India dials back chip ambitions as investors spurn plant funding

Jaypee Infratech

15/06/2016 10:10

* STMicro to scrap $5 bln India chip plant-govt officials 
    * STMicro's local partner says raised 40 pct of required 
funding 
    * India now seeks to attract low-tech component 
firms-officials 
 
    By Himank Sharma 
    MUMBAI, June 15 (Reuters) - India's ambitious plan to be a 
major player in semiconductors, taking on the Chinese and 
churning out locally-made chips for a new generation of 
smartphone users, has proved to be a little too ambitious. 
    The government boldly announced three years ago it would 
host two new $5 billion chip plants as part of a project to 
become a global manufacturing powerhouse, creating thousands of 
jobs, reducing its need for imports and taking on global rivals 
such as Taiwan Semiconductor Manufacturing  2330.TW  and 
GlobalFoundries. 
    But potential investors have not materialised, put off by 
India's wobbly infrastructure, unstable power supply, 
bureaucratic red tape and poor planning, according to analysts 
and industry insiders. 
    Just weeks after Jaypee Infratech  JYPE.NS , which was 
partnering IBM Corp  IBM.N  and Israel's Tower Jazz, abandoned 
plans for one of the big chip plants, STMicroelectronics NV 
 STM.PA  is set to scrap plans to build the other $5 billion 
plant as its main local partner failed to raise enough money 
from skeptical investors, government officials said. 
    "We've had a lot of issues with the original (semiconductor) 
plan," a top official at India's Department of Electronics and 
Information Technology (DEITY) told Reuters. "The technology 
curve has moved ahead in the last three years, the global 
environment has changed and China has emerged as a big player." 
    Two other officials at the department said a consortium led 
by Indian start-up Hindustan Semiconductor Manufacturing Co 
(HSMC) with STMicro and Malaysia's Silterra had not been able to 
raise the funding for the plant, and it might be scrapped. 
    Investors doubted the potential of the Indian government's 
plan to set up a 22 nanometer (nm) chip fabricator as the 
industry's cutting-edge manufacturing has already shifted to 
smaller 14 nm chips, and is expected to move to sub-10 nm in the 
next three years, the officials said. 
    "Our original estimates for chip demand were incorrect, and 
we decided to postpone our plant until 2020 since there's no 
market for semiconductors in India yet," HSMC founder Deven 
Verma told Reuters. 
    Verma said the consortium had not yet closed financing for 
the plant, but had commitments for only 40 percent of the 
required funding. Operations had been expected to start this 
year. 
    STMicro declined to comment. 
     
    LOWERING AMBITIONS  
    India is now toning down its ambitions and setting its 
sights on low-end chip making, the government officials said. 
    DEITY plans to attract low-tech component companies 
including makers of printed circuit boards (PCBs), integrated 
circuits and analog chips. 
    "If we target manufacturers of electronic components to look 
at India for their global production, we can start by 
manufacturing components such as PCBs and ICs locally, and that 
will give a much-needed boost to manufacturing in India," said 
one of the two top government officials. 
    To that end, the government has courted foreign 
manufacturers including Apple Inc  AAPL.O  to set up plants in 
India, though analysts say the country needs first to bulk up 
its component making capabilities. 
    "It's crazy if India thinks it can compete with China on 
something like chip manufacturing when our electronics industry 
is a shambles," said Ganesh Ramamoorthy, an analyst at research 
firm Gartner. 
    India's ambitions in electronics manufacturing include 
cutting net imports to zero by 2020, from about $40 billion last 
year. It is the world's fastest growing smartphone market with 
over 100 million sold last year - but almost all of those 
phones' chips and circuits are imported. 
    Prime Minister Narendra Modi has attracted some phone 
makers, including Chinese smartphone maker Xiaomi, to set up 
assembly plants in India. Samsung Electronics  005930.KS  also 
manufactures some smartphones locally. 
 
 (Reporting by Himank Sharma; Additional reporting by Mathieu 
Rosemain in PARIS; Editing by Miyoung Kim and Ian Geoghegan) 
 ((Himank.Sharma@thomsonreuters.com; http://twitter.com/@wolvhim; 
 +91 22 6180 7207; Reuters Messaging: 
himank.sharma.thomsonreuters.com@reuters.net)) 
 
Keywords: INDIA SEMICONDUCTOR/