Hindustan Semiconductor Manufacturing Inc. (HSMC), a company backed by a group of Silicon Valley-based non-resident Indians, is likely to be India’s first chip-making facility off the mark, its top executive said a day after the Centre announced details of a package to support capital intensive semiconductor projects.
HSMC, which is in talks with the Andhra Pradesh, Karnataka and Tamil Nadu governments, would set up a ‘fab city’ that will incorporate five foundries, power generation units, water treatment plants and a bulk gas production unit, all in one campus, said Devendra Verma, HSMC’s managing partner. A foundry is a factory that makes integrated circuits for multiple customers.
The company would partner with one of the global leaders—which Verma declined to name — in the semiconductor manufacturing industry for the project, estimated to cost over $3 billion (Rs13,500 crore).
Communications and information technology minister Dayanidhi Maran had said on Thursday that the government would offer chip manufacturers who set up units before 2010 up to a quarter of the capital costs in subsidies, besides tax incentives and interest-free loans that would be applicable for a period of 10 years from the time of inception.
“Globally, subsidies for semiconductor fabrication units range from 25-30% in Israel to a high of 40% in Germany. So India, by offering a 20-25% band of incentives, has attracted attention as it comes with the promise of a huge domestic market for semiconductors,” said Verma.
A total of Rs67,500 crore of investments is expected to flow into India in response to this policy announcement, according to Ajay Jalan, chief financial officer of Sandalwood Partners, a venture capital firm that owns 5% in a $3-billion semiconductor foundry being founded by SemIndia, a consortium that counts chip maker Advanced Micro Devices as a partner, near Hyderabad.
Foundries or fabrication units in India will primarily manufacture chips measuring between 120 and 90 nanometre in thickness, which have a large demand and are used in mobile phones and automobiles. Over 65 million mobile phones were sold in India last year, attracting vendors such as Nokia Corp., LG Mobile and Motorola Inc. to setting up manufacturing operations in India. India’s $28-billion domestic electronics market is growing at 30% a year.
“Across Asia, the largest semiconductor fabrication units have been set up by consumer electronic companies such as Samsung Electronics Co., and LG that use the chips in their in-house products,” said Rajendra Kumar Khare, chairman, Indian Semiconductor Association.
Factories making thinner chips, measuring 65 to 45 nanometre in thickness, will need investments upwards of $6-8 billion for each unit and could take some years to come up in India. “There is a learning curve to reach this level of semiconductor manufacturing where big players like Intel operate and the real innovation happens,” Khare said.