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Some thoughts on VLSI manufacturing in India

April 3, 2010

This particular post is an extension of the previous one. Here, Rajat Gupta, MD, Beceem Communications, shares some thoughts on what can be done in India for VLSI manufacturing. So, rather than these thoughts getting lost in the blog, it deserves an individual post.

VLSI manufacturing: The government of India has to give appropriate incentives to this industry and suitably phase these to allow an ecosystem to build up. The fabless model is fine for companies to transact their business. But, India needs to have this technology or some semblance of it to start with or else it would never be able to count herself amongst the leading nations of the world. How can we achieve that?

a) One of the quickest ways to get started is to create an organization (with equity wholly or partly owned by the government of India) with the charter that that company invest in/fractionally own some of the leading semiconductor manufacturing facilities in Taiwan. TSMC may be very difficult to own even modest percentages, but simultaneously buying reasonable stakes in UMC, Chartered Semiconductor, the IBM multi-platform consortium may be possible with (my guess) at under $1 billion that gives adequate leverage. This organization then makes available fab capacity (that is available to them now due to their fractional ownership) to fabless product companies with intended product sales in India.

b) Repeat the above for packaging, assembly, and VLSI test operations. (The challenges are less here though, but these are just as important elements of the ecosystem).

c) With this, India will “own” leading edge VLSI technology although in a circuitous manner, but given that we missed the boat by over 20 years I think this is a reasonably low cost but effective way to get a starting foothold.

d) Next, and in parallel, the government ought to give incentives to companies to create semiconductor manufacturing capacities on Indian soil but buying re-furbished and lower cost equipment at previous generation technology nodes.

Some policies are required here that allow easy transport back-and-forth of sub-assemblies for repair and replacement.

The business model here would be that the government provides land (to drive the concentration of such technology around three to four zones distributed across the country) but companies should be able to do this on their own should they so choose to. These companies in return bring in (a) captive manufacturing load (whether for sales in India or export, both are ok) and additional spare capacity (or, equivalently, a commitment to scale up with an incentive/penalty structure) to stimulate manufacturing by Indian fabless companies.

e) Eventually, the organization(s) in (d) above will “catch” up with those in (a) above. There will need to be phased modification of the incentives, reducing some, changing some such that over a six-seven year period all incentives can go away and the eco-system will be self sustaining.

f) Well, not quite, we will also need to address (i) the semiconductor manufacturing, assembly, test equipment manufacturing and (ii) the semiconductor manufacturing raw materials (silicon wafers, silicon grade pure chemicals, etc etc). The focus to these technologies have to be phased to the decade after the steps outlined in (a) to (d) have yielded some measurable results.

Friends, please feel free to share your thoughts, comments, etc., and add value.

  1. Hillol Sarkar
    April 3, 2010 at 1:20 pm

    Very well written Rajat. Computer and communication segments are key drivers for semiconductor manufacturing. Except Intel and IBM, USA is following the fabless model.

    IBM may not be in the fab business for long. All Japan based companies have invested in China. Fab consolidation is going on. 450mm we will see few companies producing SoCs. We should think about a Qualcomm type model in India with some quick turn prototype and R&D capabilities. Semiconductor margins are very small and it requires a lot of capital investment. The fabless model is suitable for India with limited production capabilities for national security.

  2. Sanjeev
    April 3, 2010 at 4:00 pm

    Hi Pradeep,

    I have kept my finger crossed on VLSI manufacturing in India. Any manufacturing is viable if it has cost advantage in the long term. The manufacturer (either government or private entity) should able to see break even as soon as possible.

    If the comparative advantage in manufacturing lies in India, then only it should be a right attempt to look at this option. As a matter of fact, all the developed economy is moving towards the low cost manufacturing hub, which has uptodate technologies and high volumn capabilities, for cost advantage.

    I don’t know how far the Tower and SCL alliance will help to address this in India. Rajat Gupta may be able to comment on this. I have not seen that SCL was able to capitalise or leverage any opportunity in India. I am not discussing the reason behind this issue.

    Having said that, India has a huge potential in terms of consumer market. I will suggest, the focus should be to target this from this perspective. Already, we have seen that telecom (handset), automobile (various electronics), consumer durables, etc., have huge potential in India.

    The larger market focus should be,

    1. Assembling. You are closer to customer
    2. Packaging: Assembling need local packaging for faster product delivery.
    3. Testing and Charecterization
    4. Debuging Failure analysis

    All the above activities are closer to the customer. If I have to redefine the upsteam and downstream activity, then I will call the above downsteam activity only. From a fabless activity perspective, more the pentration in pre GDS activities, it is good for service or local product companies.

    I am not favoring that India should focus on entire turnkey activities.

    Best regards,
    Student of Executive PGDM @ XIME, Bangalore

  3. Hillol Sarkar
    April 3, 2010 at 4:02 pm

    SpringSoft MD presentation can be considered as case study — bit.ly/ago-ssanalysis

  4. April 3, 2010 at 4:45 pm

    Thanks for your comments, Hillol and Sanjeev. 🙂

  5. Dipak K Mookerjee
    April 4, 2010 at 5:39 am

    Thanks for your input. But how the Govt. will cope up is yet to be seen.

  6. Nitin
    April 6, 2010 at 11:08 am

    Very thought provoking article.

  7. Asha
    July 16, 2011 at 7:53 am

    We have various opportunities for semiconductor people in India (design and development). If interested to change over, contact me asha.latha87[at]yahoo.com.

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