Talk about the butterfly effect — an earthquake off the coast of Japan set the stage for a
semiconductor manufacturing company to emerge in India.
The March 11, 2011, quake centred 130 km off the city of Sendai, on the east coast of Japan, was so powerful that scientists say it accelerated Earth's spin, shortening the length of the day by 1.8 microseconds. The tsunami it set off killed more than 18,000 and wiped out towns. The wall of water breached the Fukushima Daiichi nuclear power plant, causing a meltdown. The worst nuclear disaster since Chernobyl made the area inhabitable and forced the closure of many companies in the region.
Polymatech Japan Co — a maker of components and compound materials to electronic and automotive segments — was one casualty as its main offices were in Fukushima. The loss was so bad that the company had to offload its plants worldwide, including one in Oragadam, Tamil Nadu, which was sold to engineering and chemicals company Sekisui in 2017. But Sekisui already had a couple of plants in India and did not want the Oragadam plant. So it sold the facility to Eswara Rao Nandam, former Director of electronic company Ebros Eva Electronics.
Since 2016, Nandam had been looking to set up a semiconductor plant as he was familiar with the subject and saw growth potential. He bought the Polymatech facility in 2018 and got into business under the same name. “I purchased it because the factory already had all the licences — building licence, fire licence, etc. It would have taken me at least two years if I had started from scratch. It helped me to start immediately,” says Nandam, who had experience operating two electronic companies.
Today, Polymatech claims to be the only semiconductor manufacturer in India that designs opto-semiconductors and sets it into integrated circuits (ICs).
Polymatech makes 300 million of these chips annually. Most of its products are exported to Europe for use in sectors such as automobile, aerospace and LED technology.
The evolution of Polymatech shows a way to successfully develop India’s semiconductor ambition, which it has been nursing since the Covid outbreak.
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A digital microscope reading an IC at VerveSemi Microelectronics facility in Noida.
When the pandemic jammed supply chains, supply of semiconductors came to a halt. These chips, often the size of a fingernail, power everything from TVs to planes. So some of the world’s top economies decided to set up semiconductor plants in their own country and reduce import reliance. India, too, jumped on the bandwagon. It has been trying to get foreign companies to set up semiconductor fabrication plants (called fabs) in India and pushing local companies to be a part of the ecosystem.
Small biz in big league
In 2021, the government brought the Production Linked Incentive (PLI) scheme for semiconductor manufacturing, primarily to attract foreign investments. The following year, it came up with the Design Linked Incentive (DLI) scheme, primarily to provide subsidies to domestic companies that make ICs designs. The scheme intends to create domestic intellectual property in the semiconductor space as well as design integrated circuits, chipsets, systems on chips and processor cores. It is a crucial scheme as the use of semiconductors is on the rise.
India’s integrated circuits (IC) or chip market was valued at $14.4 billion in FY22 and estimated to see a CAGR of 12.36% until FY28, at $28.7 billion, according to TechSci Research. The global IC market is expected to reach $1,136.98 billion by 2028 from $437.71 billion in 2020, says Fortune Business Insights.
The
DLI scheme has been a game changer. So far, seven startups and MSMEs in India have availed the design incentives. It is these smaller and lesser-known companies that have been writing the story of the semiconductor ecosystem in India. Industry observers say even as the government is working on getting foreign fab companies to make the massive investments to build plants in India, it is these MSMEs that are actually making India a semiconductor player — but in the design, not manufacturing, arena.
Sanjay Gupta, Chairman of the Indian Electronics and Semiconductor Association (IESA), says MSMEs can contribute significantly to the semiconductor value chain. They offer agility, flexibility and niche expertise that complement larger players.
There are three broad processes in the making of a semiconductor: designing, fabrication and packaging. Fabrication is the most capital intensive and intricate process. It needs an extremely clean room.
Using a reference of surgical rooms, Nandam says, “There are multiple classifications for clean rooms depending on the particles in the air. The room where they open the abdomen is at a lower level, at 100,000 class. The one where operations are done on the lungs or heart, that is 10,000 class. The third one is brain surgery, that is class 1,000. The semiconductor industry’s requirements can range from Class 10 to Class 10,000, which costs between Rs 35,000 to Rs 50,000 a square feet to set up.”
A fab would cost $15 billion to $20 billion. This is one of the reasons why the world has a limited number of semiconductor fabrication companies.
All the foundries and fabrication companies also do packaging. However, Rajeev Chandrashekar, Minister of IT and Electronics, had said with foreign companies taking interest in setting up foundries in India, few Indian packaging companies have reached out for support. The government is working on bringing a system for packaging and testing of semiconductors.
That leaves us with design, where some small companies are already servicing international requirements.
Design leaders
One such MSME is Noida-based VerveSemi Microelectronics, which has used the DLI scheme. Its model shows the way for smaller players to make a mark in the semiconductor industry.
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Pratap Narayan Singh and Rakesh Malik of VerveSemi Microelectronics.
Rakesh Malik and Pratap Narayan Singh founded VerveSemi in 2017; they have worked for semiconductor companies abroad. The company makes IC designs for various electronic applications such as 5G cellular towers and electronic smart meters. These designs are sent to the fabs of companies such as TSMC and UMC, which manufacture the chips and ship them back, packaged in circular discs using a wafer. Companies such as VerveSemi separate the ICs from the disc, which is basically their assembly, do quality checks and sell them.
These chips are used in appliances such as energy meters, cellular towers and 5G transmission equipment. All their customers are overseas.
“We have been selling them abroad for a while and now we are in a good situation money wise,” says Malik, company’s founder-director. “The DLI scheme makes it easier. It covers 50% of the fees for manpower and the licences. It's not much but it is still a big amount offered by the government. Also, for exports you get 4-6% added incentive.”
Even the design part of the semiconductor is capital intensive. Pratap Narayan Singh, the CTO, says they use software costing significantly high to design the chips as compared to overall operating expenses.
Investment needed
Another company that has made use of the DLI scheme is Bengaluru-based
Fermionic Design.
Gautam Singh, CEO of Fermionic, which makes IC designs for wireless communication systems and power management systems, says getting selected for the scheme was the best thing that could have happened to them. “It was music to our ears. The designing part also needs a lot of investment. There wasn’t a single cohesive scheme from the government supporting end-to-end chip development. So, DLI is a right initiative in that direction.”
He explains why the design aspect should be the focus area of more companies: “The thing is that there is a lot of design skill in India, but there was not much focus on supporting such startups.”
The good news is that India has a good amount of design expertise and talent because many multinational companies have been working here for IC designs. VerveSemi’s Malik says, “Soon there are going to be more than 1 lakh VLSI (a process to create ICs) engineers in India. But there are only a few Indian IC design companies.”
This is why the DLI window can be beneficial for MSMEs. But getting selected was tough, says Gautam Singh of Fermionic. “The executive committee was looking at everything from our proposal on what we are trying to develop to the final outcome. They wanted to make sure we are building innovative products and not replacing something.”
Fermionic started work right in the middle of the pandemic, in June 2020, with a focus on building IC designs for communication electronics and power management. Most of its customers are in the Asia-Pacific.
No local market
Now that the initial steps have seen some success, the government should focus on the other factors that can attract more MSMEs to the semiconductor sector, says IESA’s Gupta. “This includes promoting skill development and workforce training, fostering innovation through research and development collaborations, and facilitating easier market access and export opportunities. Establishing specialised technology parks and incubators can create a conducive environment,” he says.
Simplifying regulatory procedures, ensuring infrastructure availability and promoting collaboration between MSMEs and larger industry players can strengthen the semiconductor ecosystem, say experts. The
India Semiconductor Mission (ISM), which was initiated by the government, can play a key role in providing guidance, mentorship, and support to the MSMEs.
VerveSemi’s Malik suggests that while India can become an innovation and design hub in the semiconductor industry, it needs to work on another part of the ecosystem — end users. The reason why their customers are all foreign firms is because everyone in India imports semiconductors. He says the automotive industry, for example, could be asked to give design specifications to MSMEs, instead of looking abroad for these requirements. This would ensure the country develops a more matured design ecosystem. For now, manufacturing can be done overseas on a contract basis.
“There should be some more government schemes to connect all the parts of the ecosystem so that the chips are designed by India, for India and there are also users willing to take those designs or those ICs and load them in a fab in India,” Malik adds.
Designers over fabrication
Fermionic’s Gautam Singh says that there is a huge market out there, but that has not translated into opportunities for Indian companies because there aren't many IC companies in India. “Many clients have many different requirements of ICs, and there are simply not enough Indian companies in a position to supply those chips to them. When more domestic companies start building these things, it will be easier to create a rapport,” he says.
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ICs designed by VerveSemi Microelectronics and manufactured by TSMC.
The make-in-India dream for semiconductors will require some foreign help. Given that fabs need a lot of capital and high-end technology, Indian companies are not yet in a position for end-to-end manufacturing in this area.
Fabrication is a very complex job and should not be taken lightly, says Pratap Narayan Singh. “It is so complex that none of the Indian industries have the experience to even maintain the kind of integrity required. The government needs to give sufficient motivation to foreign companies to build fabs here and enable training. And when we are aware of this operation and there have been successful operations at multiple places, only then should Indian companies enter the fray,” he adds.
For now, the government should encourage MSMEs to get into chip design; experts reiterate that many clients outsource this job, too.
Gupta of IESA says it is important to nurture domestic MSMEs for long-term sustainability. “A balanced approach will lead to sustainable growth and self-sufficiency in semiconductors,” he adds.
Pratap Narayan Singh of VerveSemi recalls how India’s push to become a big player in software services eclipsed semiconductor manufacturing: “In 1980, Intel wanted to create a fab in India. This was their first before doing anything with China. The Indian government could not allocate land, water and electricity for their requirements. So they went to China. That is when India lost focus on semiconductor manufacturing.”
But now, MSMEs are bringing that focus back, and in a sharper way. The spotlight should be on these firms that are designing their way into the chip ecosystem.
A visitor examines a computer chipset at the booth for Chinese semiconductor and chip developer Kunlunxin during the World AI Conference in Shanghai. (AP Photo)
Vedanta Group has announced that the country’s first semiconductor and display fabs will be made in Dholera in Gujarat. (Reuters)
Visitors stand next to a Make In India logo during a three-day semiconductor event in Bengaluru, India, April 30, 2022. (Image: Reuters)
Prime Minister Narendra Modi during the Semicon India Conference 2023, in Gandhinagar. Foxconn Chairman Young Liu is also seen. (PTI)
