As Samsung Emerges As #2 Foundry, Should India Try A Quid Pro Quo For #FabInIndia?

As Samsung Emerges As #2 Foundry, Should India Try A Quid Pro Quo For #FabInIndia?
In 2018, Samsung had inaugurated the world’s largest mobile phone manufacturing unit with a budget of Rs 4,915 crore in Noida. (Image via Facebook)
  • While the "cutting edge" race in fabs has moved to 7nm and 5nm, offering incentives to a market leader in fab (foundry) to set up an "older" (stable) tech-node in India is a good idea.

For decades now, the name that usually comes to most Indians' minds when a semiconductor fab is mentioned is that of Intel.

There is a generation or two that grew up seeing the "Intel inside" labels as the major mark of semiconductor chips.

The Karnataka Deputy Chief Minister recently even offered land if Intel was interested in setting up a #FabInIndia.

While the "cutting edge" race in fabs has moved to 7nm and 5nm, offering incentives to a market leader in fab (foundry) to set up an "older" (stable) tech-node in India is a good idea, but I am not sure if Intel is the right one to be asked.

Electronics is no more just about desktops and laptops, but increasingly about smartphones. There are also the communication-centric chips which will be needed in more for upcoming 5G and IoT revolution — and it is debatable how much of a leading role Intel has been able to play in those.

While use of expressions like "Intel Stunning failure", "end of an era" and so on in this article may be a bit of an exaggeration, it is now quite out in the open that Intel is struggling with its 7nm and so naturally, the company may not be in any mood to "expand manufacturing base" to India, even if it is an older and stable tech-node.

However, if anything like that happens, indeed, it will be a welcome move for India.

TSMC, the pure-play foundry with more than 50 per cent market share in the currently near $75 billion (annual) foundry market, continues its dream run, now trying to get 3nm into "risk-production" by 2021, as per this report.

A pure-play foundry will not have its own products, but would just manufacture (fab) chips for others, so you are not likely to ever see a label "TSMC inside" even if many chips inside the device you use are "fabbed" in it.

Intel is an Integrated Device Manufacturer, meaning, it has its fabs as well as products and the company to compare Intel with from that perspective will be Samsung.

Intel's offering of the foundry for "others" is minimal, and as far as I know, does not report its "foundry alone" revenue, whereas that is not the case with Samsung.

There were even reports that 'Samsung has reportedly secured a "PC CPU" manufacturing order from Intel'.

The overall semiconductor market in 2019 was about $420 billion or so and Intel and Samsung have been in a tough competition for the top spot.

In 2017, Samsung, with $69 billion revenue, won the race against Intel's $62.8 billion (report).

However for 2019, Intel topped with $65.8 billion against Samsung's $52.2 billion (In this report — note that there was a 12 per cent dip in semiconductor market revenue in 2019, and part of that may have to do with trade restrictions and lowering of pricing amidst competition. As far as I know that dip in product revenue did not translate into the foundry market revenue).

However, what is interesting to note is that, Samsung seems to be in no mood to give up on the tech-node race despite the costs involved.

As per this report, Samsung seems to be well ahead in the 5nm race while Intel struggles at 7nm.

For the foundry market, as per a 2Q2020 report, TSMC has a 51.5 per cent market share, Samsung though at a distant second with 18.8 per cent is believed to be gearing up to give TSMC tough competition at advanced nodes soon.

Amidst all this, I wonder if there is more and more relevance in what I wrote on 2-July in this Swarajya article — a preferential market access that can help Samsung grow upwards from its current third position in the handset market in India, if they offer to set up a #FabInIindia — not necessarily a cutting edge one, but a "stable" tech node to begin with.

Note that Samsung already has applied for benefits under the PLI scheme, details of which just came out.

Samsung currently has only 16 per cent shipment market share in India as per this report.

PLI may boost it to some extent, but may not be enough to get to the number one position in India.

So a #FabInIndia, in return for a preferential market access, is something that Samsung could potentially think of.

Let it be noted that I am not suggesting a quid pro quo with Samsung as the only possibility for a #FabInIndia.

In fact, quite likely, the Government of India will not be able to do a "one-sided" offer either.

However, now that boosting manufacturing through the PLI scheme seems to be "on track" and even SPECS seems to have attracted small component manufacturers, the Government of India should focus a bit more on the semiconductor fab (chip manufacturing ) part and fast track measures to promote #FabInIndia that Minister Ravi Shankar Prasad spoke about here.

Preferential market access could, perhaps, be introduced in such a way that it benefits anyone trying to set up a fab in India — big or small, advanced or stable tech-nodes.

The policy — if it happens — could be drafted in such a way that whether or not the big ones like Samsung go for it, potential smaller groups, who I hinted towards the end of this article as already in the efforts, should also benefit.

Arun Mampazhy has a BTech from IITM and MS from University of Maryland in semiconductor fabrication and over a decade of industry experience. His dreams of seeing a commercial fab takeoff in India has changed from black and white to colour over two decades. He can be reached via email nanoarun(at)gmail(dot)com or @nano_arun on twitter. Views expressed are personal.


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