News | India set to challenge China's dominance in semiconductor packaging

India is starting late and even struggling in the race for semiconductor supremacy. However, despite the apparent delay in the construction of large semiconductor plants, the country is simultaneously pursuing different ways to capture a share of the global semiconductor supply chain.

One of the most important aspects of manufacturing advanced semiconductor chips is packaging and testing, also known as outsourced semiconductor assembly and testing - a field currently dominated by China and Taiwan. At least four Indian companies have started or plan to work in the field. Notably, Tata Group's recent proposal to set up an assembly and packaging plant in the northeastern state of Assam marks a significant development.

"ATMP (Assembly, Test, Marking and Packaging) and OSAT are good starting points for India," said Satya Gupta, President of VLSI Association of India. "This is because they require lower investment, faster production times, and output can go directly from the packaging and test plant to the electronics manufacturer."

According to IDC, Taiwan and China dominate the OSAT market, with a combined 75 per cent share of the global market. However, in the long term, India's entry into this space has the potential to significantly reshape the global electronics manufacturing landscape.

As an alternative to China

India's growth in the OSAT industry marks a pivotal moment not only for the Indian technology sector, but also for the global semiconductor landscape. For the Indian market, local OSAT operations - many of which also provide electronics manufacturing services (EMS) for multinationals - can offset imports and reduce overall costs.

Raghu Panicker, CEO of Kaynes SemiCon, a subsidiary of Kaynes Technology, said: "For example, we are hardcore players of EMS. "We provide modules and PCBS for automotive electric vehicle companies. These modules mainly contain microcontroller packages. The packaging currently comes from international sources, but if we produce it in India, it will lower the price as if we produce it domestically."

This is relevant to the global electronics supply chain when you consider that more and more global companies are moving manufacturing to India. A survey released earlier this year by the Boston Consulting Group (BCG) showed that more than 90 percent of North American manufacturers have moved some production out of China in the past five years, and a similar percentage plan to do so in the next five years. India has become one of the major destinations for these companies.

"This shift brings with it the entire supply chain," said Varun Manwani, CEO of Sahasra Semiconductor. Sahasra Semiconductor is another company entering OSAT. "A classic example is Apple, which initially introduced its own EMS. Recent reports suggest that TDK plans to do the same with battery packs. This progress shows that the country is moving towards the establishment of a comprehensive component-level ecosystem."

Advances in local OSAT technology could also disrupt the fabless business segment, tapping into India's strong engineering and design capabilities and spawning numerous start-ups. Manwani noted that without an integrated chip packaging ecosystem, these companies will face challenges.

"Before, they all had to go back to the United States, Taiwan, etc., to be packaged," Manwani said. "Now, they are also exploring opportunities to work with Indian suppliers. This shift is not only good for us, but also good for them, as the cost of packaging with overseas companies is much higher. By partnering with Indian companies, these costs can be greatly reduced and timelines can also be improved. So this represents a customer base that we can reach in India and are currently in discussions with."

From India to the global market

While acknowledging the potential of the Indian market, companies such as Sahasra are casting a wider net into security, surveillance lighting and IP hardware in markets such as Belgium and the United States. Panicker and Gupta also stressed the importance of a dual strategy that balances local and international opportunities.

"Targeting just the Indian market is unlikely to be successful at scale," Gupta said. "Normally, semiconductor manufacturing companies, whether manufacturing or packaging, should target 70% of the global market and 30% of the Indian market. Relying solely on the Indian market may not be successful, as the demand for high-end packaging in India may exceed the capabilities of new entrants."

For example, the packaging required for a laptop or mobile processor involves sophisticated advanced technologies. This packaging presents a challenge to new entrants due to the technical expertise required. Therefore, given the advanced nature of many of these chips, the potential size of the Indian market may not be as large as one might estimate.

Panicker agrees: "First of all, a multinational business strategy is critical because that's where the volume and revenue comes from." "Ultimately, our business plan should also cater to the needs of India, as this is critical to achieving long-term sales targets." We focus on verticals such as home appliances, two-wheelers, electric vehicles, industrial products, and lifestyle products such as headphones. Specifically, we aim to produce high-volume products such as microphone sensors to meet the Indian market and global demand."

Challenges to overcome

Despite the apparent optimism surrounding India's entry into the OSAT market, analysts warn that new entrants will face stiff global competition. In addition, the lack of local foundries in India could lead to higher logistics costs, which poses a major challenge to the country's OSAT aspirations.

"OSAT plays an important role in the semiconductor supply chain; It accounts for about 15 per cent of manufacturing costs, "said Helen Chiang, director of semiconductor research at IDC Asia. "Often, OSAT players will choose foundry because logistics and operating costs can be high if they are in different locations. It is important for India to first set up or attract foundries locally in India and then help improve the environment for OSAT."

There are other challenges. Operating margins in this industry are generally in the single digits. For example, ASE, the world's largest OSAT company, had a consolidated operating margin of 7.4% in the third quarter of 2023.

"Therefore, individual investors or businesses entering the market must proceed with caution," Gupta said. "They need to carefully manage margins and profitability, given that the industry does not typically generate high margin returns based on the performance of existing players."

Data reference:

Source: NETWORKWORLD

Link: [https://www.networkworld.com//]

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