India ramps up semiconductor production

The country's production activities are set to increase, but industry observers say this shouldn't have a negative affect on Southeast Asia and China

Southeast Asia and China do not need to worry about India scaling up its semiconductor production because when it does, the boost in activities will help drive the industry's long-term growth in the region, say industry observers.

According to Gartner, semiconductor manufacturing in India is currently limited, and although there are no operational wafer fab plants in the country right now, five fab plants have been proposed, with approved ones targeted to go live between 2009 and 2010.

Speaking to ZDNet Asia on the sidelines of Gartner's Annual Semiconductor Roadshow on Tuesday, Philip Koh, Gartner's research vice president of semiconductor for Asia-Pacific, said that as production activities will not ramp up in India in the next one to two years, India's move toward semiconductor manufacturing will not have any impact on Southeast Asia and China, as the two regions have already "moved much ahead" in this space.

Although India could affect equipment production in Southeast Asia, as some competition is expected in this space, China — the current leader in semiconductor growth worldwide — will remain largely unaffected, as there is still "quite a big gap" between the two countries, Koh said.

He also acknowledged the "possibility" that electronics manufacturing services providers in Southeast Asia may move some of the manufacturing facilities to India, but noted that OEM (original equipment manufacturer) investments moving out of the region are not significant right now.

In recent years, electronics manufacturing services providers have set up plants in India, and equipment manufacturers such as Samsung and Nokia are also establishing their mobile-phone manufacturing plants in India, he noted.

Ganesh Ramamoorthy, Gartner's principal research analyst based in Mumbai, India, said that rising salaries and disposable income levels are driving up India's consumption of hi-tech products, such as PMPs, DVD players and notebooks. India's current semiconductor consumption is estimated at about $2.7bn (£1.4bn).

To cater to the rapidly growing domestic market, OEMs including Nokia and Motorola are building manufacturing plants in India, Ramamoorthy said.

He added that the initial focus will be to cater to the local market for up to three years, with a strong possibility of ramping up production to cater to export markets in neighbouring countries such as United Arab Emirates, Sri Lanka, Pakistan and Bangladesh by as early as 2008.

Exports to these countries currently account for less than five percent of India's total production, but that is likely to change, according to Gartner.

Ramamoorthy said that by 2011, between 10 percent and 20 percent of mobile-phone production, for example, could be for export. For instance, if 100 million phones are going to be produced in India by then, 20 percent will be for the export market.

India's equipment production in 2006 amounted to about US$14bn (£7bn), and is expected to increase to US$30bn (£15bn) by 2011, said Gartner.