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Buzz: India's oil-to-retail giant to set up fab

Posted: 26 Feb 2008 ?? ?Print Version ?Bookmark and Share

Keywords:semiconductor investment? Indian Semiconductor Association?

An Indian government minister has announced that India's largest corporate house, Reliance Industries Ltd, might consider investing in semiconductor activity.

Reliance Industries based in Mumbai is an oil company that has expanded into chemicals, textiles, clothes and retail activity and in 2007 made a $2 billion profit on annual sales of about $28 billion. Reliance doesn't have any paperwork or semiconductor business plan, but the announcement by the Minister of State for Commerce, Jairam Ramesh at the Indian Semiconductor Association (ISA) summit on Feb. 18 grabbed attention.

An RIL spokesperson declined to comment on the minister's announcement. Industry observers attending the ISA said it is unlikely that Reliance would opt for a sand-to-silicon manufacturing model.

"If they could invest the money in petrochemicals the returns they would get would be much more than what they would get in the semiconductor industry. The fundamental mantra of the Reliance group is to get 20 percent returns year-on-year. I doubt whether they would go in for such a huge investment in the semiconductor sector at this point in time where tangible returns would come only after seven to 10 years," said one observer.

But some venture capitalists tracking the semiconductor segment said a government-backed venture by Reliance could be part of a bigger sand-to-consumer strategy that could fit with the government's national development strategy.

"I think it [the semiconductor plant] is a subset of a much bigger, comprehensive electronics manufacturing strategy that RIL is drawing up," said Bob Kondamoori, managing partner of Sandalwood Partners, a venture capital firm that invests in India. "You see the PC, laptop and cell phone market in India is exploding. For instance, India is adding 8 million phones a month and about 30 to 40 percent are being manufactured locally. If RIL is looking at the bigger picture which spans manufacturing across these two verticals, then setting up a manufacturing plant makes much more business sense."

"Today, at the current value, setting up a fab with a $5 billion to $7 billion investment is not possible. It would need to be more because the investment that went in from Chartered Semiconductor for its Singapore plant was close to $15 billion. If you were talking about this kind of a plant three years ago, it could be in that range (of $5 billion to $7 billion) but in today's scenario you would need $15 billion. And, it is not like an oil company blueprinthere you need a world class team and technologies put together to come up with a successful business venture," he noted.

- Sufia Tippu
EE Times Europe

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