Global Themes

On Globalization & Venture Capital

“The last frontier” or “Just don’t bother”?

This is a long overdue post but the points made are, I think, still relevant.

Earlier this year, Richard Wallace, Mike Clendenin and Sufia Tippu writing in the EE Times about India’s potential to become a “silicon superpower” concluded that: “It’s a tall order. India has the brainpower to pull it off, but China won’t easily concede its lead.”

Some excerpts from the original article:

“…Can India, like China, become the next silicon success story? This seemingly simple question has given birth to a debate that’s roared across the global electronics industry since India unveiled broad new financial incentives designed to lure chip makers to the subcontinent last month.

Some call India “the last frontier for semiconductor manufacturing,” and believe it will it be a magnet for companies like TSMC, AMD and Intel, the U.S. semiconductor giant whose fab site decisions–like the recent one to manufacture in China–can turn the fate of an industry.

“No way,” insist other industry watchers, pointing to India’s infrastructure shortcomings and late start in the chip-manufacturing sweeps. As the title of a recent JP Morgan Report puts it, “India and semiconductors: It’s too late; just don’t bother.”

India’s nightmarish infrastructure will never support chip making, the argument goes, whereas China’s state-managed economy and bottomless pool of experienced, low-cost manufacturing labor is an insurmountable advantage.

As compelling as these arguments may be, however, it turns out there are a number of ongoing semiconductor industry developments involving local companies and Indian investors, which indicates that India’s aspirations for developing a domestic chip industry do not all hang on foreign direct investment.

“It’s truly a global business today, with everybody competing with everybody,” said Lee Chung, a vice president at Taiwan foundry United Microelectronics Corp. “Eventually, China and India will be on a collision course. There are a lot of intelligent people in both countries and they are targeting the same areas.”

…Inside India, many experts acknowledge that the country’s semiconductor initiative has gotten off to a fitful start.

…”When I had a meeting with a large customer recently, I had a very hard time convincing them about the cost advantage of setting up a manufacturing unit here,” Singh told EE Times. “Frankly speaking, they see no cost advantage here at all, and that is because almost all financial investors and analysts are coming out with reports that India does not need a fab.”

When, or if, India will be able to attract the kind of inward investment that companies like TSMC and Intel are putting into China is yet to be seen.

But the prospects of tapping into India’s growing domestic electronics market have spurred many local companies to make investments of their own, in both systems and chips.

One of the latter is NT Silicon India Pvt. Ltd., a local company with ambitions to move into the lower reaches of the semiconductor market. NT Silicon is investing $670 million in an 8-inch semiconductor fab planned for Hyderabad. “I believe India is the last frontier for semiconductor manufacturing,” said NT Silicon chairman and CEO June Min. “Although there are many hurdles in India, I am still placing my bets here.”

That’s a big vote of confidence considering Min’s background. A semiconductor industry technologist with extensive experience in process and manufacturing equipment, Min developed lithography systems for pattern generation and printing of integrated circuits for IBM Corp. in Fishkill, N.Y., in the 1970s, and went on to build fabs in South Korea and China.

…And the list does not stop there.

Videocon Ltd. has said it intends to spend $250 million to build a semiconductor facility in eastern or southern India.

…For its part, Hindustan Semiconductor Manufacturing Co. is expected to soon reveal its technology partner for a $4.2 billion project, with Infineon Technologies seen as a top bet.

…One reason for optimism is the fact that semiconductor-manufacturing initiatives in India are not confined to integrated circuits. Solar-cell manufacturing, a process derived from chip making, is also proving attractive.
India is driving the industry with an energy policy that calls for 10 percent of electricity to come from renewable sources by 2012. The government covers the full cost of solar-power systems in remote villages lacking any power and 60 percent of the cost for villages that are attached to the electrical grid.
Earlier this month, storage-media vendor Moser Baer said it would spend $250 million over the next three years to set up a solar-module production operation near New Delhi, using thin-film technology from Applied Materials Inc.

…If India were to marshal all of its energy in the quest to be a major player in chip manufacturing, it could spell trouble for China, as well as Taiwan and Singapore.

All three locales have placed big bets on semiconductor manufacturing, and India’s entry means more competition at a time when there is a glut of capacity and costs to develop leading-edge processes are spiraling upward.

But for now, at least, the major foundry players don’t see India as a serious threat. “India’s strength is that they have a lot of good talent in design,” said UMC’s Chung.

…”They are a lot further behind than they think in getting that infrastructure up and running,” said Shahin Sharifzadeh, executive vice president of manufacturing and technology at Cypress Semiconductor, which runs a design center in India. “It will be an uphill battle.”

…”Frankly, there are more differences than similarities between India and China,” said Larry Tam, a Singapore-based vice president at Texas Instruments Inc.

…some think it’s more likely that India and China will collide on the IC design battlefield than in the clean room.

…Nevertheless, despite the fast growth, India is still a small fry compared with its neighbor. China is home to an estimated 500 to 600 IC design houses, plus a handful of IDMs.

Revenue in China’s fabless industry is expected to top $3.5 billion this year and to more than double by 2011, according to iSuppli Corp. Despite growth in the local market, however, many of China’s foundries rely on overseas customers to fill their fabs.

That’s a lesson for India.

The fabless industry in China is also still in the nascent stages, so nimble Indian design shops do have an opportunity–especially if they find a way to tap local demand while fending off the global competition.

It’s a tall order. India has the brainpower to pull it off, but China won’t easily concede its lead.”

August 7th, 2007 Posted by | China, Globalization, India | 2 comments

2 Comments »

  1. India’s opportunity is not in semiconductor manufacturing which even entrenched and highly successful players like Texas Instruments are finding impossible to sustain due to formidable cost.

    By far the biggest and most lucrative opportunity for India is in design+software development for the challenging multi-core era. With the advent of multi-core processor based designs, embedded software has already become extremely complex and next decade is projected to see a deep overhaul of software architecture to better suit multicore environment. Leading academic research as well as industry in US is focussed on re-inventing software+hardware codesign for this era. India’s highly trained human resources are best prepared to add value to this “knowlege industry” for next decade or so… This field is not likely get commoditized any time soon.

    Comment by Vijay Dhar | August 8, 2007

  2. Vijay,
    Thanks for your comment.
    I would tend to agree with your thoughts although there is still a part of me that is sympathetic to the idea of supporting semiconductor manufacturing since it would create capabilities and skills further downstream (and perhaps encourage ancillary/auxillary industries and technologies).
    Having said that, I am no expert in this subject – so it may be that my sympathies are misplaced.

    Comment by Shantanu Bhagwat | August 9, 2007

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