The India-Infineon deal to set up a ten fab, ‘Fab City’, looks a very good one both for India and for Infineon.
The Indian government recently announced a support scheme for semiconductor manufacturing under which the government pays up to 20 per cent of a project cost through equity participation, tax breaks or other financial incentives.
The reason why the Indian government is so keen on the semiconductor industry is because it expects sales of electronic goods to increase by 10 times in the next ten years, reaching $363bn by 2015, for which the semiconductor content will be worth $36bn.
Either these goods can be bought from overseas or they can be made in India using Indian-built semiconductors.
Having a series of fabs, starting with mature, cheap, 0.13micron technology and escalating to leading edge, will give India the capability to perform all the main value-added stuff locally.
Clearly it’s better for India to do everything locally, rather than go through the China syndrome of having a vast local production capacity for electronic goods which is either unprofitable, or barely profitable because around 95 per cent of the ICs going into them have to be imported.
By going in with the Hindustan Semiconductor Manufacturing Company to provide its process technology and fab-building expertise to the setting up of ten fabs in India, Infineon will be in pole position to see its products designed into the new generation of India-produced, inexpensive, electronic goods.
The first fab Infineon will help build will be a 200mm 130nm fab costing about $800m to be running by 2009. The second fab will be a 300mm 90nm fab. “The other eight fabs will be announced later,” said the spokesman. All will be announced by 2010.
When Fab City expands, and the fabs become leading edge, then Infineon will no doubt have the opportunity to cut an advantageous foundry deal. That will be a particularly good thing for Infineon because it has said it won’t build another fab after the current 65nm process generation.
So it seems that Infineon has solved a number of challenges with its deal in India. Challenge number one: How to get fab after its current fab stable obsoletes? Challenge number two: How to get into new markets? Challengenumber three: How to expand its manufacturing capability?
In the meantime, India has secured its semiconductor manufacturing future.