Why Affordability Is the Key To Semiconductor Success In India In order to become a global semiconductor hub, India needs to develop economies of scale

India has a vision to become a key player in the global semiconductor industry. Achieving this aspiration requires overcoming several challenges, including supply chain dependencies, infrastructure gaps, and developing economies of scale. According to S. Krishnan, secretary, MeitY, India's semiconductor demand currently stands at $45-50 billion, and is expected to reach $100-110 billion by 2030. Several Indian companies are investing and innovating to make this dream a reality.

In 2023, L&T Semiconductor Technologies (LTSCT), a fully owned subsidiary of L&T, came to life. With an investment of $300 million over the next three years, it established a chip designing company. The current focus of LTSCT is to design products relevant for the world and for India. Currently, 20 percent of the global semiconductor design talent comes from India, with over 30,000 engineers engaged in chip designing. But there lies a challenge: Pricing.

"Over-designing a product will not lead to better sales. You can over-design or over-engineer, but if it is not at a price point where the market is going to buy, then it's of no good. So, as a product company, we emphasize that our teams are getting to design the optimal product which can be sold in an application-specific use case," said Sanjay Gupta, chief development officer & global head of engineering, L&T Semiconductors. Having domestic semiconductor product companies ensures that India can secure its supply chain, reducing dependency on global players amidst geopolitical uncertainties. Moreover, building a strong semiconductor ecosystem within the country also aligns with the government's broader vision of becoming a global manufacturing hub.

About 10 companies in the world control 70 to 80 percent of the semiconductor market. One of the key pillars in the ecosystem is equipment which is essential for developing a fab. A fab refers to a specialized manufacturing plant where integrated circuits (ICs), or chips are produced from raw silicon wafers. In India, Tata Electronics is constructing a fab in partnership with Powerchip Semiconductor Manufacturing Corp (PSMC) of Taiwan, in Dholera, Gujarat. The fab will have a capacity of 50,000 wafer starts per month (WSPM) and will be operational from 2026.

A fab needs a minimum of $10 billion investment. So, is there a potential for equipment makers to create a set of tools, which will help reduce the overall price of building a fab in India? "Semiconductor and electronics have benefited people because of scale and not because of cost. If you can develop scale, automatically price reduction happens. So in fact, making a small fab is counterproductive as you will not get scale. We need to make an end-to-end ecosystem of global standards. Frugal innovations won't help. A chip of global standard designed to meet a local application is what would differentiate India on an international level," said Suraj Rengarajan, head of semiconductor products group - Applied Materials India, explaining the correlation between cost and an end-to-end value chain.

Globally, Taiwan is the top country in the semiconductor value chain, particularly in manufacturing, with its foundries, especially TSMC, producing a significant portion of the world's chips. Taiwan's semiconductors industry benefits greatly from a robust end-to-end semiconductor supply chain. The country can collectively handle every aspect of the semiconductor manufacturing process, from establishing the initial IP and designing the circuit to fabricating, manufacturing, and testing the final product. Other countries that lead the global semiconductor supply chain are South Korea, US, Japan and China.

Another integral aspect of the value chain is outsourced semiconductor assembly and test (OSAT). Closer to the end consumer but full of risks. It refers to companies that specialize in the post-fabrication processes of semiconductor manufacturing, including assembly, packaging, and testing of integrated circuits (ICs) and other devices. Semiconductor fabs are responsible for turning designs into fabricated wafers, while OSATs convert those wafers into finished, packaged, and tested devices. OSAT companies play a crucial role in bridging the gap between wafer fabrication and the production of functional integrated circuits. India's semiconductor capacities are currently focused on developing legacy or matured nodes and does not have the capabilities for advanced nodes. OSATs too are working on the legacy or mature chips, which refers to manufacturing processes with larger transistor sizes (28nm or larger) that are widely used for various applications, unlike the cutting-edge chips below 5nm.

In packaging, there are zero margins for failure and errors. "By the time a chip comes for packaging, millions and millions of dollars have been spent in designing, simulating, fabricating and testing. At OSAT there is no compromise on yield and no margin for failure. Out of a billion chips, only one may fail. You cannot afford to be at 95 percent, otherwise you'll be losing money. India has an opportunity to catch up. We're far behind. We're starting with legacy packages and we need to catch up on advanced technology,' said Sharat Kaul, consultant of Kaynes Semicon, a company, establishing its OSAT in Sanand, Gujarat.

"Considering India is way behind the rest of the globe when it comes to fab or OSAT, we can't really start with advanced packaging. We need to be at a realistic stage and design packages which are for the India market useful for Indian conditions. Unless that happens, the semi-con industry will not be able to survive in India. If today China is at a stage that it is challenging the rest of the world, it is because they have built an ecosystem," said Varun Manwani, MD, Sahasra Semiconductors.

Suchi Semicon, the Gujarat-based semiconductor company, has officially inaugurated India's first outsourced semiconductor assembly and testing (OSAT) facility in Surat, Gujarat. This green field project was two years in the making. With a pilot line ready, the facility would be producing 300,000 chips daily and eventually aims to produce 3 million chips a day in the next three to five years. Besides, the company is aggressively expanding its semiconductor business and in a couple of months will open its design division.

"There is a dire need for semiconductor devices in India. In order to be price competitive, we need a local ecosystem. We cannot rely on imports and so we are collaborating with academia, manufacturers who make bunny suits and shoes required for semiconductor operations, and the like. We are also encouraging the startup ecosystem to get into the semiconductor business, on a smaller scale," said Shetal Mehta, founder, Suchi Semicon. The company has already employed 120 engineers to operate the new OSAT facility. The success of the semiconductor industry is highly dependent on talent acquisitions. "Our technical team has employees with 30-40 years of experience in semiconductors, coming from different countries," Mehta added.

In 2021, the government approved the Semicon India programme with a total outlay of INR 76,000 crore for the development of semiconductor and display manufacturing ecosystem in the country. The programme aims to provide financial support to companies investing in semiconductors, display manufacturing and design ecosystem. Today, with products and IPs being built in India, finances are less of a concern. "I don't think funding is an issue. Indian players need to believe in and build those IPs of global standards. Money would follow," said Anil Joshi, managing partner, Unicorn India Ventures.

The Indian Electronics and Semiconductor Association (IESA) report noted that the valuation of India's semiconductor consumption market is at $52 billion for 2024-25, with an expected compound annual growth rate (CAGR) of 13 per cent over the next six years.