India's entry into chip equipment manufacturing a masterstroke, says Fab Economics CEO

India might be late in bringing semiconductor manufacturing and packaging plants to its shores, but it isn’t simply copying what some other nations, such as China, did three decades ago. Instead, along with semiconductor foundries and testing and packaging plants, India is aiming to bring semiconductor wafer fab equipment (WFE) manufacturing in-house, which is currently restricted to a select few nations. Danish Faruqui, CEO of Fab Economics, a US-based boutique semiconductor Fab/ATMP/OSAT Greenfield projects advisory, talks to Business Today about how semiconductor WFE manufacturing in India is a masterstroke based on the geopolitics of semiconductors.

Edited excerpts

What is the importance of semiconductor WFE manufacturing in India?

We see India’s proactive inclusion of semiconductor WFE manufacturing as part of India’s semiconductor decadal roadmap as not only existential for the domestic semiconductor ecosystem but a masterstroke by India based on global geopolitics and the geoeconomics of semiconductors. Minister Ashwani Vaishnaw just announced the inclusion of WEF manufacturing in the India Semiconductor Vision.

WFE is the most important success factor for building a fab and is also the largest component of fab capex. With the entire world reeling under the constrained supply of WFE, which has a delivery lead time of multiple years in some cases, it is indeed imperative to include semiconductor WFE manufacturing as part of the decadal semiconductor roadmap of India. 

On the other hand, India has played a masterstroke with the WFE announcement, leveraging the geopolitics and geoeconomics of semiconductors.

Many across the world have cited India’s foray into semiconductors as a copy of China's approach and described it as “China 30 years ago,” but with the recent announcement, India has taken a completely different approach than China and applied lessons from China’s cardinal mistake in setting up a domestic semiconductor ecosystem. 

China built its semiconductor chip manufacturing and packaging ecosystem as a strategic priority with the continuous pouring of multi-billion dollars every year for the past two decades, while it missed sizeable investments in domestic semiconductor WFE manufacturing as it mostly relied on the US, EU, and Korea for semiconductor manufacturing equipment to fuel its semiconductor chip manufacturing and packaging ecosystem. 

As US-Beijing tensions have escalated in the past few years, they have resulted in a series of targeted sanctions by the US to stranglehold and choke China’s semiconductor ecosystem by not only implementing targeted sanctions on advanced technology fabrication services access for China but also blocking the sale of WFE to China as well. China never planned for sanctions on WFE supply, and now that has emerged as a major choke point for its domestic semi-ecosystem growth.

India, on the other hand, is attempting to include domestic WFE manufacturing from the get-go, a marked difference from China’s semiconductor strategy. 

Can you elaborate on the geo-economics and how India benefits from it?

As per the US Department of Commerce, sanctions on both semiconductor WFE supply to China (dictated by process technology thresholds) and WFE domestic manufacturing in China by global WFE suppliers like AMAT, LAM, KLA, TEL, ASML, etc. are blocked under the Foreign Direct Product Rule. The US has blocked China from domestically producing semiconductor manufacturing equipment, either by its domestic companies or global WFE players, by choking off access to US-built components. 

However, from the TCO (total cost of ownership) of WFE manufacturing perspective, the geo-economics of manufacturing WFE in China are exceedingly favourable as compared to Western nations.

As per Fab Economics R&A, that difference in balance could be as high as 50% in favour of China compared to specific Western world regions. However, with the US sanctions in place, global WFE suppliers are precluded from leveraging such lucrative geoeconomics in China.

Per our Global Semiconductor Policy Council R&A, there is double-digit operating margin improvement potential by manufacturing WFE in China as compared to specific Western world regions when comprehending the government subsidy multi-variate structures across.

Now, with India’s recent announcement, the world and specifically the global WFE suppliers like AMAT, LAM, KLA, TEL, ASML, etc. have gotten an alternative to China for WFE manufacturing at a very similar geo-economic level, i.e., at a very lucrative TCO in India, which is a US-allied nation, and hence no sanctions under the Foreign Direct Product Rule (FDPR). With AMAT leading the way for bringing the WFE value chain to India, we expect every major WFE supplier to flock to India and utilise the new window opened up in India in the face of daunting geopolitics and geoeconomics.

What are your recommendations for India as it forays into WFE domestic manufacturing policy development and execution?

India is a very close alternative to China for a WFE manufacturing hub, but India must tailor the semiconductor policy of WFE domestic manufacturing based on the total cost of ownership structures of WFE greenfield projects, which are strikingly different from Fab/ATP greenfield projects, to which the current India Semiconductor Policy is tuned. Indian WFE manufacturing policy also needs to be informed of the Asia-Pacific subsidy competitive positioning for WFE and the corresponding fiscal support and local variable dynamics of specific western world regions considered to be strongholds of WFE manufacturing.

The Government of India is not leaving any stone unturned to attract global WFE players, and a tailored WFE policy would be crucial. All in all, India and the world will greatly benefit from India as an WFE manufacturing nation, which will not only boost economic competitiveness but also provide India with a complete trusted value chain and supply chain from Design-to-Fab-Assembly-Packaging-Test for legacy node semiconductors, which would be a unique alternative available for western stack countries like the US and EU, which cannot competitively operate legacy semiconductor value chains due to very different domestic site-level economics but are in dire need of delivering a China + 1 strategy for various end markets like automotive, IoT, and consumer electronics that rely on legacy chips.

Fab Economics believes in an area with a high-value proposition. Over the last decade, we have seen the growth and acceptance of specialty foundry players who have innovated with architecture and materials for legacy node manufacturing, enhancing the TAM for legacy nodes. This is a strategic value opportunity for India that India can capitalise on in the current geopolitics and geoeconomics.