India's approach to semiconductor manufacturing and packaging differs from that of other nations, such as China, as it aims to bring semiconductor wafer fab equipment (WFE) manufacturing in-house, in addition to semiconductor foundries and testing and packaging plants. This move is considered a masterstroke based on the geopolitics of semiconductors, according to Danish Faruqui, CEO of Fab Economics.
The proactive inclusion of semiconductor WFE manufacturing as part of India's semiconductor decadal roadmap is seen as crucial for the domestic semiconductor ecosystem. WFE is a key factor in building a fab and is also the largest component of fab capital expenditure. Given the constrained supply of WFE globally, including semiconductor WFE manufacturing in India's semiconductor roadmap is imperative.
India's foray into semiconductor WFE manufacturing sets it apart from China's approach, which focused on semiconductor chip manufacturing and packaging but missed significant investments in domestic semiconductor WFE manufacturing. As tensions between the US and China have escalated, targeted sanctions by the US have affected China's semiconductor ecosystem, particularly in terms of WFE supply.
In contrast, India's decision to include domestic WFE manufacturing from the beginning distinguishes its semiconductor strategy from that of China. By doing so, India is leveraging the geopolitics and geoeconomics of semiconductors to its advantage.
From a geo-economic perspective, the US has imposed sanctions on both semiconductor WFE supply to China and domestic WFE manufacturing in China by global WFE suppliers. While the total cost of ownership for manufacturing WFE in China is favorable compared to Western nations, the US sanctions have precluded global WFE suppliers from taking advantage of this. With India's recent announcement, global WFE suppliers now have an alternative to China for WFE manufacturing at a similar geo-economic level, without facing sanctions.
India's move to become a WFE manufacturing hub presents opportunities for global WFE suppliers such as AMAT, LAM, KLA, TEL, and ASML. These suppliers are expected to flock to India to utilize the new window opened up in the country.
Recommendations for India's foray into WFE domestic manufacturing policy development and execution include tailoring the semiconductor policy of WFE domestic manufacturing based on the total cost of ownership structures of WFE greenfield projects. Additionally, the policy should consider the Asia-Pacific subsidy competitive positioning for WFE and the corresponding fiscal support and local variable dynamics of specific Western world regions known for WFE manufacturing.
The Government of India's efforts to attract global WFE players are crucial, and a tailored WFE policy is essential for success. Overall, India and the world stand to benefit from India's WFE manufacturing capabilities, which will boost economic competitiveness and provide a complete trusted value chain and supply chain from design to assembly for legacy node semiconductors.
Fab Economics sees this as a strategic value opportunity for India in the current geopolitics and geoeconomics, especially in serving various end markets like automotive, IoT, and consumer electronics that rely on legacy chips.
