Indian Semiconductor Industry Evolution & Opportunities
Indian Semiconductor Industry: Evolution & Opportunities
Detailed analysis of the semiconductor policy, market outlook and technology factors indicates that the
Indian semiconductor industry could move into eco-system units in the short to medium term and into
fabrication units in the longer run. The industry could have a unique evolutionary path attracting
investments of approximately $ 30 Bn over a 10 year time horizon, say K. Raman, Practice Head –
Telecom, Media & Technology, and Kaustav Ganguli of the Tata Strategic Management Group.
The Indian semiconductor industry is at a nascent Amongst the eco-system units, various factors
stage. Most of the players in this industry are seem to favour investment in photo-voltaic (PV)
focused on fabless chip design and there are no units in the short term. Some of these factors are:
players with capabilities in semiconductor
1. Lower Capex requirement: Typically,
fabrication (fab) or in ‘eco-system’ manufacturing.
capex requirement for PV units is lower than
(See Exhibit 1 for definitions of various
that for fabs.
2. Lesser technology obsolescence risks:
Technology life cycles for PV units tend to be
The Semiconductor policy, key points of which
much longer than that in fabs.
have been summarized in Exhibit 2, was
expected to create incentives for players to invest 3. Initiatives by the government: There have
in semiconductor fabrication. been various initiatives by the government
providing incentives for production and usage
The policy provides comparable incentives for of solar energy in India.
development of both fab and eco-system units. Exhibit 2:
However, the incentives make investments in eco-
Semiconductor Policy : Overview
system units more attractive.
Exhibit 1: • Semiconductor Manufacturing Policy
announced in February 2007
20% capital subsidy for the first 10
Design Unit Semiconductor chip design years for an SEZ unit
facility; does not involve 25% capital subsidy for the first 10
actual fabrication or years for a non-SEZ unit
packing Exemption from CVD for both
fabrication and ecosystem
Fabrication Semiconductor wafer manufacturing for non-SEZ units
Unit fabrication facility; • Threshold Investments
includes ATMP (Assembly- Fab Unit – INR 2,500 Cr
Test-Mark-Pack) units Eco-system unit – INR 1,000 Cr
• Non-refundable fee of INR 25 La kh to be
Eco-system Manufacture of
submitted along with feas ibility study report
Unit semiconductor displays
(e.g. LCD, OLED, PDP, Source: Indian Semiconductor Association
other emerging displays),
4. Projected growth in photovoltaic
storage devices, solar
cells, photo-voltaics, and capacity: India’s photo-voltaic capacity is
other micro and nano expected to increase at a CAGR of almost
technology products 48% over the next 4 years (Exhibit 3)
Source: Ministry of Communications & Information
1 As published in ELCINA Electronics Outlook Magazine
October 2008 edition
Exhibit 3: TVs & PCs for LCD panels, Mobile Phones for
Forecasted capacity addition for Photovoltaic OLEDs.
Power Generation in India (in MW) This strong growth in local demand for products
requiring FPDs creates the foundation for FPD
730 manufacturing to take off in India. As domestic
demand grows, some TV manufacturers may
backward integrate into FPD production. For
300 example, Videocon has already announced plans
150 for a FPD unit at Taloja, Navi Mumbai.
Technological expertise gained from PV production
is transferable to FPD on account of synergies
2008 2009 2010 2011 2012
between the manufacturing processes for different
Source: EPIA (European Photovoltaic Industry types of eco-system units. This would facilitate
Association) growth of FPD production in India. Thus, there is
strong likelihood of investments in FPD in India
This short-term focus on PVs is exemplified by the amounting to about $ 10 Bn over the next 6-7
fact that players like SemIndia and IEMC have years catering to approximately 55%-60% of
postponed their fab unit plans and instead decided domestic demand in India.
to focus on PV units. Over the next two to three
years PVs could attract investments of about $ 10 Long Term Potential: Will investments
Bn. Out of this, $ 2.6 Bn worth investments have finally move to fabs?
already been approved with a further $ 7.4 Bn
worth of projects under consideration. The semiconductor industry is made up of four
The question to answer at this juncture is – main product categories as illustrated in Exhibit 4
would there be opportunities beyond PV below.
units in eco-system manufacturing in the
Main Product categories in Semiconductor Industry
Memory Commodity IC
Commodity IC Complex SOC
Complex SOC Micro-processors
Temporary data store- Known as ‘standard SOC (System on a Chip) are Central processing
hous es exchanging chips’, they are used semiconductor chips with units that contain
Description information with for routine embedded compo nents that the basic logic to
computer d evices’ processing purposes enable chips to function as perform tasks
brains standalone systems
~ 20% ~ 20% ~ 26% ~ 30%
This is a nascent market
with many existing & new
Share of Top 2 to 3 83% 86% 95%
venturing into this area
Critical Success Economies of scale Economies of scale Flexibility in modification & Continuous
Factors re-use of chip design innovation
Toshiba, Samsung, Chip manufacturers Various – located globally Intel, AMD
Key Players Hynix in Taiwan, Korea,
Note: 1. Average operating margin of top 2-3 players
As illustrated in above, commodity IC and memory
Flat Panel Display (FPD) units represent a
significant portion of eco-system manufacturing. segments have low profitability and are dominated
In the medium term, there would be a significant by players having large economies of scale and
best-in-class manufacturing processes. The
growth in demand for products requiring FPDs viz.
microprocessors segment is almost completely
2 Tata Strategic Management Group
dominated by Intel thriving on their continuous Thus it seems probable that in the long run,
innovation on new generation chips. The SOC investments in fab units could be in the range of $
segment on the other hand is an emerging 9-10 Bn over the next decade focused on Complex
segment with many existing and new players SOC fabrication while the overall Indian Chip
making a foray and one that relies on modification Demand Market could be approximately $ 50 Bn
and re-use of chip design for its success. SOC by 2017.
chips find applications in embedded systems in
consumer durables, mobile phones, home Implications
automation, automobiles etc. Considering that Over the next 10 years, the semiconductor
India has developed significant capabilities in chip industry could attract investments to the tune of $
design (including SOC design) and that it has a 30 Bn (Exhibit 5). Timely regulatory
large domestic market for products requiring interventions by the government would be a
embedded systems, there could be opportunities critical enabler for the growth of this industry.
for players to initiate fabrication of SOC chips in However, the evolution of this industry in India
India by leveraging proximity to chip design will be different from the experience in other
houses on the one hand and the domestic base countries. Investing in the right technology at the
load demand on the other. right time is critical for profitability in this industry.
Investors desirous of reaping rewards from the
This potential development of chip fabrication in growing demand for semiconductor chips and
India could be further aided by transfer of components need to monitor the unique
technological expertise developed by managing evolutionary path of this sector and time their
eco-system units. investment accordingly.
Expected Investments in Indian Semiconductor Industry
$ 10 Bn
$ 10 Bn
$ 10 Bn
Current Medium Term Long Term
Ⓒ Tata Strategic Management Group. All rights reserved.
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