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India to face financial challenges if it upgrades fabs, says Gartner analyst

Posted: 12 Feb 2007 ?? ?Print Version ?Bookmark and Share

Keywords:ISA Vision Summit? Bryan Lewis? semiconductor? SemIndia?

India will have to face daunting financial challenges if it decides to invest in a state-of-the-art semiconductor fab, according to Bryan Lewis, research vice president and chief analyst for Gartner Dataquest.

During one of the sessions in last week's ISA Vision Summit 2007 in Hyderabad, Lewis answered the topic "What is the best semiconductor strategy for India, given the worldwide trends in the industry?"

Lewis argued that the domestic market alone may not have the requisite size to justify investing in a semiconductor fab. "Are there enough customers in India, who could assure committed offtake of the fab's output?," he asked.

A key underlying factor for this is, with the industry's widely prevalent business model of global design services outsourcing, product or IP development targeted at the unique requirements of the domestic market has not been prioritized. As a result, there is no visibly adequate number of system-level companies in India.

Under the circumstances, Lewis suggested that India could aim to invest on semiconductor manufacturing capacity in a stepwise fashion and at a level that it becomes economically viable.

For instance, India could initially establish manufacturing capacities based on older generation process technologies, and address the requirement of end use areas that are not actively addressed by large multinational semiconductor players, such as the industrial and military applications, in India as well as other markets in the region that have a similar requirement.

Lewis suggested India's semiconductor industry to focus on IP development, IC design and software development; to develop further as a global outsourcing center for these activities; and to build second-generation SoCs using IPs and platform based development methodologies. He added that in the longer term, India could also do well to establish the design-manufacturing chain in the semiconductor ecosystem. However, this type of investment has to be backed by a direct and high level government involvement, aimed at reducing the costs and the associated investment levels of setting up a semiconductor fab.

Alternate view from SemIndia
SemIndia's COO Ajay M Marathe expressed an alternate view. He shared specific aspects of SemIndia's approach to highlight how the company is addressing the challenges of setting up a fab from ground zero in India.

Marathe said that there are methods to address the challenge of global overcapacity if local fabs focus on an integrated, solution-driven approach to meeting the requirements of the large domestic market.

Contrary to Lewis' recommendations, Marathe said that SemIndia will not move in with a pre-determined process geometry while establishing its fab in India. The company would engage with customers from vastly untapped segments such as rural sector and education, and develop IPs and products based on those requirements. And that would drive the choice of process technology, Marathe emphasized.

He also said that there is a large untapped demand potential represented by India's 300-million strong middle class population for products defined specifically for them at price points that match their value perception.

Marathe believes that the local semiconductor fab facility will drive the creation of a manufacturing ecosystem, which will enable system companies in India to, in a controlled manner, develop specific products for the domestic market at the most appropriate price points.

"Manufacturing semiconductors makes sense as there is a large enough base of demand represented by the 300 million consumers over the next few years. You can almost say that this boom in semiconductor in India will be irrespective of what the world is going to do," he said.

Marathe revealed that SemIndia will deploy its $3 billion investment on the manufacturing capacity in a phased, graduated manner in line with the market growth. The backing of government subsidy will boost the economic viability of the project, he added.

"Our approach will be driven by creating the right kind of IP for the right segment and working with channel partners; and then manufacture all the silicon that will be involved in these products here in India," Marathe concluded.

- Krishnan Sivaramakrishnan
EE Times-India

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