After a partnership between Taiwan-based Powerchip Semiconductor Manufacturing Corporation (PSMC) and Japan-based SBI Holdings to establish a wafer fab fell through, PSMC is now pursuing a similar project in India, which presents its own set of challenges.
PSMC has drawn attention due to its failed collaboration with Japan's SBI Holdings to establish a fab. Both parties have exchanged accusations, with SBI chairman Yoshitaka Kitao publicly claiming that PSMC lacks integrity. In response, PSMC chairman Frank Huang held a press conference on October 22 to clarify the situation.
During the conference, Huang emphasized the progress of their partnership with India's Tata Group, praising the smooth negotiations and confirming that contracts have been signed. His attitude towards developing the semiconductor supply chain in India has transformed from conservative to optimistic.
However, industry insiders noted that while the collapse of the partnership between PSMC and SBI was anticipated, it remains uncertain whether PSMC can successfully establish and operate a facility in India.
PSMC defends position on SBI partnership breakdown
After the collapse of the wafer fab project with SBI in Japan, Huang provided clarity regarding the reasons behind the breakdown, citing three main issues.
The Japanese government's requirement for PSMC to ensure continuous operations at the subsidized fab without a significant equity stake for ten years poses a risk of violating Taiwan's Securities Exchange Act. Additionally, SBI did not provide viable operational plans for financing and marketing the new plant, prompting PSMC to cease evaluations of the partnership. Moreover, rising inflation has led to significantly higher construction costs in Japan compared to Taiwan.
Huang emphasized that PSMC's stance is clear: the company is open to providing technical support for operations if a fab is to be built, but the responsibility for other challenges rests with SBI. He pointed out that the Japanese government expects PSMC to take on operational responsibilities, which is unrealistic for any company to manage for ten years. Huang expressed regret over the inability to establish a fab in Japan, noting that the government's rigid position forced PSMC to abandon the project.
India collaboration shows promise despite challenges
Following the explanation of PSMC's split with SBI, Huang discussed the collaboration with Tata Electronics to build a new fab. He explained that this partnership aligns with PSMC's Fab IP strategy, which entails providing support in construction, employee training, and technology transfer without directly investing in the new fab. Under the contract terms, PSMC anticipates receiving service and licensing fees exceeding NT$20 billion (approx. US$620 million) over the next three to four years.
Huang highlighted that Tata Electronics employs 50,000 individuals and manufactures mobile phones for Apple, positioning it as one of India's largest electronics manufacturers. The company aims to create a comprehensive electronic industry chain, with many executives leading the semiconductor business being returnees from major firms like Intel in the US. The negotiation process has proceeded smoothly, and significant subsidies from the Indian government have supported it. Contracts have already been finalized.
Huang emphasized that discussions with India are more pragmatic, noting that the Indian government aims to build a complete ecosystem but currently lacks a 12-inch wafer fab, creating a strong demand to address this gap. When selecting partners, he chose Tata Group, which plans to establish a new fab with a monthly capacity of 50,000 wafers, backed by an investment of US$11 billion and US$7-8 billion in government subsidies. This approach stands in stark contrast to the one taken by the Japanese government and SBI.
PSMC has already sent personnel to India for assistance, and Tata's chairman arranged a meeting with Indian Prime Minister Modi, who is actively encouraging and supporting the establishment of the fab. PSMC anticipates generating over NT$20 billion in revenue in stages after three to four years.
Shifting perspectives on India investment
Huang's attitude toward the Indian fab has shifted significantly since 2023. At the beginning of 2023, he announced the fab partnership in India, with the Indian government funding the project. By mid-2023, he adopted a more cautious tone, highlighting the complexities of setting up a wafer fab in India, given that the country is starting everything from scratch.
By March 2024, his statement reversed again, announcing plans to assist Tata Electronics in constructing India's first 12-inch wafer fab, expected to commence construction within 2024. PSMC will not participate in operations but will aid in construction and IP technology transfer.
Huang also revealed that many Taiwanese semiconductor firms harbor doubts about establishing fabs in India. Major players are unlikely to venture there, yet India hopes larger enterprises will step in. Ultimately, PSMC's decision to enter India was influenced by former President Tsai Ing-wen's commission, hoping PSMC could serve as a pioneer for Taiwanese businesses entering the Indian market.
Sources believe that PSMC is primarily assisting India in building a fab due to the former president's request; otherwise, they likely would not proceed. This suggests that PSMC is not entirely voluntary or optimistic about establishing a 12-inch fab in India and shows reluctance toward joint ventures. This sentiment underscores the significant challenges facing India's semiconductor development.
Industry experts view India as the next China, citing its demographic advantages, extensive land, strong software design sector, government investments, and subsidy programs. However, challenges persist in developing a high-tech semiconductor supply chain due to the industry's capital-intensive nature, and integrating semiconductor fabs and supply chains is a complex task.
Decade-long journey ahead for Indian semiconductor ecosystem
Despite numerous semiconductor firms investing in India recently, none have made large-scale investments. For instance, CG Power and Industrial Solutions, a subsidiary of the Murugappa Group, partnered with Japan's Renesas Electronics and Thailand's Stars Microelectronics to jointly invest US$920 million in establishing a packaging and testing facility adjacent to Tata's wafer fab.
Long-term orders for India's semiconductor industry remain uncertain due to a lack of well-established IC design firms capable of generating significant order volumes. Additionally, there are concerns about the adequacy of related manufacturing processes and packaging technologies.
While the Indian market is large, the downstream electronics manufacturing sector will need time to adjust. The high technological demands and substantial investment required in the semiconductor industry may not align with current capabilities.
Mature process chip production capacities are currently oversaturated, causing challenges for GlobalFoundries, United Microelectronics Corporation (UMC), and Vanguard International Semiconductor (VIS). In contrast, advanced processes are primarily controlled by TSMC, with Samsung Electronics and Intel facing difficulties in catching up. As a result, a careful evaluation is essential before advancing the semiconductor supply chain into India.
India faces challenges in building a competitive semiconductor ecosystem, particularly in terms of infrastructure like water, electricity, and reliable internet access. Power outages or water shortages can cause substantial production losses in large wafer fabs.
The extended timeline from construction to operation also raises concerns about government policies, judicial fairness, financial transparency, social security, and even the ongoing influence of the caste system.
Given these complexities, experts believe it could take over a decade for India to establish itself as a key player in the global semiconductor industry.
Tech leadership potential versus manufacturing challenges
India is renowned for its exceptional tech talent, with many CEOs of major corporations like Microsoft, Google, and Micron originating from the country. This has led to the sentiment that "India's best export is CEOs." This strong leadership background may have influenced Micron's decision to establish an ATMP facility in India, which is set to commence operations in 2025 with total investments exceeding US$2.75 billion.
Despite India's strong tech talent pool, semiconductor professionals highlight a global shortage of skilled individuals in the sector, making it difficult to acquire the necessary knowledge and experience. TSMC Chairman C.C. Wei emphasized that developing talent requires decades of societal investment, noting that training a semiconductor engineer takes at least eight years from education to onboarding. While India is now investing in semiconductor education and encouraging global Indian talent to return, these efforts often focus on individuals rather than fostering long-term team-building initiatives. Consequently, India's aspiration for self-sufficiency in the semiconductor industry encounters significant challenges.
