Mumbai: A 71-year-old South Korean, a former director of engineering at IBM, is cheering the semiconductor policy announced by the Indian government in February. For two years, June Min, has fought all odds to bring his dream project, a $670 million (Rs2,948 crore) chip making plant, termed a fab (short for fabrication unit) in industry lingo, to life in Hyderabad. For two years, he has tried his hand at raising funds and finding partners. He approached UTI Bank for the first and the Tata Group for the second. Nothing worked out, he says, because “there was no semi-conductor policy”. “Everything broke down for me,” says Min. The new policy, he now says, “will help very much”.
The government, which is still working out the specifics of its semi-conductor policy, has said it will offer chip makers who invest in fabs in India before 2010, up to 25% of their capital cost in subsidies. Other incentives on offer include tax exemptions and interest-free 10-year loans.
Min arrived in India in December 2003 after spending two years with the Dubai government’s electronics and industrial department. He was convinced, he claims, that India was where he wanted to be. “I knew India would be the next frontier for semi-conductor manufacturing,” he says.
Anyone who said that in 2003 risked being labelled not all there. Chip making is water-intensive, and India is a country that’s perennially strapped for the commodity. It requires a steady source of inexpensive power and that, too, isn’t exactly freely available in the country. It requires capital, quite a bit of it. And the presence of a domestic market helps—India did not have much of one in 2003.
Since then, however, several things have changed. A growing domestic market, especially for mobile phones, high-end electronics, and computers has attracted a clutch of manufacturers to India. Sri Perumbudur in Tamil Nadu is well on its way to becoming a hardware hub for the region—Nokia, Dell, a clutch of component makers, and electronic manufacturing service (contract manufacturing) firms such as Flextronics and Fox Conn have set up operations there. Contract manufacturers operate on slim profit margins, and their presence is usually an indication that the country has a vibrant domestic market for the products they make and sell to original-equipment manufacturers, and a potential to be a hub for exports.
Silicon chips are used in gadgets ranging from PCs, televisions, cellphones,set-top-boxes, digital video decoders, smart cards, medical equipment, and automotive products. The Indian electronics industry has the potential to grow to $100 billion in size by 2015, according to a study by market research firm Frost and Sullivan in 2006. India has enough firms that specialize in chip design but these chips are usually manufactured in fabs located in China, Taiwan and Thailand. “Given the huge market for chips here, India will require seven to eight fabs to cater to the local demand,” says Min, who has built two fabs in China, two in the US, and three in Korea.
Min founded NT Silicon India Pvt. Ltd, the company that will set up the Hyderabad fab in 2005. The Andhra Pradesh government has already given him 50 acres of land near the new international airport. In phase-1, the fab will make 30,000 wafers a month (each wafer will have a certain number of chips); and of the $670 million cost, $170 million will be equity and $500 million debt. Min has hired SBI Caps and Deloitte as joint financial advisors to raise the debt, and claims to have signed up a technology partner whose name he is unwilling to divulge just yet. “It is one of the best chip technology firms in the US,” he says. Min has also roped in D. Jai Ramesh, chairman of Hyderabad-based power and distribution transformer maker Vijai Electricals Ltd as a partner. M. Prabhakar Rao, managing director of Hyderabad-based agro seed maker Nuziveedu Seeds Ltd is already a partner in the venture. He is now waiting for the finer details of the government’s policy to become clear.