HCL inching close to chip unit in Karnataka, investment estimated at $400 million

The HCL Group is moving closer to setting up an Outsourced Semiconductor Assembly and Test (OSAT) facility — also termed as a chip packaging unit — in Karnataka, multiple people aware of the developments told ET.

The facility will be "small-to-medium sized" with an estimated investment of about $400 million, they added. The group — best known for its $12.6 billion IT arm HCLTech — is in active talks with the state government, which has offered land both near the international airport in Bengaluru as well as in Mysuru.

‘State Open to More Talks on Sops’

Officials in the know said Mysuru would be ideal for fab manufacturing and for an OSAT in view of availability of water in the riparian district.

The state government has also worked out an incentive structure for the facility, which will mark a return to technology hardware for the HCL Group, considered one of the pioneers of IT manufacturing in India.

"The government is open to more discussions on incentives also if the investor wants some tweaks," said one of the officials cited above.

If the discussions prove successful, HCL will join the ranks of Micron, Tata Group, Murugappa Group and Kaynes Technology, which have all recently entered the chip OSAT and ATMP space.

“HCL Group receives and evaluates investment opportunities from time to time. We report these at the appropriate time based on meaningful progress," an HCL Group spokesperson said in response to ET's queries.

In July, ET had reported that the HCL Group was preparing a $300 million proposal to set up a chip assembly unit. The group has been harbouring ambitions of getting into the semiconductor space for a while now.

Earlier, it was eyeing a stake in semiconductor wafer fab applicant ISMC Analog — a consortium of Mumbai-based Next Orbit Ventures and Israeli tech firm Tower Semiconductor. HCL had signed a term sheet to invest in the consortium, which was among the three applicants vying for subsidies under the Centre’s Rs 76,000-crore Semicon India programme. However, those talks eventually fell through.

Neil Shah, vice president of Counterpoint Research, said it was a good strategy for HCL Group to build and expand its semiconductor ambitions, noting that its IT services arm HCLTech had acquired Sankalp Semiconductor in 2019 and was well-versed with the chip ecosystem.

Sankalp is a semiconductor design service partner of top chip manufacturers, design foundries and OEMs across the globe.

"From a strategy perspective, they are into design and have a strong software background through their subsidiaries so it is a natural extension for them to get more integrated with the semiconductor ecosystem through packaging because they see a big opportunity," according to Shah.

Establishing an OSAT unit in Karnataka makes sense for the HCL Group as it already has engineers in the state where Sankalp Semiconductors is also located. “It makes sense to build around where their talent pool exists,” he added.

Central Sops
Industry watchers are of the view that while the HCL group is keen to get the OSAT project off-the-ground, it would most likely continue to look for a technical partner in order to apply for standard operating procedures (SOPs) under the country’s $10-billion semiconductor incentive programme.

Under this scheme, the central and state governments offer subsidies, covering as much as 75% of the capital expenditure incurred by firms setting up semiconductor facilities in India.

To be sure, the project is being led by HCL Group at the corporate level and not HCLTech.

HCL enjoys a solid presence in the semiconductor space, where it provides lithography, etching, Ion implant, assembly, and packaging, along with testing services globally.

As per the HCLTech website, the company has partnerships with six out of the top 10 semiconductor OEMs and over 2,000 highly trained engineers in the semiconductor ecosystem (OEM, fab, and OSAT).

The central government has been steadfast with its mission to make India the destination of choice for the semiconductor ecosystem. It had announced the Semicon India Programme under the India Semiconductor Mission (ISM) in December 2021 to develop the semiconductors and display manufacturing ecosystem with an outlay of Rs 76,000 crore