HSMC ties up with L&T, IL&FS to set up semiconductor plant.
The government’s approval last week for plans to set up two semiconductor-manufacturing facilities in India has turned the focus on Hindustan Semiconductor Manufacturing Corp. (HSMC) which, in anticipation of imminent approval, had already signed agreements with infrastructure companies Larsen and Toubro Ltd (L&T) and Infrastructure Leasing and Financial Services Ltd (IL&FS).
Devendra Verma, chief executive and founder of Hindustan Semiconductor, remains excited about the idea of being among the first companies to set up a semiconductor plant in India. L&T and IL&FS will take a stake in the project, construct the wafer fab grounds up and complete the first phase by 2016, Verma, who is based in the US, said in a telephone interview on Monday.
India has flirted with the idea of creating a semiconductor manufacturing facility (or wafer fabrication units) since 2007. In 2011, the government constituted an empowered committee to identify technology and investors and to recommend incentives to be provided to set up two fab facilities in the country. The committee had issued a global expression of interest (EOI), inviting technology providers and investors to set up the fabs, following which this committee submitted its recommendations to the government in March 2013.
Last week, the government approved the setting up of two wafer fabs (as they are known) to provide a big boost to the Electronics System Design and Manufacturing (ESDM) ecosystem in the country. The proposed fabs are expected to provide direct employment to about 22,000 people and indirect employment to about 100,000, according to Union minister for IT and telecom Kapil Sibal. Interested companies are expected to submit their proposals in the next four weeks.
Apart from Hindustan Semiconductor, Jaiprakash Associates along with International Business Machines Corp. and Israel-based TowerJazz, have proposed to set up a Rs.26,300 crore fab in Greater Noida.
Hindustan Semiconductor’s consortium includes French-Italian electronics and semiconductor manufacturer STMicroelectronics (STM), and Malaysia-based wafer manufacturer Silterra.
The consortium has proposed to invest Rs.25,250 crore to set up a fab facility in Prantij, near Gandhinagar. “STM has a big portfolio of products that sell in India. Hence, we chose the company. Similar is the case with Silterra and both of them have worked closely so it made sense to have a partnership with both,” said Verma.
Verma’s plans, however, await a final nod from the government, which industry analysts say remains a formality. Verma is not new to delays. In March 2007, for instance, Verma had said Hindustan Semiconductor would set up 10 chip manufacturing plants costing up to $4.5 billion by 2010.
“I have not lost hope despite waiting for almost seven years to build the fab in India. We have an excellent Silicon Valley team in place and the right manpower. We would have almost succeeded to set up a fab in 2008, had it not been for the Lehman crisis that resulted in a global financial meltdown,” said Verma.
“We will set up a greenfield project for which we will require 30-odd permits from different departments. It’s not our expertise. Hence, we roped in L&T and IL&FS to help us build the fab city on the lines of China, Taiwan, Singapore and Malaysia,” said Verma.An L&T spokesperson declined to comment for the story.
Typically, companies such as L&T pick up a small equity stake, eyeing a bigger construction and engineering pie of the business.A senior IL&FS executive, who did not want to be named, said his company has only an advisory role at this point of time and no financial commitment.“We will be helping HSMC (Hindustan Semiconductor) to design and plan the infrastructure to set up a fab. We will be helping the company to structure the project in the country as we have the expertise to do so,” he added, without disclosing details. A fab also requires around 10 million gallons of water a day and gases such as nitrogen, for which Hindustan Semiconductor will take advantage of the existing partnerships it has with US Filters, a former Siemens affiliate, for water and waste management and France’s Air Liquide for gases.
Hindustan Semiconductor’s
proposed fab will have the capacity to churn out 40,000 wafer starts per month of 300 mm (wafer) size, using advanced CMOS (complementary metal-oxide semiconductor) technology. “We may do 90 nanometres (nm), 65 nm and 45 nm in the first phase and 45 nm, 28 nm and 22 nm nodes in the second phase,” said Verma.
Silicon wafers are thin slices of semiconductor material, made available in a variety of diameters from 25.4 mm (1 inch) to 300 mm (11.8 inches), and fabs are defined by the diameter of wafers that they are tooled to produce. A bigger wafer reduces the cost of manufacturing since more chips can get packed onto a single wafer.
Companies such as Intel Inc., Taiwan Semiconductor Manufacturing Co. Ltd and Samsung Electronics are each conducting research on a 450 mm prototype.
According to India Electronics and Semiconductor Association (IESA), the government’s decision to set up fabs in India will prove to be a “game changer”.
Some of the world’s leading economies including the US, France, Germany, Ireland, Japan, Singapore, Taiwan and China, besides a number of developing economies such as Malaysia and Israel, have their own fabs.
India consumes almost $7 billion of semiconductor products every year. By 2020, when the total ESDM market is expected to reach $400 billion, this consumption is likely to rise to $55 billion, according to IESA.
“With the location of a fab in India, the country could achieve a degree of self-sufficiency in electronics, and partially reduce the very high supply chain risks that India is exposed to, without an alternate source for procurement,” said PVG Menon, president of IESA.
At 6.3% of overall imports and almost 2% of India’s gross domestic product (GDP), electronics imports represent a significant sector, contributing to the country’s trade imbalance, according to a 16 September report by research firm Frost and Sullivan. “If similar conditions prevail, there is ample evidence to suggest that electronics import will even surpass our crude import bill by 2025,” the report said.
Chip fabrication capability within India also helps system designers, software developers and chip designers to join hands and develop innovative, indigenous and cutting-edge technology products, said Menon.
However, there’s a problem. A 90 nm process, for instance, refers to the level of CMOS process technology that was reached in 2004-05, with 22 nm being the current technology. By the time the fab is ready, the world’s best fabs would have reached the 14 nm and 10 nm technology levels.Where does that leave our Indian fabs?
“It’s not about manufacturing an Intel class of microprocessors or flash memory, as examples. Obviously, it needs the 22 nm process which Indian fabs are not targeting as of now,” said Menon. According to him,
products churned out by Indian fabs will include chips for industrial use such as those in energy meters, inverters; in auto electronics for chips in ignition and instrumentation panels of bikes; as also processors for low-end tablets like Aakash.
Ajai Chowdhry, co-founder, HCL, also believes that the fabs will not only bring in much-needed investment but also help in strengthening the EDSM ecosystem and provide chips for set-top boxes, smart energy meters, micro-ATMs and smartcards, among other things.
Meanwhile, the government has sweetened the fab deal with its incentive package for the two consortia, including incentives available under the Modified Special Incentive Package Scheme (M-Sips) and deduction for expenditure on research and development under the Income Tax Act.
In addition, fab facilities will also be eligible for investment-linked deduction under Section 35AD of the Income Tax Act.
The government will also provide viability-gap funding in the form of an interest free loan for 10 years.The government, which will get 11% equity in the proposed projects, requires the technology providers to take at least 10% equity. The details of the incentives are yet to be worked out.