The 'Chip' Business
25 May 2007
Anand K. Sethi, India Correspondent examines how for some years now, there has been a growing demand and pressure on the Government of India to provide adequate incentives to help establish world class chip fabrication units ('fabs') in the country
This demand possibly echoes Jerry Saunders’ (of AMD fame) statement that “Real players have Fabs”.
India, incidentally, was after Japan, the first Asian country to have Silico chip fabrication technology and competence, as early as in the 1970’s, long before Taiwan, Singapore and China got into the game. However, due to a whole bunch of reasons, largely related to Governmental ‘licensing’ and foreign exchange controls during India’s controlled economy ‘heydays' prior to economic liberalisation in 1991, the semiconductor business in the country more or less petered out into near oblivion.
Responding to the clamour for promoting the establishment of ‘fabs’, the Government of India notified a ‘Semiconductor Policy’ in March 2007. This policy envisages a capital subsidy by way of tax breaks and interest free loans. Thus, companies setting up ‘fabs’ (including for Photovoltaic Cells and displays) in a Special Economic Zone will get an incentive of 20% capital subsidy during the first ten years, while those setting up units outside the zones will get a 25% subsidy from the Government. Companies will have to invest a minimum of $500 million for Semiconductor products and $230 million for other product categories such as storage devices, micro and nano technology products etc.
News reports indicate that the principal international chip companies are not overly enthused with this new policy (note the recent announcement of Intel ignoring India to establish a new ‘fab’ in China). Yet, there seem to be some takers for establishing ‘fabs’ in India. Amongst these are the projects of SEM INDIA (with an AMD veteran as its COO) and the other that of HINDUSTAN SEMICONDUCTOR MANUFACTURING CORP., with Infineon as the technology partner.
From what we know, each decent ‘fab’ project requires an investment of anywhere from $3billion to $5 billion, and a whole plethora of infrastructural and supply chain infrastructure, not readily available today in India. Even given the recently announced incentives (not attractive enough when compared to those given by China, Taiwan and Israel), the smaller size of the Indian market for chips, the higher costs to (a) compensate for infrastructural and supply chain deficiencies, (b) the shortage of India based downstream international level chip assembly and test facilities, seriously calls into question the financial viability of ‘fab’ projects. Let it be noted that wage and other operating costs are not significantly lower than those in China.
Simple arithmetic tells us that on the basis of a very maximum of 10,000 new jobs created by a new ‘fab’, one is looking at a direct investment of at least $100,000 to create just one job, not necessarily that of a qualified engineer or technician. Add to this (a) what the Government (or tax payer) has to shell out as ‘incentives’ for a decade and, (b) the quite heavy cost of the environmental aspects of such projects which are heavy users of gases, toxic chemicals and gallons of water.
One then, in all honesty, needs to question if this is at all worthwhile when the country needs to create at least 20 million new jobs annually, and given that most standard chips can be easily sourced at very competitive prices in the international market anyway.
Contrast all this with the other aspect of the ‘chip’ business, that of chip designing. Now this is an area where India has already excelled with proven prowess and has emerged as the worlds chip design capital. There are already some 220 plus chip design companies and other entities in the country and the number is growing rapidly.
Chip Design companies are producing designs many with IP’s, for various applications such as Cellphones, Set Top boxes, DVD / MP3 players, gaming devices, automotive, PC’s , other communications equipment etc. The I-Pod Chip set as also that for the ‘slingbox’, Motorola ‘Razr’ phone etc. are notable examples of recent design work. All the big names including ST Microelectronics, TI, Motorola, Nokia, Freescale, Philips, Infineon etc. have operations in India for designing. The multimillion chip design sector in India is expected to grow to about $50 billion by the year 2015 employing some 800,000 qualified design engineers and techies, registering a staggering 30% compounded annual growth rate.
Going on the basis of existing investments in India by chip design companies, an international class facility employing some 2,000 top class designers can be established for approximately $15 million. This works out to just $7,500 to create one engineering job. Smaller, more focused specialty, entities would cost even less. So we see that an investment of under $6 billion will employ 800,000 engineers and turnover $50 billion dollars in revenues by year 2015. And, all this with absolutely no negative impact on the environment.
Clearly then, a whole new rethink is required in the Indian Semiconductor business. Why not then, incentives for the highly profitable, low investment, labour intensive chip design business? Why not indeed?
Contact Details and Archive...
Most Viewed Articles...