India finally wakes up to importance of local fabs, says IBM and STMicro interested

Two consortiums, including IBM and STMicroelectronics, have proposed building semiconductor wafer plants in India costing a total of $8 billion, a minister said after the government approved concessions to lure chipmakers.

India, which wants local production of chips to cut long-term import bills, has renewed a drive to attract investments after a previous attempt failed.

The government hopes other chipmakers will show interest in building further plants after the federal cabinet on Thursday approved concessions including subsidies on capital spending, interest-free loans and tax breaks, Communications and Information Technology Minister Kapil Sibal said.

"India needs not less than 15 fabs (fabrication units)," Sibal told reporters on Friday.

He said that given the huge investments, long build-up period of plants and low freight costs to import chips from abroad there is "no great interest", and the only way to attract investments was through offering such major concessions.

Ganesh Ramamoorthy, a research director at Gartner, said there was little incentive for chipmakers to come to India.

"Globally there are established fabs that are struggling to maintain their profitability," Ramamoorthy said.

"Will they be exporting it, will they be competing with other global fabs, or will India be generating enough demand these are difficult questions," the analyst added.

Detailed reports in two months
The minister said the two consortiums would be asked to submit within two months their detailed project reports, including the production mix and marketing plans. The detailed project reports would be evaluated by a third party, he said.

One of the consortiums is made up of India's Jaiprakash Associates and Israel's TowerJazz with IBM as technology partner. It has proposed a plant near New Delhi at a cost of 263 billion rupees, the government said.

The second comprises Hindustan Semiconductor Manufacturing Corp and Malaysia's Silterra with STMicroelectronics as the technology partner. The proposed investment at 252.5 billion rupees for a plant in the western state of Gujarat.

A Jaiprakash spokesman declined comment. The Indian units of IBM and STMicroelectronics said they would not give an immediate comment.

The technology providers must take at least a 10 percent stake in the projects, while the Indian government would get an 11 percent stake in each project. The government would part-fund the investments through interest-free loans for 10 years.

India's demand for electronics products is forecast to rise nearly 10 times during this decade to reach $400 billion by 2020, causing policy makers to worry that electronics imports, with no major local manufacturing, could exceed those of oil.

As sales of smartphones, computers and television sets surge, annual imports of semiconductors are expected to touch $50 billion by 2020 from $7 billion in 2010, according to an Indian government presentation.

Typically, semiconductor foundries take about two years to be up and running, Gartner's Ramamoorthy said. Meanwhile global companies such as Taiwan Semiconductor Manufacturing Co are already exploring wafer technologies that are much more advanced than those India is proposing to make, he said.

© Thomson Reuters 2013