Industry Excited, but Awaiting Clarity

When Dataquest asked for a probable time for the announcement of
the Semiconductor Policy, the Minister of Communications and IT, Dayanidhi Maran,
on Feb 8, 2008 at the Nasscom Press Conference, was all smiles. He had then
said: "We will announce the policy before the budget." He has kept his
word, announcing the policy on February 23. The announcement comes after the
cabinet at its meeting on January 11, in principle approved the proposal of the
Department of Information Technology regarding the special incentive package
scheme for attracting investments for setting up semi fabrication and other
micro and nanotechnology manufacturing industries in the country. The
announcement assumes significance in the light of the fact that chip giant
Intel, frustrated at the constant delays in announcement of a fab policy, chose
to set up its plant in Israel. Announcing the policy, Maran said the country
could expect an FDI to the tune of $10 bn.

Announced in a Hurry?

The industry in general is excited but details are difficult to come by.
Even after about 20 days after the announcement, the complete policy document
continues to elude all, specially the semiconductor industry.

The overall reaction of the industry to whatever details about
the policy is available, is of cautious optimism. Nobody Dataquest spoke
to had any clue about the complete policy or the time of its being made public.
In response to a mail, Poornima Shenoy, president of the India Semiconductor
Association says, "This policy is extremely positive. The policy will
provide an impetus for further growth of the sector, the electronics industry
and the overall ecosystem. We are keenly awaiting the details on the
policy."

The Details

As per the policy, the threshold NPV of investments would be Rs 2,500 crore
for semiconductor manufacturing (Wafer Fab) products while the threshold NPV in
manufacture of other products would be Rs 1,000 crore. The policy also mentioned
that if a unit is located in a SEZ, the incentive would be 20% of the capital
expenditure during the first 10 years. For those units located outside the SEZ,
the incentive would be 25% of the capital expenditure during the first 10 years
and counter-veiling duty on capital goods would be expected.

The incentive applies to the manufacturer of all semiconductors,
displays including Liquid Crystal Displays (LCDs), Organic Light Emitting Diodes
(OLED), Plasma Display Panels (PDP), and any other emerging displays, storage
devices, solar cells, photo voltaics, other advanced micro and nano technology
products, assembly and test...

	"This policy is extremely positive. The policy will provide an impetus for further growth of the sector, the electronics industry and the overall ecosystem. We are keenly awaiting the details on the policy"
	-Poornima Shenoy, president, India Semiconductor Association

The Outlook

Though overall reactions to the policy have been positive, there is a
feeling in the industry that the policy could have been more forthright.
According to Jaswinder Ahuja, managing director, Cadence Design, "The
incentive package that the government has announced is relatively lower than
what other countries have been offering to attract semiconductor manufacturing
as a strategic national priority. I hope that the huge demand opportunity that
India presents offsets this in the business plan analysis of prospective
investors. Rajeev Mehtani, vice president and managing director, NXP
Semiconductors India adds, "In itself, the policy is not a very generous
one. However, coupled with the fact that the Indian consumption patterns are
expected to rise very fast, this policy will go a long way in helping develop a
local manufacturing ecosystem.

With Gartner arguing that there will be overcapacity and
saturation in the semiconductor market by 2009, it would be interesting to see
how things shape up in the coming months. Talking about the potential, the ISA—Frost
& Sullivan 2006 report mentions that semiconductor requirement in India in
2015 will be to the tune of $40 bn-plus and if India could manufacture a large
percentage of this in India, the total electronics equipments consumption would
be about $350 bn.

With about 125 players involved in some kind of semiconductor
design in India, the announcement will spur the setting up of fabrication units,
thus creating a much needed ecosystem. Echoing the sentiment, is Rajeev Mehtani,
vice president and managing director, NXP Semiconductors India, "The policy
is not expected to have a direct impact on the semiconductor design community in
India. However it is understood that in creation of the entire ecosystem of
design and manufacturing, more of our engineers will see their products through
to manufacturing, thereby increasing the total capability of the engineering
community."

	In itself the policy is not a very generous one. However, coupled with the fact that the Indian consumption patterns are expected to rise very fast, this policy will go a long way in helping develop a local manufacturing ecosystem.
	-Rajeev Mehtani, vice president and managing director, NXP Semiconductors India
	I am sure that the subsidies offered are less than what the current set of investors in the field had hoped for, but then now we have a defined status.
	-Atul Arora, president, Commercial Operations, ARM Embedded Technologies

The Reactions

Bob Kondamoori,managing
partner of Sandalwood Partners, the key investor in SemIndia

The semiconductor policy is a great positive signal to investors like us.
Our ardent wish is that the government should also follow up this policy
formation by creating the right mechanism to implement it. With this, India will
be in the global league and market sensitivity and operational diligence will be
the imperatives for ensuring success of such high ticket projects.

Ganesh Guruswamy,country
manager and director, Freescale Semiconductor

It is an important step in the development of the ecosystem. With India's
electronic consumption and production set to grow at a rapid pace over the next
few years, one can expect the incentives announced today to provide a
much-needed fillip to domestic hi-tech manufacturing, which is of strategic
significance in any industry. Growth in manufacturing in India will have a
trickle down effect and benefit allied sectors and it is clear that the
government is determined to attract investment. To accelerate growth the
government needs to continue to focus by engaging with the semiconductor players
to understand their immediate needs and address them to fuel future growth.

Jaswinder Ahuja,managing
director, Cadence Design

The incentive package that the government has announced is relatively lower
than what other countries have been offering to attract semiconductor
manufacturing as a strategic national priority. I hope that the huge demand
opportunity that India presents offsets this in the business plan analysis of
prospective investors.

Rajeev Mehtani, vice
president and managing director, NXP Semiconductors India

In itself, the policy is not a very generous one. However coupled with the
fact that the Indian consumption patterns are expected to rise very fast, this
policy will go a long way in helping develop a local manufacturing ecosystem.
The government can go a long way in setting up dedicated semiconductor industry
development boards. These boards would focus primarily on creating the
infrastructure to allow test, assembly and manufacturing to operate effectively
and efficiently, in active involvement in leading new technology development.

	Semiconductor requirement in India in 2015 will be to the tune of $40 bn-plus and if India could manufacture a large percentage of this in India, the total electronics equipments consumption would be about $350 bn
	Source: ISA — Frost & Sullivan 2006 report

Atul Arora,
president, Commercial Operations, ARM Embedded Technologies

The Government of India has done the right thing in announcing a
semiconductor policy. It takes the uncertainty out of the given situation, gives
the potential investors guidelines along which they can now plan and execute. I
am sure that the subsidies offered are less than what the current set of
investors in the field had hoped for, but then now we have a defined status and
I guess they will have to mix their cards again and talk to their financiers.

In the value chain of manufacturing, semiconductor manufacturing
occupies a very high position. Semiconductor manufacturing requires
"bleeding edge" equipment, highly qualified people and a constant
investment in the newest technology and equipment if one wants to be an
established player in the field.

Sudesh Prasad

sudeshp@cybermedia.co.in