India is on course to become the hub of assembly-test-mark-pack (ATMP) facilities. While existing players are set to invest huge sums to expand their operations, new players are also showing interest in setting up ATMP units. ATMP facilities led the development of semiconductor ecosystem in countries like Taiwan and it could trigger the same effects in India as well.

Estimates suggest that global ATMP market serviced by third-party vendors is about $40 billion. It is set to clock 8% growth next year. “We cater to only less than 1% of this market. With countries like Taiwan and South Korea saddled with problems of wage inflation, China unable to provide IP protection, India could become the hub of ATMP work,” says SPEL Semiconductor CEO Sam Varghese. SPEL, considered to be the pioneer in the ATMP facility in India, has been operational for the last 12 years.

The company has a facility in Chennai and is looking at doubling its capacity. “At present, we have the capacity to assemble and test over 420 million ICs a year. By January, we will increase the capacity by 30% at an investment of $5 million. We are also planning to invest another $20 million by August next year to double the capacity,’’ says Varghese.

The $12.8-million firm is also looking at increasing its clientele. It has about 30 active clients and it provides turnkey solutions to them including sorting of wafers, testing, assembling and packaging. SPEL’s end customers include Sony, Samsung, Nokia and Motorola.

“After the capacity increase, our existing clientele will be able to provide us with 50% of the work and we expect the rest to come from new customers,” he said. Bangalore-based Tessolve services, another post-fab services firm is also planning to expand its facility. As part of this plan, the company is looking at acquiring about 35 acres near the proposed 1,200-acre fab city in Hyderabad for setting up its third production house at an investment of over $50 million.

The company has an ATMP facility in Bangalore and is in the process of setting up a second facility in Chennai. “Hyderabad will help enhance our customer base in the country as it will be close to a semiconductor ecosystem. Our Bangalore facility services about 18 clients,’’ said Tessolve Services CEO P Raja Manickam. The company’s 50-acre Chennai facility will be operational by August next year. sreekala.nair@timesgroup.comIt will invest around $50 million in the first phase. It will also invest $120 million in the facility by the end of 2009

The government’s fab policy, intended to encourage chip manufacturing in India, has not quite hit its target. While the government has received proposals worth $6.2 billion, none are for setting up chip manufacturing. In fact, SemIndia, which had announced plans to set up a $3-billion chip-making facility in Hyderabad, has not yet submitted its proposal.

“SemIndia has not approached us with any formal proposal,” said a senior official at the department of IT (DIT). An e-mail questionnaire sent by ET to SemIndia CEO Vinod Agarwal didn’t elicit any response.

DIT has so far received three proposals under the fab policy, including the first-ever LCD panel unit in India to be set up by Videocon at an investment of $1.8 billion. The other two are proposals for photo-voltaic cell manufacturing units by Moser Baer ($3.2 billion) and Titan Energy Systems ($1.2 billion). The department has also received 14 enquiries, of which 3-4 are for chip manufacturing.

Under the semiconductor policy, a company investing a minimum of $550 million for a fab unit and $220 million for other products like micro and nano-technology products would be eligible for government incentives upto 20% of the capital expenditure during the first 10 years, if the unit is located inside an SEZ, or 25% if located outside. The government plans to offer fiscal incentives to 2-3 semiconductor units and about 10 eco-system units under the policy.

In October, Mr Agarwal of SemIndia had said that the company would submit its proposal to avail the incentives within a month, while expressing disappointment with the policy guidelines stipulating companies to make the entire investment upfront, with the government picking up 20-25% equity in the project later. “It’s not a good guideline. Anticipating investments first and then, giving incentives doesn’t do much to build investor confidence,” he had said.

Mr Agarwal had also expressed concern over the lack of infrastructure and the slow process — the policy was announced in February this year and the guidelines were outlined in September.

Venture capital firm Sandalwood Partners and electronics manufacturing services major Flextronics are investors in the chip-making venture while AMD is the technology partner. SemIndia had started work on a $100-million assembly-test-mark-pack (ATMP) facility in Fab City in Hyderabad, which is expected to be ready by 2008- end.

The department of IT, however, remains optimistic about potential investments in chip-making units. “We have new enquiries from big industrial groups like the Tatas and Reliance Industries, among others, and expect that some of them would firm up their plans for setting up chip manufacturing units as well,” the official said

-Economic Times

Hyderabad-based SemIndia Systems Pvt. Ltd, a unit of a company with plans to make semiconductor chips, intends to start making next generation wireless routers and other home computer networking equipment by the first quarter of 2008 and follow it up with high volume production of low-cost direct-to-home and other television set top boxes two months later.The electronics manufacturing plans—the company already makes digital modems—come at a time that the company’s parent, SemIndia Inc., awaits the readying of a chip fabrication facility, which has been delayed since its announcement in 2005.

The manufacture of so-called WiMax customer premises and home networking equipment is aimed primarily at the domestic market. “We have (received) orders worth over $70 million (Rs275.8 crore) since April this year. We are leveraging the high-volume demand of broadband products in India,” said B.V. Naidu, managing director of SemIndia Systems.

The SemIndia group is an integrated semiconductor company comprising SemIndia Systems that focuses on end-user products, SemIndia Fab Ltd that will be engaged in chip fabrication and ATMP (short for assembly, testing, marking and packing) services, and SemIndia Fab City Ltd, which will set up the infrastructure and industrial park for the semiconductor manufacturing facility.

“While waiting for the chip assembly and testing facility to come up, we thought of creating a demand for (broadband) chips and chip vendors,” said Naidu. While the manufacturing partner has not been decided for these products, the firm is talking to four potential customers in India and two potential buyers overseas.

Since March, SemIndia Systems has manufactured 1.5 million units of what are called ‘ADSL2+’ modems, a device for broadband connectivity, with its electronics manufacturing partner Flextronics Inc. By expanding its broadband product portfolio, SemIndia aims to sell its ATMP services to broadband chip vendors, such as Broadcom Corp., Centillium Communications Inc., Conexant Systems Inc., and Infineon Technologies AG. The company hopes to touch revenues of $150 million this fiscal year.

Semindia is looking to set up a $100 million ATMP facility within the proposed $3 billion Fab City at Hyderabad. The construction of the ATMP facility is expected to be completed by August and it will take another four to five months to be functional.

While the Andhra Pradesh government was to initially pick up an equity stake of 11% in the Fab City project and SemIndia promoters and strategic investors the balance 89%, the ownership has since been flipped. The government now owns 89% and has offered 11% to SemIndia and its strategic investors.

The change was prompted by apprehensions that other chip makers keen on setting up projects at the Fab City may find it difficult to come in with SemIndia, the developer, said the chairman of Andhra Pradesh Industrial Infrastructure Corporation, B.P. Acharya. The 11% owned by SemIndia, said Acharya, “will come down further as and when further companies come in. If big players come in with over $1 billion investments, we will dilute our stake.” SemIndia chairman Vinod Agarwal earlier this year announced that three equity investors—Flextronics, Xalted Networks and Sandalwood Partners—had invested in the project, but declined details.

Sandalwood Partners managing partner Bob Kondamoori had then said that close to $30 million funds required as equity for the ATMP project were already committed by his firm and its associates and about $10 million, already invested.

Tessolve Services Pvt. Ltd, a provider of testing and other services to semiconductor companies, is also in contention for setting up a $200 million ATMP plant in Hyderabad’s Fab City. It announced the project last February