A scheme in search of a market

The government's aim to make India self-reliant in semiconductor chips may be premature

- SURAJEET DAS GUPTA

Mumbai-based Indian Semiconductor Manufacturing Company (ISMC) and Singapore-headquartered IGSS Ventures have one strategy in common: They have told the government in their application for semiconductor fabrication plants that they will export the bulk of the chips they make in India in the initial five or 10 years. The third applicant, Vedanta-Foxconn, which is also building a fab plant, has said it will concentrate on the needs of consumer electronics and mobile device markets, and earmark 80 percent of output for domestic consumption, but has not specified its customers.

Finding a viable domestic market could well be the biggest challenge for India's renewed tryst with semiconductors. Fab.plants do not sell directly to end users but to intermediary chip design companies - such as Qualcomm or MediaTek. The chips made by them are then processed further by assembly, testing, marking, and packaging (ATMP) players (the Tata Group is setting up an operation) and then shipped to the end user. Many global fab plants have ATMP operations; others outsource it to independent companies.

The problem is, India does not have domestic chip design companies (except a few small ones with total revenues of $2030 million) that can provide critical mass for the fab plants setting base in the country. Foreign chip design players who sell their products in India source from global giants such as TSMC in Taiwan aggregating their demand from across the world in these large plants and deriving the advantages of scale. Ironically, these companies also design a substantial portion of their chips in Indian R&D centres but their intellectual property rights (IPs) are held globally, not in India. Less than 5 percent of the chips consumed in India are designed with IPs owned by home-grown companies.