A boost for India's chip industry

Bruce Einhorn

The world’s biggest chip foundry is Taiwan Semiconductor Manufacturing Co., aka TSMC, and TSMC’s decisions on where to do business are good indicators of where the semiconductor industry as a whole is moving. (Anybody interested enough in technology to read the Asiatech blog probably knows what a “foundry” is, but just in case – it’s a chipmaker that produces semiconductors not under its own brand name but for other customers.) TSMC got its start in Hsinchu, Taiwan’s premier hi-tech park, and that helped contribute to Taiwan’s rise in the chip industry: Today there are more fabless chip-design houses in Taiwan than anywhere else in the world except the U.S. In the 1990s, TSMC set up fabs in two other tech hotspots, Singapore and Washington State. And a few years ago, TSMC became the first Taiwanese chipmaker to set up a fab in China. Now China, too, has an up-and-coming chip-design sector.

So for anybody betting on India’s chances to become a player in the semiconductor industry, the news this week that TSMC is opening its first Indian office is very good indeed. Yes, it’s just an office, not a fab, so TSMC’s commitment to Bangalore is hardly the sort of billion-dollar bet that it has made on Shanghai. Still, the company clearly thinks that it needs to stay in touch more with Indian chip designers. Here’s a comment from Sajiv Dalal, Business Development Director for TSMC North America, in the Monday press release announcing the move: "TSMC recognizes the potential of the region and is opening an office as a part of its ongoing charter to develop the semiconductor ecosystem."

That said, there’s reason to worry that the Indian government might still mess things up. Right now, India’s chip designers are doing well even though the country doesn’t have fabs like those in East Asia. Such fabs cost billions and billions of dollars and the payoff is very uncertain – TSMC makes nice profits but not many other foundries do. Shanghai-based SMIC, for instance, lost $111 million in 2005 and analysts estimate that it lost another $60 million or so last year. Yet here’s a top official in Prime Minister Singh’s government (as reported in The Hindu), on a visit to Hyderabad, calling for Indians to devote more resources to, sure enough, building lots of mega-expensive fabs:

'The critical mass for the Indian semiconductor industry has been reached. The time is now — and the place is Hyderabad', said Prithiviraj Chavan, Minister of State in the Prime Minister's Office, on the concluding day of the Indian Semiconductor Association's Vision Summit, here. The long awaited national semiconductor manufacturing policy is expected to be released before the union budget later this month — and it would offer direct subsidies for qualifying players, over and above the incentives that special economic zones or state governments might offer, he added. He lauded the Andhra Pradesh Government initiative to set up India's first Fab City: `We are moving from fab-less to fabulous' he quipped.

Why exactly is that a good thing?

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