India's semiconductor journey has received much press in recent times. Although there were high expectations from joint ventures, efforts are yet to take off. On the bright side, companies like Micron and Sahasra Semiconductors are working on the ATMP side.
But the real holy grail of semiconductors is the fab, which remains elusive for India. While there is optimism that India will set up a fab soon, some industry experts advise caution. PVG Menon, consultant to the electronics industry and former IESA (India Electronics and Semiconductor Association) President, points out that while there are advantages to India's position, more work is needed in various areas.
"There are still gaps in the ecosystem that need to be addressed," Menon said. "For a fab operator considering an investment of six to eight billion dollars, there are significant risks that need to be considered. These risks include the lack of a proven track record, policy flip-flops, and the need for policy stability."
Where does India's advantage lie?
However, there are some advantages for India. If a way to aggregate demand is found, there is a massive captive market available to tap into. Last year, the total market for electronic system design and manufacturing (ESDM) in India was approximately $155 billion. Out of this, around $101 billion was for electronic systems consumed within the country, and about $38 billion was for semiconductors consumed within the country. It is crucial to note that the domestic value addition is only about 25%, according to the latest IESA numbers.
"This means that of the $36 billion worth of semiconductors consumed in the country last year, a significant portion came in the form of sub-assemblies," Menon added. "Our local purchase orders are only a fraction of that, maybe 10-15 percent. Local purchase orders directly translate to how much of the Bill of Material of an end system you can influence. If we consider the $100 billion systems market, we see that we can't change any of the elements or add a 'Made in India' chip to products like Cisco routers or Apple cell phones assembled in the country, as those design decisions are made elsewhere."
While the prices are attractive, there is still considerable work to be done to capture more value in the country and thereby create design and marketing sockets for products designed and made in India. India's advantages lie in its significant domestic market, which is rapidly growing, and our enabling policy framework, such as the preferential market access policy of the Indian government.
The role of independent design houses
In this context, Menon added that it is also important to emphasize the importance of independent design houses in the current landscape. At present, several prominent service companies provide outsourced product design, employing teams of electronics and software engineers, along with industrial designers. However, these services are predominantly catered to Global Development Centers (GDCs) that serve Western brands, resulting in a noticeable absence of independently offered design services.
"Once independent design services become available, we can expect to see significant growth in the industry," Menon said. "This growth will be fueled by the demand for large-volume product shipments from India, as well as the demand for chips used in these products. It is important to note that the success of an Indian firm in this industry will depend on its ability to produce products that are conceived, designed, and made in India. This is a growing trend in the industry, which is moving towards a disaggregated model."
In the past, product companies like Apple, Samsung, and Xiaomi would work with semiconductor suppliers such as Intel and Qualcomm to design products. However, today, companies like Apple, Samsung, and Tesla are designing their own chips and are no longer solely dependent on suppliers. This shift has allowed companies to reduce their system costs by integrating more components into their chips. For example, instead of using a discrete radio, companies can now integrate the radio into the ASIC. This approach may increase the chip cost, but it results in significant savings on the overall system cost.
"In this new landscape, companies can either build their own design teams or work with full-stack service providers like HCL to manage the design and production process," Menon added. "If India were to build a semiconductor fab, it would need to attract large companies and offer policy incentives to encourage them to change their designs and use the Indian fab."
Working with Indian companies that produce products conceived, designed, and made in India for the global market would be a more straightforward approach. These companies could be incentivized to use chips produced in the Indian fab, with the condition that the wafers are processed at the Indian fab. This approach would create demand for the fab and support the growth of the industry.
