NRIs plan JV to invest $4.5 bn in chip-making

NEW DELHI: With the government having finally cleared a package of concessions for the semi-conductor industry, a group of Silicon Valley NRIs are planning to set up a joint venture in India to invest $4.5 billion in semiconductor manufacturing. The group will float a SPV under the name of Hindustan Semiconductor Manufacturing Corporation (HSMC) India and tie up with a global major –– one of the top 5 multinationals in this segment –– to set up two fab units. Samsung, Freescale Motorola, Intel, Infenion, ST Microelectronics and Toshiba are among the global leaders shortlisted for the JV which is likely to be announced within three weeks.

This will be the second major investment coming flowing into the semiconductor sector, after SemIndia’s $3 billion investment plan. SemIndia is in the process of developing its ‘assembly, test, mark and pack’ (ATMP) facility in Hyderabad to manufacture its first chip by 2008. It has signed a MoU with AMD for transfer of technology, besides a pact with Flextronics for equity participation in its proposed fabrication facility.

The location for the two semiconductor fabrication units that HSMC group plans to set up is yet to be decided. The group is, however, in talks with the state governments’ of Karnataka, Andhra Pradesh and Chennai. The first fab will require an investment of $1billion and will manufacture 8 inch chips while the second fab will require and investment of $3.5 billion for the more advanced12 inch chips. The fab units will be set up side by side. The group has fully planned the structure that includes investments for power and water facilities.

HSMC will manufacture chips for mobile phones, ID cards and automotives. The foreign partner for the joint venture will be a supplier of chips used in all three categories. In the JV, the foreign partner will have an equity stake of less than 50%. It will also have a buy-back arrangement and will be a strategic technology and development partner. Even as HSMC India will have its main corporate office in India, it also plans to set up marketing branches in the United States and Europe.