BANGALORE, India – Several weeks back, a Palo Alto-based venture capitalist specializing in semiconductors said partnering with Israel rather than with U.S. or Taiwanese companies would be a great idea.
Whether or not the investor was aware of Tower Semiconductors’ plans for a 300-mm fab in India is now a moot point.
According to Renu Raman of Tallwood Ventures, partnering with Tower makes sense since Israel has many tech startups, fabs and a highly developed IC ecosystem. Tapping into Israel’s infrastructure would ease development of a similar ecosystem in India rather than just building a fab. “So I would start looking at partnering with Israel rather than the US or Taiwan,” Raman said. “Israel needs another market. It is a technology source and not a manufacturing place.”
Tower’s plan to build a 300-mm fab in India is the latest twist in a long and so far fruitless effort to develop an Indian chip infrastructure. The SemIndia consortium plan for establishing a Fab City in Hyderabad went nowhere. Talks with Intel failed when neither the Indian government nor the chip giant could get what they wanted out of a deal.
Next came talks between the Indian and Taiwanese governments. According to sources here, there was a plan to send an Indian delegation to Taiwan to solicit ideas for a fab joint venture in India. The Indian government promised access to it huge markets for defense, transportation and mobile phones. Talks collapsed, sources said, because New Delhi declined to specify the amount of Indian business the proposed fab would gain.
That’s a problem since one of the first things global investors want to know is the size of the potential domestic market. That figure is something government officials have yet to put it down in paper. The talks with TSMC and others in Taiwan ended there.
That was yesterday. Today, the entire landscape here seems to have shifted as the government gets serious about boosting domestic chip companies. Sachin Pilot, Union Minister of State for Communication and Technology, warned the India Semiconductor Association (ISA) recently that if India doesn’t set up a fab and electronics ecosystem within the next five years, it never will. Pilot, along with senior minister Kapil Sibal and a well-meaning team of bureaucrats, are working to get the latest initiative off the ground since the cost of entry will be out of reach five years from now.
Still, many here remain skeptical about yet another attempt to set up an Indian fab. “As an Indian, I would be proud to have a fab in India,” said one observer. “A few things have to be set in the right context. Planning to set up a fab in India is like wanting to set up a five-star hotel in the middle of a desert.”
Others are more upbeat. “It is just not the manufacturing of chips but a means to an end to realize value-added manufacturing in the country to generate intellectual property, product design companies and a complete ecosystem,” noted former ISA Chairman Rajendra Khare. “The government t has to stand firm behind this decision for the next ten years. Only then will this take off.”
A senior government official said there would likely be a mandate for large companies like Broadcom and Intel to commit to using a portion of a proposed Indian fab in exchange for preferential market access.
Total Indian demand for electronics could reach $400 billion by 2020, while domestic production would account for only about $104 billion. Current consumption of electronics is about $45 billion, with semiconductor components accounting for as much as 20 percent of the total.
So, is an Indian fab really akin to a five-star hotel in manufacturing-barren India?
“If somebody has a vision of setting up a five-star hotel in a desert and creating a whole new city around it with the idea of someone using [the five-star hotel], then the analogy fits well,” agreed UmaMahesh, CEO of product startup Indrion. This is precisely the scenario facing India today in setting up a fab, he added, but the vision is to create an entire ecosystem around the fab just as a city might bloom around a new, five-star hotel.
Moreover, wasn’t Israel built on a barren strip of land? Yes, but then it grew to become a homeland for the Jewish people that has prospered far beyond what many would have guessed.
It’s clear the Indian chip market is big and getting bigger. The $5 billion question is whether the government can finally get its act together and close the fab deal with Israel’s Tower Semiconductor.
Related links and articles:
Tower bids to build 300-mm wafer fab in India
India wafer fab decision expected by end of 2012
Tower to transfer European IC processes to India, Brazil
Report: 11 firms pitch Indian wafer fabs
India starts hunt for fab-building chipmakers