Infineon-India A Smarter Deal Than Intel-China

For a start, the Infineon deal aims to provide India with something it wants - a growing source of varied ICs made on inexpensive, mature process technologies, to go into a vast range of electronics products, again made for inexpensiveness rather than for being leading edge, which Indians are expected to want to buy in huge volume. Huge means $350bn worth in 2015 using $35bn worth of ICs.

In China, the semiconductor strategy has left its local equipment industry having to buy in over 95 per cent of the value of its finished goods in the shape of foreign components, mostly ICs. Which is why China's huge production of electronic goods is only marginally, if at all, profitable.

Intel's China fab will help, in that China's PC industry will be able to buy locally-made chip-sets, but Intel's China fab won't help provide ICs for much else.

By contrast the Indian government's strategy will allow its fast-growing, broad-based local equipment industry to use locally sourced components, significantly adding to the local value-added of Indian electronics equipment manufacturing, and avoiding the cost of buying foreign components.

Moroever its strategy is aimed at gaining a 5 per cent share of the world semiconductor market "in a few years" according to Dr Deven Verma, founder, chairman and acting CEO of the Hindustan Semiconudctor Manufacturing Corporation, Infineon's partner in Fab City. China's share of the world semiconductor market is less than 1 per cernt.

Meanwhile Infineon, having put into all ten Indian fabs of 'Fab City', all the applications variants of its processes, like its embedded flash process and its low-power RF, among others, will have a huge market in India for the products best suited to those processes, i.e. Infineon products, for which the Indian equipment industry will have a massive appetite.

And, further down the line, when Infineon needs leading edge fab, India will have leading edge fab, which Infineon can very likely use for foundry.

It looks like a good deal for India and a good deal for Infineon. Whereas the Intel/China deal looks like a good deal for Intel, if it can get a massively subsidised fab (some say the China government stumped up $1bn in subsidies) for cheap supplies of PC chip-sets, but its difficult to see how the deal helps China.

China's previous attempts to get into the chip business by encouraging foundries have not been successful. The foundry business doesn't really help local electronics equipment companies, while China's most successful foundry project, SMIC, remains chronically unprofitable.

For some strange reason, for such a large country, China still has a lack of self-confidence which makes it go for prestige projects rather than useful projects.

China may think it prestigious to have an Intel fab, but India will get far more benefit from having Infineon technology in its Indian fabs.