India’s Fox Trot On Chip Making

India’s semiconductor story has been moved one step forward, two steps back for a while now.  Just as we were wrapping our heads around the Foxconn-Vedanta fiasco, comes the news that the country has signed an agreement with Japan to design, develop and manufacture microchips while also participating in its supply chain. 

Barely a month ago, the government had announced that Micron Technology, one of the top-5 chipmakers had agreed to set up an assembly testing, making and packaging plant in Gujarat at an investment of $850 million. There were also reports that Korean giant SK Hynix may join in. All of this when the Foxconn-Vedanta deal was being torn down even before it was sewn up. 

Post the Vedanta fiasco, govt. is going slow 

Readers would recall that the government’s aggressive move to back Anil Agarwal’s Vedanta group to kick-off India’s first fabrication plant in tandem with Taiwanese giant Foxconn fell flat as the latter abruptly walked out of the joint venture. Which incidentally was signed to set up a microchip manufacturing plant in Gujarat. 

There was egg on a few faces and officials as well as central ministers quickly changed the narrative that the two partners would now pursue their plans independently with new associates. The real cause for worry is that it’s been 18 months since the government’s much-hyped $10 billion incentive scheme for semiconductors was announced. Till date, there’s nothing else! 

What’s the Japanese deal all about?

Which is probably why most analysts we spoke with are taking the latest agreement with Japan with a pinch of salt. This in spite of IT minister Ashwini Vaishnaw’s statement that India and Japan would jointly create an implementation organization (is that a JV?) that will provide government-to-government and industry-to-industry collaboration. 

The minister sought to reiterate by mentioning the name of Rapidus Corporation, a company formed in August last year with support from other tech giants such as Sony, Toyota, NEC, NTT, Denso and SoftBank. “We are talking to Rapidus to expand their presence to India. Talks are at an advanced stage,” Vaishnaw said. 

In fact, officials were keen to point out that Japanese companies have a buy-in around the Indian Semiconductor Mission of the government. They said Rapidus was formed to work on lead nodes of 2 nm fabrication in Japan, which means that may not arrive in India. However, the company can help with legacy nodes, which is the space India is seeking. 

The move is definitely a step forward as it is the second country-level agreement that India has signed in the space. India and the US signed agreements to collaborate on semiconductor design, manufacturing, packaging as well as supply chain resilience. US companies excel in manufacturing and packaging while the Japanese are leaders in peripheral industries that produce chemicals and gas.  

Is India on the right track with chip manufacturing?

On a different note, the government also appears to be more cognizant of the fact that the US, parts of Europe, Japan, Korea and Taiwan are also seeking to become self-sufficient in semiconductors by collectively pumping in $200 billion as subsidies. Most of the big names are already committed to join this engagement, which means India is not even on their radar. 

In addition, experts said the government is also reviewing some of its guidelines such as the 45-day deadlines for companies to apply for setting up fabrication plants that require detailed business plans and billions of dollars as investment. Officials said this needs to be softened and eligibility criteria must be clearly stated given that it is offering half the set-up costs. 

Privately, government sources acknowledge that buyers for fabrication plants in India could be limited, given the absence of design companies like Qualcomm as buyers. This being the case, the foreign partners need to commit to a large buyback as well. Though Qualcomm, NXP Semiconductors and HP are open, none is ready to commit to ordering from Indian plants. 

Given these complexities, it remains to be seen how the government’s scheme to lure investments into semiconductors pans out over the next few months.