From a technology point of view, a chip fab in India will indeed be a great achievement. There are no doubts about the merits of having fabrication facilities in India: to establish a complete semiconductor ecosystem, to cater to the long-term needs of the domestic market, and to propel India’s image in the global semiconductor ecosystem. It is also very clear that the consumption of electronics products is growing exponentially in the country with the rising economic prosperity. However, in the end, the establishment of fab facilities in India will be realized purely on the basis of business economics.
Investment
Perhaps the most important factor in the decision-making process. A chip fab investment is capital intensive. It requires about $1 billion to setup a state-of-the-art, mid-sized fab. Compare this to the investment of about $200-500 million for a solar/PV manufacturing unit. It is evident that companies interested to manufacture chips in India were not pleased with the guidelines/ support extended by the Indian government. Though the government policy makers had drawn out a special incentive package scheme to encourage fab investments (25 percent subsidy on capex for manufacturing outside special economic zones and 20 per cent inside these zones), the industry derived very little from this since the government did not make it clear about how the subsidies would be provided. This unclear approach perhaps sent the wrong signals to the industry and didn’t result in any substantial decisions.
Return on investment (ROI) from a chip fab is accrued over a number of years; that too is unpredictable due to the cyclic and dynamic nature of the semiconductor industry.
Futhermore, the decision would really be what a fab in India can offer the world, which an established chip manufacturing country like China or Taiwan cannot.
Manufacturing talent
Traditionally, India has never been popular for its manufacturing prowess. The majority of Indian professionals have gone into software engineering, VLSI design, communications, electronics and electrical, but not manufacturing. This, and the lack of growth in the electronic manufacturing industry in India historically, has contributed to the growth of the academic culture in India where most have not foreseen chip manufacturing as an area of expertise to acquire.
Semiconductor production process involves consumption of a large amount of chemicals that are harmful to the environment and need careful handling and disposal. The machinery required is special purpose and has to be procured from specialist global suppliers. Specialized technologist resources in manufacturing process technologies are needed to ensure that the process recipes yield expected results. This is a very highly skilled, unique talent and experience pool that does not exist at all in India today.
So if we look at where we are today, we will perhaps need at least a decade or two to develop a talent pool that can create and sustain manufacturing excellence, on par with the best in the world.
Infrastructure
The government needs to strengthen infrastructure and basic amenities such as water supply, transport, electricity in regions where semiconductor manufacturing is likely to take place. The infrastructure today is nowhere near to what an ideal scenario is, but the building of a fab could have benefited the Indian citizens in general too for it would serve as a catalyst to improve the basic amenities drastically.
While all these issues discussed indicate the challenges faced by investors to setup a chip fab in India, another important question is: “Does India need a chip fab at all?”
The impact of having a fab in the design ecosystem in India, however, could be viewed as more purposeful and a big gain for the local ecosystem. With sizeable opportunities in the $36 billion domestic semiconductor market and the $363 billion domestic electronics market (both by 2015 as per Frost & Sullivan), it will be exciting to see homegrown companies make the most out of chip fabs in India. There are two key benefits a fab can directly provide for Indian design companies and the semiconductor ecosystem in India.
With a chip fab, design companies will have the opportunity to gain the necessary knowledge and expertise of semiconductor manufacturing, an area which a majority of the engineers in India today are short of.
The other advantage is the encouragement to universities and semiconductor companies to develop experimental chips and analyze its results. Right now, students do not have the opportunity to test their ideas practically as most of their learning is based on theory. They are missing out on the freedom to dare, innovate and experiment by not being able to test designs on silicon. Having a fab in India and providing the access to universities to test silicon will change that.
You can reach Anil Gupta at Anil.Gupta@arm.com
