Gartner: India and China should join semiconductor forces

The Indian semiconductor market is falling behind China and Taiwan, due to low take up of Government initiatives and low incentives.

According to Ganesh Ramamoorthy, principal research analyst at Gartner, India is more of a consumer in the global semiconductor market. While consumption is growing – in 2010 it touched nearly $6 billion and by 2014, it will cross $11 billion – it still has very little share compared to the global market size of nearly $300 billion.

Gartner believes that ideally, China and India should work together to become a great power in the semiconductor manufacturing industry.

Ramamoorthy’s comments follow news that companies, which proposed to set up units to manufacture semiconductors, solar cells and other advanced technology products under an Indian semiconductor policy, received a cold response from investors  and has been given time until 31 December to tie up finances.

The Department of Information Technology (DIT) received 26 project proposals involving a total investment of Rs2.29 trillion ($51.6 billion USD) under its Special Incentive Package Scheme (SIPS), which aims to help finance companies set up semiconductor manufacturing plants.

However, according to officials, under the terms of the incentive only six have so far been able to demonstrate financial viability.

Companies such as Sterlite Industries India Ltd, Moser Baer Photovoltaic Ltd, Tata BP Solar India Ltd, PV Technologies India Ltd and KSK Surya Photovoltaic Venture Pvt. Ltd had proposed setting up units under the scheme. And the government offered to underwrite 20-25 percent of the capital expenditure the projects under SIPS will require.

The deadline for financial closure expired with the policy in March, but there had been many requests from companies for an extension of the date, according to DIT joint director N. Ravi Shankar. He blamed the lack of interest on the global downturn, which hit soon after the policy was announced.  

Mr Ramamoorthy agreed but has other ideas why the initiative take-up had been so low.

He told TechEye: “Firstly, local Indian companies simply do not have the technology or the money to get into a huge project like this. This then means that they need the backing of a global institutional investor or a semiconductor vendor.”

He said this is where the problem lies.  

“For global companies, the Indian market is too small. The domestic market is too small to warrant a fab on its own. And if the export market is the focus, then there are always the global players who are far ahead and very strong, and hence the competition is going to be very tough –the likelihood of breaking even in three to five years is very distant for an Indian fab in that case.”

As a result, both investors and semiconductor vendors had stayed back from getting into direct investment or even in partnerships with Indian companies. Even where global companies have partnered it is only at the technology level.

Government incentives (20 percent to 25 percent of capital expenditure) were way too low when a company was considering investing upwards of $4B for a 300-mm fab, compared to countries such as China and Taiwan, where a similar government incentive was close to nearly 50 percent.

“This has not gone down well with investors and local companies in India,” he added.

Companies asking for an extension would also find it tough to justify investments in India given the limited domestic potential and export opportunities. These factors keep India behind the likes of China as a result.

“India does lag behind China in terms of semiconductor manufacturing. India has always been service oriented and that is why you see semiconductor design service flourishing in India , while that is not the case in China,” he told us.

“When I look at China and India , I see the opportunity for two super powers to work together – one strong in semiconductor manufacturing and the other in semiconductor design! It is not China or India in the semiconductor industry. It is China and India.”

“Unless it is a question of national pride, which it is, for some people in the industry in India, semiconductor manufacturing does not really make sense for India,” he said.

“Instead, the focus should be in driving semiconductor consumption – and that is through increased manufacturing of electronic equipments, which I think is already beginning to happen. Though more of assembling equipments, government policies should really make it easy for the companies to set up and operate electronic production facilities. I think that is where India’s strength is.

“In my opinion, the focus should be in strengthening the manufacturing base, enhancing the supply chain for electronics manufacturing and exploiting the design capabilities to the fullest extent.”