufacturing Co. (HSMC) announced that it would build a $4.5 billion chip factory in India with technology licensed from Germany’s Infineon Technologies AG, the fourth-biggest maker of semiconductors in Europe.
The scientist-turned-diplomat, who turned venture-capitalist and then entrepreneur, had built, or taken the first step towards building, the missing link in India’s semiconductor chain.
India is a power of some standing in the global chip-designing business, which involves conceptualizing and creating complex chips. “India designs more chips than (the US’) Silicon Valley in the current 130-nanometre technology,” says Verma. A nanometre is a billionth of a metre; chip-manufacturing processes are usually defined on the basis of the distance between individual transistors on a chip (which is measured in nanometres); and the current generation of chip-making technology, which was developed in 2001-02, is the 130-nanometre technology.
India is also one of the world’s fastest growing markets for chips. Chips are at the core of most gadgets, appliances and other products (including motor cars). Market research firm Frost & Sullivan estimates India’s consumer electronics industry will be worth $100 billion by 2015. By that year, the domestic market for chips could be worth $36 billion. For all those numbers, India doesn’t have a single chip-making plant.
In 2005, June Min, a Korean national, announced plans to build a $670 million chip plant near Hyderabad, but the company he founded, NT Silicon India Pvt. Ltd, had to wait till the government announced its semiconductor policy earlier this year to get some clarity on benefits and incentives for chip makers.
The irony of a country designing chips and consuming them, but not making them, wasn’t lost on Verma. “The missing link was manufacturing. So, we decided to work on building a chip-making factory in India,” he says.
Verma, now 68, was born in pre-Independence India, in Bareilly, a town in Uttar Pradesh. His father was a teacher at an intermediate college (one attended by students between school and graduate school). After completing his post-graduation in microwave engineering from Birla Institute of Technology and Science, Pilani, Verma joined Isro as a senior research fellow in 1966.
At Isro, Verma was involved in a project christened SITE (Satellite Instructional Television Experiment), which tried to use the ATS-6 satellite of National Aeronautics and Space Administration (Nasa) in a distance- education project, among the early instances of using satellites for developmental objectives.
He was also a project engineer on building a geosynchronous communication satellite called APPLE (Ariane Passenger Payload Experiment). In 1979, one of his managers at Isro, space scientist Satish Dhawan, recommended him for a part-scientifc, part-diplomatic posting, and he joined the Indian embassy in Washington as First Secretary (Space). He spent three years with the embassy; India’s former president, the late K.R. Narayanan was the country’s ambassador to the US at the time.
In 1982, Verma signed on with satellite maker Intelsat; he moved to Loral Corporation, another satellite maker later. This was the early 1990s and India was opening up the satellite business to foreign investments. Loral was keen to invest around $1 billion in the business in India, and Verma made several visits to the country. “I brought my entire board from Loral to India during this time. Unfortunately, I realized it was a big haul to get a licence for satellite-based broadcasting and telecommunications business in India,” he recalls.
In 1997, Verma signed on as general partner at venture-capital firm Redwood Ventures which invested a “couple of hundred million dollars” in about 60 start-ups that were in the semiconductor and electronics design business. Most of these were later acquired by other US firms US publicly traded companies. And in 2004, he founded a venture capital firm of his own, Edgewood Ventures. “So, we know how to raise money”, he laughs.
HSMC will make chips on eight-inch wafers in the first phase and 12-inch wafers in the second phase using 130-nanometre technology. Chips are usually made in batches, in eight-inch or 12-inch diameters; each of these is called a wafer and houses several chips. The chips will likely have a ready market in India. And the fab could have a ready source of business. Chips currently designed in India are manufactured in fabs in China and Taiwan in the absence of a local foundry. Verma says India needs to graduate from chip designing to product designing. “This requires manufacturing facilities which we are going to provide,” he says.
“This will enable India to design chip-based products optimized for the needs of domestic customers.”
The decision to set up a fab was not only an “emotional one”, says Verma—“I’m an Indian,” he states simply as one reason for deciding to build a chip plant in the country—but a “business proposition” as well.
Verma has decided to concentrate on chips that will be used in four areas: cell phones, set-top boxes for cable and direct TV, smart cards and SIM cards and automobiles.
Companies sold 60-70 million mobile phones in India in the 12 months to 31 March, 2007. The potential market for mobile phone chip sets alone is in the range of $1.2-1.5 billion. With a population of over a billion people, India also need millions of chipsets for use in smart cards.
Verma estimates that revenue from smart cards will be around $250-300 million, from set-top boxes, $150-200 million, and automobiles, $250-300 million. “In two years time, when my factory starts production, these four growth sectors will give me business of over $2 billion. There is no other segment where I can justify manufacturing chips,” he says, adding that the company decided to partner with Infineon for its fab because the German company is a market leader in these four segments. Now, all that needs to be done is for Verma to decide where his chip factory in India will be located.
(Sixty in Sixty is a special series that we plan to run through 2007, the 60th anniversary of India’s independence. We will introduce you to sixty Indians—both here and abroad—who are not rich or famous. These are people who are making quiet, but important, contributions without seeking headlines, to help make India and, in some cases, the world a better place. We also welcome your suggestions on people whom you think should be profiled in this series. Please send your suggestions by e-mail to interview@livemint.com.)
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First Published: Wed, Apr 11 2007. 05 09 PM IST
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