Indian industry proposes to extend deadline of India's semicon policy up to March 2015!

If you recall some time ago, I’d mentioned that the Indian semiconductor policy, which was announced back in 2007, had supposedly expired on March 31, 2010!

Now, the Indian industry has come up with recommendations, which include extending the Indian semicon policy up to March 2015!

For those who’ve come in late, back in September 2007, the Department of Information Technology, Ministry of Communication and IT, Government of India, came up with the Special Incentive Package Scheme (SIPS) to encourage investments for setting up semicon fabs, and other micro and nanotechnology manufacturing industries in India!

I am very grateful to the India Semiconductor Association (ISA) for sharing the details of the summary of inputs and amendments to India’s semiconductor policy.

As I mentioned, the recommendations include extending the Indian semicon policy up to March 2015!

This is fair enough, although I am sure it can extended for an even longer duration. Some other key recommendations include lowering of threshold limit for ATMPs and other ecosystem units, development of ecosystem, faster project appraisal time, etc. — and all of these are significantly necessary.

Should India have a fab? Why not?

There may be debates over whether India should have a fab or not! However, it is pleasing to see that there is still hope. Actually, why not have a fab or a foundry? Use it to serve the global market! The Indian semiconductor industry needs a serious rethink in terms of strategy. Maybe, it cannot survive on chip design services alone!

About 15 months ago (see Feb. 2009 archive on this blog), I had written “Can the Indian semicon industry dream big? (And even buy Qimonda?)! Well, time, I repeated that story! Here’s why!

If you have noted, early June 2010, ATREG, a division of Colliers International, has been appointed as advisor to market the sale of the advanced 300mm manufacturing campus of Qimonda in Dresden, Germany. Now, here’s a great chance for India or some Indian investor to grab this fab!

The highly accessible campus, located in the State of Saxony, features a state-of-the-art 300mm semiconductor fab including 281 advanced front-end semiconductor manufacturing tools, an advanced 300mm R&D fab and 360,000sq. ft. of administrative space. The campus also includes excess land, which could be used to construct a mirror-image of the existing 300mm fab, potentially doubling production capacity.

ATREG will focus on finding an operational purchaser for the facility. As originally constructed, the facility was capable of producing DRAM chips with a maximum volume of approximately 10,000 wafers per week.

The fully automated, world-class Qimonda Dresden 300mm wafer fab was built in 2001 and was the world’s first 300mm production facility. The state-of-the-art, 300mm R&D facility was built in 2005. The world-class 300mm equipment includes hundreds of advanced front-end manufacturing tools, many of which were used in volume production at 65nm. Though production has ceased, the cleanrooms remain in a production-ready state so that a potential purchaser could restart operations quickly.

There, I’ve said it!

There’s an opportunity waiting out there to be grabbed!! If India or someone in India does not move fast and attempt to buy, someone else, from somewhere else in world will surely buy this fab!

Let’s go back to February 2010, when the Karnataka State Government had announced its semicon policy. Perhaps, here’s an opportunity for Karnataka to take a lead!

Industry recommendations for semicon policy

Now, back to the recommendations from the ISA and the Indian semicon industry, which has been reproduced below:

Government of India Semiconductor Policy 2007: Summary of Inputs and amendments: proposed by committee members and industry.

1. Extension of the Policy:

The World Bank has confirmed that global economies are currently facing a recession. The global economic slowdown has severely impacted the semiconductor industry leading to piling up of inventories and reduced capital expenditure. While it is difficult to project the year of revival of the industry, the experts opine that the present situation for the semiconductor industry would last for at least two plus years. It is, therefore, proposed that the deadline of March 2010 may be extended till March 2015.

The extension will provide time:

* To market the Policy and improve the prospects of India to attract investments.

* To highlight the importance of the domestic market to the potential investors. It may be mentioned that the domestic semiconductor market (TM, i.e., the Total Market), as per the ISA-Frost & Sullivan India semiconductor market update report ( 2008-2010) is projected at $ 7.6 billion in the year 2010.

2. Lowering of threshold limit for ATMPs and other ecosystem units:

It is suggested that the threshold limit for certain categories of ecosystem units like ATMPs, optical LEDs, storage devices, LCD, FPD, Photovoltaics, fuel cells, micro and nano technology products (as defined in the SIPS) needs to be re-visited, as these units may not require large investment of the order of Rs. 1,000 crores.

Lower threshold limits (to qualify for the incentives available under the policy) is expected to generate interest for such categories of eco-system units, which has not been seen so far. This lowered threshold limit needs to be defined in consultation with industry experts.

The above areas, though low in technology vis-a-vis the technology required for wafer fab, form an important part in the value chain of chip manufacturing. Location of several of the manufacturing infrastructure in the above ecosystem areas in the country can also serve as a pull factor to set up wafer fabs.

It may be mentioned that countries like Hong Kong, Singapore, Malaysia, etc., took this approach initially and went on to have wafer fab facilities.

3. Financial closure commitment

The present Policy requires the investors to produce legally binding commitment of equity holders and debt financiers to provide or mobilize funding for achieving financial closure (at least 90 percent of the project cost).

Projects envisaging large scale investments are implemented in phases. As the major markets for the products from the fab units and the ecosystem units are presently targeted at exports, the investors find it difficult to produce legally binding commitment of achieving financial closure of this large magnitude from the Financial Institutions (FIs) at the time of submission of the proposal.

It is, therefore, suggested that the achievement of financial closure (as proportion of the project cost) may be lowered and the investors may be asked to submit bank guarantee for the differential amount (amount required to achieve financial closure less own equity contribution plus the commitment received from the FIs), as a collateral.

4. Extension of Policy clauses:

The policy has been formed on the need to have a (semiconductor) wafer fab unit in India. Besides acting as a strong catalyst to promote the growth of domestic electronic equipment manufacturing market and product development, the wafer fab would also meet the requirements of the strategic applications.

In case the deadline for the policy is extended till March 2015 and the proposal for a chip fab unit is not received, say, by March 2013, it is proposed that higher incentive structure could be proposed to make it more lucrative. As the ceiling on the number of such units as per the present Policy is kept at 2-3, we could limit this number to 1-2, in case the higher incentive structure is proposed to seek investments for the wafer fab.

The following points may be considered while making amendments to the policy w.r.t this main point:-

i) The proportion of incentive structure (higher than the present structure) should be arrived at on the basis that the earlier budgeted incentive to be extended to 2-3 fab units is now available for 1-2 units. This will not entail any excess outgo of incentive from the Government of India against the amount of incentive budgeted earlier.

ii) The window of time period to provide for this higher incentive structure (April 2013 – March 2015) is only a suggestion and the same can be decided amongst the various stakeholders.

5. Development of the ecosystem:

It is in the overall interest of the country to have an ecosystem covering all kinds of units. A recommendation is that in the event that proposals from different categories of ecosystem units are not received, multiple proposals from the same category of ecosystem unit may also be considered under the policy, without putting any limit on number of such units to be covered (within the ceiling on the total number of such ecosystem units at 10 as per the present Policy) e.g., Government of India has received several proposals to set up solar PV manufacturing facilities.

6. Appraisal process:

It is also suggested that the Government of India specifies the time period and dates to complete appraisal of the proposals received to date and makes an early announcement of the approvals of the proposals which have been submitted to it. This step would send positive signals to the other investors.

7. Clarity on certain points in the Semiconductor Policy:

i) A number of investors are not fully conversant with the steps they need to take to qualify for the Government of India subsidies. It is felt that the investors will be reluctant to make investments in their projects till they receive approval of their proposals and the Government incentives.

ii) The Policy is not clear about inclusion of costs on utilities, interest charges, etc., as part of project cost. It is important that total project cost of running the plant including the items mentioned above is considered for the award of the incentives.

iii) The present Policy provides for the release of the incentive being linked to the achievement of the threshold investment. It is proposed that the payment of the incentive to the investors may be advanced, though the threshold investment may not have been reached as yet. The suggested measure would provide the investor with funds at an early stage, which is crucial for timely implementation of the project. In this case, as also proposed at Sl. No. 3 above, the investors may be asked to submit bank guarantee for the incentive released as collateral.

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