Understanding the Semiconductor Value Chain
India has witnessed a significant growth in electronics manufacturing since ‘Make in India’ campaign in 2015. Three schemes for electronics manufacturing with an incentive outlay of around $ 7 Bn notified in April 2020 marked a new era for electronics manufacturing. Semiconductors are critical component of this growth story. In the microelectronics industry, a semiconductor wafer fabrication plant (commonly called a FAB) is a factory where devices such as integrated circuits and discrete electronic devices such as diodes and transistors are manufactured. Depending on the business model, semiconductor manufacturers can be broadly classified as Integrated Device Manufacturers (IDMs) and Foundries. IDMs design and manufacture semiconductor products whereas foundries manufacture products designed by fabless companies but do not design their own products. Semiconductor manufacturing is a complex, R&D intensive sector defined by rapid technological changes.
$ 100 Bn India Opportunity by 2025
The global semiconductor market is estimated to grow from $ 340 Bn in 2015 to $ 650 Bn in 2025, with CAGR of 6.7%. Memories comprise largest segment of the market share followed by Logic and micro-ICs. Currently, IDMs account for 80% of global semiconductor sales while the remaining 20% is contributed by foundries. Major IDM companies are Samsung, Intel and SK Hynix whereas major pure-play foundries are TSMC, Global Foundries and UMC.
Today, India’s semiconductor demand is valued around $ 24 Bn and is expected to reach $ 100 Bn by 2025. The country’s semiconductor demand currently is entirely met through imports. With growing technology and the advent of IoT and 5G technology in India, the demand for semiconductor chips is on the rise. India is poised to witness a significant demand spike by 2025 driven by electronic manufacturing, IoT products and data center facilities. Semiconductor shortages in pandemic and new geopolitical realities of semiconductor supply chains further exacerbate the need to develop trusted and reliable sources for semiconductors.
Technology and Financial Challenge of a FAB
Setting up a semiconductor FAB is a capital-intensive proposition. Investment required to set up a FAB can range from $ 3 Bn to $ 6 Bn depending on the technology node and wafer capacity of the FAB. Cost of equipment and tools accounts for almost 80% of the project cost. A semiconductor FAB operates in highly controlled environment. An operational FAB requires unfluctuating power supply, high quality water supply, steady demand for zero downtime and regular maintenance and repair of clean rooms and equipment.
India’s prior experience with policy efforts to set up a FAB suggests that assured demand, developed ancillary ecosystem and a dedicated institution to drive semiconductor strategy is critical for setting up a semiconductor FAB in India.
Expression of Interest for Setting up a FAB
Government of India had issued an Expression of Interest (EoI) on 15/12/2020 for setting up/expansion of existing semiconductor wafer/device fabrication (FAB) facilities in the country or acquisition of semiconductor FABs outside India. EoI was an attempt to setup G2B communication channels to understand policy support required to setup a FAB. Inputs received under the EoI will be used to device a scheme to incentivize the project. Proposals invited under the EoI were broadly classified in two technology segment – Silicon CMOS and emerging compound semiconductor technologies like Gallium Nitride, Silicon Carbide etc. Proposals received are currently evaluated by Ministry of Electronics and IT (MeitY) on the basis of proposed technology, proposed wafer capacity, fab loading strategy, financial viability of the project and incentive support from Government of India.
Vision for a Semiconductor Park
Besides a FAB, semiconductor manufacturing ecosystem comprises of raw material suppliers, equipment manufacturers and fabless design players. A dedicated cluster hosting all the key players of value chain is key to success of a semiconductor FAB. Global semiconductor community is close knit network of companies which thrives on functional specialization and technology upgradation. India will need a dedicated institution for sustained engagement with global majors to realize the vision of a semiconductor park in India.
India, for the longest time has been dependent on imports to meet her semiconductor demand. Setting up of a semiconductor FAB in India will not only achieve the goal of manufacturing million chips, but a billion dreams of ‘Atmanirbharta’ in semiconductor manufacturing.