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India plans to join ranks of chip makers

India plans to join ranks of chip makers
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First Published: Wed, May 16 2007. 04 25 PM IST
Updated: Wed, May 16 2007. 04 25 PM IST
Sumeet Chatterjee, Reuters
Seoul: Having carved a niche in global software development and services outsourcing, India’s search for the next big thing in high-tech could see it take on the rest of Asia in the crowded chip manufacturing market.
Semiconductor firms such as Intel Corp., Advanced Micro Devices Inc. and Freescale Semiconductor Inc. have already tapped India for chip design, but not manufacturing.
New government incentives to boost chip making, coupled with India’s low labour costs and surging demand for electronic goods from a fast-growing middle class, could change that.
“India would be the only country in the world with robust models in chip design, chip manufacturing and electronics manufacturing,” said Poornima Shenoy, president of lobby group India Semiconductor Association.
In March, Hindustan Semiconductor Manufacturing Corp., which is backed by a group of Indian investors based in Silicon Valley, announced plans to build two chip-making plants in India for up to $4.5 billion (Rs18,369 crore) using technology from Germany’s Infineon Technologies AG.
“Our focus is clearly the Indian market, although we plan to export out of the country as well. The growth in mobile phones and computers has enabled the demand for chips,” said Deven Verma, chairman of Hindustan Semiconductor Manufacturing.
Mobile phone subscribers in India rose 68% in March from a year earlier to 166 million. Still, only about 15% of India’s 1.1 billion people own a mobile phone, compared with around 35% in China.
“The global demand for chips will always go through a cycle of oversupply and shortages, but the potential in India is going to be huge in the years to come. Whether we make it or not, India will continue to buy chips,” Verma said.
Consumption Surge
India spent about $2.8 billion on semiconductors in 2005, and demand is estimated to exceed $36 billion by 2015, according to a study by the India Semiconductor Association and research and consultancy firm Frost & Sullivan.
Furthermore, the study says electronic equipment consumption should surge to $363 billion by 2015, more than 10 times spending of $28.2 billion in 2005.
“It is just an enabler that was badly required for the semiconductor industry to take off in India,” Alok Ohrie, managing director of AMD India, said of the government push. “It will help establish semiconductor manufacturing in India.”
AMD is a technology partner to the local SemIndia consortium, which has said it planned to set up a chip-making facility in India with an investment of $3 billion over the next five years.
But some investment may have already passed India by.
Intel, the world’s largest chip maker, said last November it was waiting for India to form its semiconductor policy before deciding on plans to begin manufacturing. In March, Intel said its first semiconductor plant in Asia would be built in China.
Texas Instruments Inc., the world’s biggest maker of mobile chips, said earlier this month it will build a $1 billion plant in the Philippines — a move that signals the entry of semiconductor companies into new low-cost countries.
South Korea’s Hynix Semiconductor Inc. will consider emerging markets like India to set up a manufacturing facility in the future as part of its global expansion strategy, its senior vice-president O.C. Kwon told the Reuters Global Technology, Media and Telecoms Summit.
Tough Competition
One difficulty the industry faces is that India does not spring to mind as a manufacturing destination in a very competitive sector with established Asian rivals, because of inadequate infrastructure and archaic labour laws.
“It is easy for any company to imagine manufacturing in Taiwan or China or even Japan today,” said Ajay Marathe, chief operating officer of SemIndia.
“India as a manufacturing hub of the future, however, needs some wisdom. This wisdom has to do with the understanding of the exploding Indian market and exponentially growing middle class with sizeable disposable income,” he said.
Analysts say interest in India would be fuelled by a growing appetite for electronic goods such as computers, mobile phones, and digital televisions that currently use imported chips.
At the moment such chips may very well have been designed in India, because, while it lags in chip manufacturing, it has made big strides further up the value chain.
India’s semiconductor design industry had revenues of $3.3 billion in 2005 and employed about 75,000 people. That is expected to increase to $43 billion in revenue and over 780,000 employees in 2015, the India Semiconductor Association said.
In February, Taiwan Semiconductor Manufacturing Co. Ltd (TSMC), the world’s top contract chip maker, opened an office in Bangalore to support its customers with design activities in India.
STMicroelectronics’ Indian chief told Reuters in February that headcount in its Indian chip design centre would be raised to 3,000, from 1,700 now, in the next three years.
“If India can do the chip design work, it can take care of the manufacturing part as well, especially when labour costs in India are still 10% to 12% lower than China,” said Y.S. Sashidhar, vice-president at Frost & Sullivan.
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First Published: Wed, May 16 2007. 04 25 PM IST
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