BUSINESS

CLUB

The 11th Edition of

INDIAN
CASE
CHALLENGE
2023
Sponsored by

PRE - CASE
 BUSINESS
CLUB

The Semiconductor Conundrum

“ The semiconductor industry is in crisis,

Supply chains are stretched thin and taut.
Demand for chips soaring high,
But production can't keep up, no matter how hard they try. ”

Introduction

The semiconductor business is critical in today's world, powering a vast range of products and
technologies that have become a part of our everyday lives. New technologies and products are often
launched in the highly competitive and fast-paced semiconductor business. The shortage of chips
produced by the semiconductor sector is hurting businesses all around the world. Demand growth,
supply chain snags, and production limits, all contribute to the gap between supply and demand.

The semiconductor shortage played out as a domino effect for many industries that were already
facing the brunt of COVID-19 and geopolitical rifts. The crisis cost the global automobile sector over
$210 billion and resulted in a staggering loss of approximately $6 billion for Apple. Even Sony's flagship
product, the PS5, experienced supply problems contributing to a shocking $20 billion drop in Sony’s
market value.

Exhibit 1 : Annual Change(%) in Price of Semiconductors

1
 BUSINESS
CLUB

The previous graph shows how the annual price change of semiconductors increased for the first
time in the past 25 years. Until 2022, every year had seen a significant YoY drop in semiconductor
prices.

COVID-19 disrupted the operations of every industry worldwide, with the semiconductor industry no
different. The crisis impacted almost all supply chains dependent on China, including the
semiconductor industry. After the lockdowns were lifted, the problem continued and even intensified
due to Taiwan (one of the world’s leading exporters of semiconductors) being trapped in the US-China
trade war.

The recent blocking of the Suez Canal exacerbated the unravelling of the fragile supply chain, and the
supply of chips was further delayed. The fact that shortages of a single nanometer-wide component
impacted such a diverse range of industries worldwide showcases the importance of semiconductors
and ensuring their consistent supply.

Recent reports indicate that India could become a major chip manufacturer. The country's extensive
and qualified workforce, burgeoning IT industry, and favourable business environment may attract
semiconductor manufacturers. China, Taiwan, and South Korea, who already have established
semiconductor firms, may compete with India's semiconductor industry. Despite this fierce
competition, the Indian government has supported the semiconductor industry's expansion.
Will India be able to excel in such a highly competitive market?

Industry Overview

Semiconductor devices such as transistors and integrated circuits are small electronic components
used to manufacture various electronic devices. They replaced vacuum tubes in computers in the 50s
and made computers smaller and more efficient. Since then, their demand has increased rapidly, with
semiconductor devices being used in every modern electronic device worldwide. Manufacturing these
devices is a complicated process with several companies involved in every step, the aggregate of
these forming the semiconductor industry.

The industry has snowballed from 50 billion dollars in 1990 to 555 billion dollars in 2021, averaging a
CAGR of around 8% in this period. The industry is poised to become a trillion-dollar industry by the end
of the decade, with an expected CAGR of 6-8%.

2
 BUSINESS
CLUB

Exhibit 2 : Growth of the Semiconductor Industry

Today, several industries rely on semiconductor devices, the major ones being wired and wireless
communication, consumer electronics, industrial electronics, automobiles, computing and data
storage devices. Globally, computers account for the bulk of semiconductor demand, estimated at
around 32%, followed by mobile phones and communication devices at 31%. Automobiles, consumer
electronics, and industrial equipment each account for approximately 11-12% of semiconductor
demand.

Future prospects for the industry include remote employment, the growth of artificial intelligence, and
a rise in the demand for electric vehicles. The automotive sector is anticipated to experience the
fastest growth, with demand perhaps tripling or quadrupling due to developments like autonomous
driving and e-mobility. A mere three industries are expected to fuel 70% of the entire growth within
the semiconductor industry, namely, automobiles, computing and data storage.

Exhibit 3 : Market Distribution of Semiconductor Usage

3
 BUSINESS
CLUB

The Semiconductor Supply Chain

The chip manufacturing process starts with research and development. Here, businesses invest
capital in designing cutting-edge chips and patent them as their intellectual property. The designs are
then sent to manufacturing plants or foundries and fabricated onto silicon wafers using intricate
processes. Then, these chips are assembled into packages that can be mounted onto a circuit board,
tested under various conditions, and packaged with the final product shipped off to customers.

Exhibit 4 : The semiconductor supply chain

4
 BUSINESS
CLUB

Equipment Requirements

Companies require expensive and complicated machinery to manufacture semiconductors. They can
broadly be classified into three categories: wafer fabrication, assembly, and test equipment. Wafer
fabrication equipment are specialised instruments that remove and deposit material on the wafer
until the circuit is made. Assembly equipment is used for packaging the wafers into finished IC
circuits, while test equipment checks the performance of devices under different conditions.

Fabless and Foundries

The supply chain's enormous complexity creates demand for different companies that operate in
different sections of the supply chain. Some of them are as follows:
❖ Fabless companies: They are companies that exclusively work in designing and developing
chips but do not manufacture them, i.e. they outsource manufacturing to other companies.
❖ Foundries: They manufacture chips designed by other companies in their fabrication plants. If
they have no design capabilities of their own, then they are known as pure-play foundries.
❖ IDMs: They are companies that are capable of designing as well as manufacturing chips.
❖ OSAT: They provide third-party assembly, testing and packaging services for semiconductor
chips. OSAT stands for Outsourced Semiconductor Assembly and Test.

Exhibit 5 : Breakdown of the Industry Players

5
 BUSINESS
CLUB

During the start of the semiconductor industry, most of the companies were IDMs, i.e. they designed
and manufactured their chips. This trend, however, started to change with advancements in
technology. The numbers back this up with the fabless foundry model that companies like MediaTek
employ seeing a higher revenue growth rate than traditional IDMs in the industry. MediaTek sales were
up 6x from 2011 to 2021 and overall fabless sales were up 2.7x, whereas the total IDM sales were up
just 1.6x over this same period.

Many IDMs are moving toward a so-called fab lite model, where they concentrate on chip design and
manufacture larger chips of an older design, especially between 65-90 nanometers, which still have a
strong demand in industries like automobiles, aerospace, defence, etc., due to the significant sunk
costs required for the fabrication of cutting-edge chips.

Why Does the Size of Semiconductors Matter?

Sliver silicon serves as the foundation of a semiconductor chip. It is engraved with billions of tiny
transistors and projected onto particular minerals and gases to create patterns that govern the
current flow while carrying out various computations. Nanometers are often used as a standard
criterion to measure chip sizes and characteristics.

Why Smaller Chips?

Although 14 and 10-nanometer chips are already being produced in large quantities, the industry is
still striving towards smaller transistor sizes. Because smaller components offer better performance
and lower power consumption, manufacturers continuously attempt to make smaller and smaller
semiconductors. More transistors can fit on a chip with a smaller semiconductor, which improves
performance and also enables computers to perform more tasks at a lower temperature. Based on
recent research, top firms have created 5 nm or 7 nm chips. Last year, IBM unveiled the world's first 2
nm semiconductor chip design, making it one of the most significant discoveries in the chip
fabrication sector. It used 2-nanometer (nm) nanosheet technology to create the first chip.

Moore’s Law and Obsolete Chip Sizes

In 1965, Gordon Moore, the co-founder of Fairchild Semiconductor and Intel, predicted that the
number of components in an Integrated Circuit(IC) would double every two years. Since then, the
prediction known as “Moore's law” has acted as a benchmark for chip designers and manufacturers
to follow, with larger chips becoming obsolete over time, approximately following Moore’s Law.
However, as the chips' sizes have decreased rapidly, manufacturing costs have increased.

6
 BUSINESS
CLUB

When Moore's law was stated, the estimated cost of setting up a foundry was about 1 million USD.
However, the technology required to make smaller chips got increasingly expensive, and the prices of
setting up fabs rapidly shot up. In 2000, the cost of setting up a state-of-the-art fab was around 2
billion USD which could produce 130nm chips. Today the price has increased even more, with TSMC
saying that their recent manufacturing plant, capable of manufacturing 3nm chips, could cost them
upwards of 20 billion USD.

The technology in bigger chips is slowly becoming obsolete, as miniaturisation in microchips is

becoming the business’s primary goal. With the increasing use of the Internet of things and Artificial
Intelligence in consumer electronic devices, the need for smaller chips with increased clock speed
and lower power consumption has also increased.

However, Moore's law of ever-increasing miniaturisation appears to have had a lesser impact on the
automobile sector. Numerous chips, like those used in electronic brake systems and airbag control
units, frequently rely on antiquated technology that is more than ten years old. These use relatively
simple transistors ranging in size from 45 to 90 nanometers, making them far too large and
rudimentary to be used in modern smartphones. Modern smartphone CPUs will feature transistors
between the sizes of 7 and 10 nm by the year 2022. Mobile devices, computers, automotive
electronics, the Internet of Things, and smart wearables are just a few of the many applications that
the 65nm technology offers. The 40-nanometer chips are used in smartphones, digital television,
set-top boxes, games, and other wireless connectivity applications. Even the larger 130-nanometer
technology sees broad applications in consumer electronics, computers, mobile computing,
automotive electronics, IoT and smart wearables.

Exhibit 6 : Total Global Manufacturing of Semiconductors v/s Size

7
 BUSINESS
CLUB

Capital Costs and Chip Size

Setting up fab plants is by no means cheap or easy. The lithography tools required in a fab for 65 nm
technology would take the cost tally up to $2 billion. It is critical to analyze the background of what
the applicants are searching for to determine the cost of the lithography instrument required for the
process. More than 90nm processes typically require a 200mm wafer, and less than 90nm processes
usually require a 300mm wafer. However, there is a cost split within the 300mm wafer size. With 193
Argon Fluoride (ArF) Lasers, which will cost over $40 million per unit, up to 65nm or 55nm technology
can be created. If we get further lower, to 45nm, 28nm, and 16nm, a 93-nanometer immersion will be
required, costing around $100 million per piece.

Suppose a manufacturer wants to build a wafer capacity of 40,000 per month. They would require 15
to 20 lithography machines to conduct that level of manufacturing, which means that the machines
that are employed will have a significant impact on the entire cost. In the example taken, 15-20 of the
ArF lasers would cost $2 billion.

A fab's infrastructure can cost between $200 million and $300 million to put up, which is an additional
expense. Chips with smaller nodes are more expensive but generate significantly higher profit
margins. In addition, the businesses providing the lithographic tools to the fabrication units will
charge a technology transfer fee. The licensing fee for the 55nm–65nm range will be in the $300–400
million region, and as we get into the smaller range, the transfer cost rises to roughly $1 billion for the
28nm range and more if we go farther down. The technology transfer fees for chips less than 10 nm
are incredibly high, and the technology is also available to significantly fewer companies. According
to Boston Consulting Group, a modern fab plant for small nodes (< 10 nm) can cost more than $15
billion, which is approximately equivalent to the price of a nuclear power station. Although the cost
can be reduced by refurbished equipment, the Government of India isn’t very supportive of this as
they fear India might become a dumping ground for old machines.

Exhibit 7 : Annual Manufacturing cost of 300-mm semiconductor wafer fabrication plants (%)

8
 BUSINESS
CLUB

Exhibit 8 : Chip Design cost(million $) v/s Chip Size(nm) Exhibit 9 : Fab module cost(billion $) v/s Chip Size(nm)

Exhibit 10 : Break-Even Analysis of leading-edge Fab producing 5nm chips

9
 BUSINESS
CLUB

Potential Demand for Indian Semiconductors

According to IESA, the Indian semiconductor market is anticipated to reach $64 billion by 2025.
Further, according to reports by ISMC, digital chips with a manufacturing process of 22 nm or less
would account for an enormous $40 billion, or more than 60%, of this market. With the impending
launch of 5G telecom services, the new use cases emerging from the auto industry as it transitions
from internal combustion engines to electric, the growth of Internet of Things and digitalisation in the
government and corporate sector, the demand for lower node chips is expected to skyrocket all
across the globe.

Exhibit 11 : Demand breakup of chip sizes

Exhibit 12: Foundry market (based on size) growth over the years

10
 BUSINESS
CLUB

India: The Next Semiconductor Hub

Amidst the backdrop of the Covid-19 pandemic and the Taiwan-China tensions, the issues
surrounding the semiconductor supply chain don’t appear to be resolved anytime soon. The world
heavily depends on a select few countries for its semiconductor supply. The semiconductor industry,
being geographically dependent, is concentrated around Taiwan, South Korea, the Netherlands, and
China, followed by the US and Japan. Countries have realised that a stable global supply chain is
essential. Herein lies a golden opportunity for India. It has a large base of skilled engineers, a
well-educated cheap labour force, a vast domestic market and an enormous base of natural
resources. India's chip design ability is now world-class, with most big fabless companies and IDMs
recruiting large numbers of Indian engineers. But India still lacks the latest facilities and technologies
required for fab and post-fab work.

Exhibit 13 : Distribution of Semiconductor Companies across geographies

11
 BUSINESS
CLUB

Semiconductors in India

Many companies have tried to build a semiconductor ecosystem in India. At the beginning of the
silicon revolution, Fairchild Semiconductors wanted to make a fab in India. They eventually set it up
in Malaysia because of bureaucratic delays in India. Later, after the 1962 war, Bharat Electronics set
up a fab in India. Their transistors were initially in high demand but later it failed to match the global
prices and lost the market to Chinese and Taiwanese companies. Other companies also tried to
venture into this market but eventually shut down due to either lack of support from the government
or fierce competition from global companies.

India has the upper hand in chip designing, and several notable global companies like MediaTek have
an extensive R&D presence in India, with MediaTek having Research and Development centers in
both Bangalore and Delhi. Despite this, India still lacks the capital investment, infrastructure and
adequate technology needed for manufacturing. Moreover, semiconductor manufacturers would
need millions of gallons of ultra-pure water and an uninterrupted power supply daily. Countries like
China provide easy access to all these resources and are hence preferred by international companies
to set up their manufacturing units.

However, amidst the current global scenario and renewed government interest, the wheels are in
motion for all this to change. Currently, the Indian semiconductor market is expected to grow at a
CAGR of 19.7%, and Indian semiconductor consumption is expected to grow by 19% per annum.
Recently Vedanta and Foxconn have invested in setting up a chip manufacturing plant in Gujarat. It is
expected to start production in 2 years. ISMC is setting up a plant in Karnataka, while IGSS Ventures
is setting up one in Tamil Nadu. Tata Group has also decided to look into starting a manufacturing
plant in India.

Currently, the Indian semiconductor manufacturing industry is still in its infancy. With companies only
perceiving chip design in India as profitable, there is still no central fabrication plant in India.

Semiconductor Demand in India

The mobile and wearables sector is the largest consumer, followed by the IT and the industrial
sector, where semiconductors are used in transistors, LED displays, solar cells and much more.
Studies predict that India will soon be the second-largest market for semiconductors in the world.
Only about 9% of our semiconductor requirements are met locally. The rest is imported from
countries like Taiwan and the United States. If our semiconductor needs are met locally, it will create
jobs and add profits contributing to economic development.

12
 BUSINESS
CLUB

Exhibit 14 : Breakdown of the Semiconductor Market in India

Government Incentives

The Indian government has announced programmes for developing the semiconductor ecosystem in
India. They have launched lucrative schemes and incentives to attract international investments for
setting up manufacturing plants within the country.

One such initiative is a scheme to promote the Manufacturing of Electronic Components and
Semiconductors (SPECS). The Semicon India programme aims to provide attractive incentives and
support the companies engaged in Silicon Semiconductor Fabs, Display Fabs, Compound
Semiconductors / Silicon Photonics / Sensors (including MEMS) Fabs, Semiconductor Packaging
(ATMP / OSAT) and Semiconductor Design. The government is providing financial incentives in the
form of a 50% subsidy for semiconductor fabrication fabs across technological nodes, compound
semiconductors, packaging, and other chip facilities. They also unveiled the ‘Program for
Development of Semiconductors and Display Manufacturing Ecosystem in India. They are also
ensuring that companies do not get caught up in red tape.

The aim is to develop an overall semiconductor ecosystem in India.

Water and Power Supply Issues

India has to ensure that the chip manufacturing plants have access to an undisrupted power supply.
Even seconds of fluctuations can lead to heavy losses for a company.

13
 BUSINESS
CLUB

Exhibit 14 : UPW Revenue(%) by end user Industry

Additionally, chip manufacturing requires large amounts of Ultra Pure water(UPW) daily. Currently,
India has very few companies which manufacture UPW, whose production is only sufficient to meet
the needs of the pharmaceutical industry and solar power plants. Globally, the UPW market is
fragmented, with most players having only a marginal share. So a fab in India may have to set up its
own UPW plant. Evocus, Thermax, Membrane Group India Pvt. Ltd. and Asahi Kasei corporation are
the top UPW producers in India. Our UPW market is expected to grow at a CAGR of 8.88%. Veolia,
Evoqua and 3M are some of the significant companies operating in this sector. North America
dominates the market because the demands for UPW have grown due to the rise in aerospace
applications.

Tata and other companies planning to set up their foundries in India may have to consider arranging
for a source of UPW and recycling and reusing water efficiently or acquiring or partnering with an
existing UPW supplier in the region. Gujarat, Tamil Nadu and Uttar Pradesh are feasible for
semiconductor manufacturing due to their proximity to electronics and automobile manufacturing
hubs.

The Tata Group

The Tata Group is an Indian multinational conglomerate headquartered in Mumbai. Established in

1868, it is India's largest conglomerate, with a presence in over 150 countries. It has won the trust of
millions of Indians with its reliable products and services for over a century.

14
 BUSINESS
CLUB

Tata is inextricably linked to India. It built India's first steel plant, hydropower facility, and inorganic
chemistry plant and founded the IISc to train scientists and engineers. It helped India industrialise
after British rule. Tata Group has 96 operating firms in seven sectors: Information Technology And
communication, engineering, materials, services, energy, consumer products, and chemicals.
Automobile, airline, chemical, consultancy, defence, FMCG, Electronics, Electric Utility, Finance,
Jewelry, Home appliances, hospitality, Retail, E-commerce, real estate, salt, steel, cement, tea, and
telecom are among its product categories.

Preparing for an Uncertain Semiconductor Future: Acquisition of Saankhya Labs

The Tata group had to bear heavy losses after a disruption in their semiconductor supply chain in
2020. Due to the chip shortage, there is a waiting period ranging from 2 to over 15 months for different
models of electric vehicles.

Keeping this in mind, Tata may have taken it upon itself to integrate its supply chain backwards. Tata’s
subsidiary, Tejas Networks, recently purchased a majority stake in Saankhya Labs, a wireless
communication solutions company. It provides communication solutions and has come up with
next-gen communication solutions for 5G, broadband, satellite and broadcast applications, including
5G NR, 5G broadcast, satellite communication modems for IoT applications and multi-standard DTV
modulators and demodulators, amongst many of its other offerings, which align with what Tata
Electricals offers. Most essential, and perhaps the main reason for its acquisition, is that it has a
chip-designing division. Currently, it creates communication chips with dimensions greater than 28
nm. However, this capability might be switched to making chips that serve Tata's larger IDM
aspirations.

Saankhya Labs had always shown promise with their innovations and secured investors like Intel and
GM. It was the leading Indian startup in this industry, with the promoters having more than 30 years of
experience in the communications and chip business. This acquisition was valued at $54 million. With
the purchase of Saankhya Labs, one of India's top fabless firms, it doesn't seem far-fetched that Tata
might be considering setting up a fab in India. It has signed an MoU with the Government of Tamil
Nadu to set up an Outsourced Semiconductor Assembly and Test (OSAT). These actions may indicate
plans for Tata to set up a semiconductor manufacturing facility in India.

15
 BUSINESS
CLUB

Tata's Own Semiconductor Needs

With a company having a portfolio as diverse as Tata, why would it look to enter a new industry?
Semiconductor chips are essential to most modern industries Tata has forayed into, like electric cars,
electronics, defence, and communications. A few of its subsidiaries which require a steady supply of
chips are as follows:

❖ Tata Motors - The electric vehicle industry is set for rapid expansion in India following the
Russia-Ukraine tensions and the subsequent hiking of fuel prices. With Tesla withholding entry
into the Indian market, Tata has set its eyes on dominating the EV segment. An EV roughly
requires more than 3000 chips of varying sizes. This figure is expected to increase as
autonomous driving becomes more prevalent, particularly in the <10 nm range. In a market the
size of India, Tata would need a timely supply of an enormous amount of chips, otherwise, it
may fall back against competitors who have better access to chips. Tata Motors currently
needs semiconductor chips ranging from 14 nm to over 150 nm.

In FY 2023, Tata Motors is expected to sell 40,000 EVs, and with each EV requiring around
3000 assorted chips, it takes the demand of just Tata motors to 120 million chips. And to fulfil
Tata Motors' vision, which is to dominate the EV space in India and phase out the Traditional
Petrol vehicles, the requirement for chips will be orders of magnitude larger than this.
Wafer demand (million)

Exhibit 15 : Breakup of Annual demand for various wafer sizes in automotives(in million)

16
 BUSINESS
CLUB

❖ Tata Elxsi - It serves as the Tata’s centre of innovation. This firm ventures into research in AI,
robotics, healthcare, and automotive sectors and also provides solutions for autonomous
driving, broadcast, and other technical solutions. Future autonomous driving systems will need
an enormous number of cutting-edge processors (7nm), which are much more efficient
computationally and in terms of power management. Tata also gets a large chunk of its
semiconductor supply from Renesas, a joint venture between Mitsubishi and Hitachi. This
includes some of the requirements of Tata Motors and Tata Elxsi, which are the majority
consumers of chips in the conglomerate.

❖ Tata Communications - A “Digital Ecosystem Enabler” provides services like cloud, IoT,
security, network, carrier, and VPN services. It requires larger chips(>28nm) for its carrier and
voice services spread across India.

❖ Voltas - It sells electronics like ACs, washing machines and dishwashers, requiring larger chips
(>28nm).

Raw Materials and Leveraging Tata’s Existing Operational Capabilities

Several raw materials are required to manufacture semiconductor chips, including silicon,
germanium, and gallium arsenide. In the form of silicon wafers, silicon is the most often utilised
material in the production of semiconductor chips. A silicon wafer is a thin, circular slice of silicon
crystal-based material. It is also one of the primary raw materials utilised in India's solar power sector,
which includes a well-known Tata subsidiary: Tata Power Solar.

However, these silicon wafers must be thoroughly cleaned with ultra-pure water before usage (UPW).
UPW is prepared by removing all the impurities from distilled water. Even the dissolved gases are
taken out during preparation. India is surrounded by salt water, so finding fresh water to produce a
sizable amount of ultra-pure water will be a challenge for the industry when it enters the market.
However, since there are already a few companies under Tata that produce drinking water, such as
Tata Pure, Himalayan, and the recent acquisition of Bisleri, which also use sizable amounts of distilled
water to make packaged drinking water, setting up a UPW plant in India should be possible for the
company. In addition, there are several other existing operational capabilities like extraction of metals
that Tata subsidiaries, like Tata Steel, Tata Mining, etc can provide to aid in acquiring raw material for
the manufacturing of semiconductor chips. These capabilities are not limited to the manufacturing
steps, they even extend to the consumer base. Companies like Voltas and Tata Motors utilise huge
amounts of semiconductors and could potentially act as primary customers for Tata’s fab.

17
 BUSINESS
CLUB

Potential Competition and Strategic Partners

The Indian semiconductor sector has seen the entry of Chinese and other overseas fabless
processing and manufacturing firms. Many attempts have been made to build up India's
semiconductor manufacturing ecosystem, including conversations with top chip manufacturers AMD
and TSMC about establishing a fab in the nation. Here are a few other players in the Indian
semiconductor manufacturing business:

❖ Vedanta/Foxconn: Vedanta and Foxconn will invest USD 19.5 billion in Gujarat to build
semiconductor and display manufacturing plants. Rs 94,000 crore will go into setting up the
display manufacturing unit, while Rs 60,000 crore will be invested in the semiconductor
manufacturing facility. The semiconductor unit will operate on the 28nm technology nodes
with a wafer size of 300mm. It is planned to have the capacity to make 40,000 wafers per
month.

❖ Reliance: Reliance is also aiming to break into this market, it has invested $221 million with
Sanmina, a US electronics manufacturer, to form a joint venture. This joint venture will attempt
to establish a "world-class" electronic manufacturing powerhouse in India. It will focus on
high-tech infrastructure gear for emerging markets and industries such as communications
networking (5G, cloud infrastructure, and hyper-scale data centres), medical and healthcare
systems, industrial and cleantech, and defence and aerospace.

❖ Intel: Chip giant Intel is believed to have spent approximately $5 billion in India. Intel invested
$150 million in its latest research and development centre in Bengaluru. It also has a research
and development centre in Hyderabad. In the next five years, the company aims to make
additional investments in India, which would also create jobs. Tower Semiconductor, an Israeli
chipmaker that was recently acquired by Intel for $5.4 billion, is in active talks with the
government about establishing a manufacturing site in India.

Aside from these, many startups are planning to operate in this industry in India. Some notable ones
include Cirel Systems, ASM Technologies, CDIL and Chipologic Technologies.

18
 BUSINESS
CLUB

Conclusion

Following the acquisition of Saankhya Labs, the Tata Group maybe looking to enter the semiconductor
foundry business in India. However, entering an industry as dynamic and capital-intensive as
semiconductor production presents its own set of problems. Tata has consistently demonstrated that
there are few industries it cannot conquer, as evidenced by its huge network of subsidiaries and
product lines. Whatever the technology or node, the entry of a reputable and large conglomerate like
Tata into semiconductors is a positive indicator for the future of the Indian ecosystem. We must wait
and see if Tata will be able to cater to the ever-expanding Indian electronics market and establish India
as a new hub for semiconductor technology or will moving into the industry cost the enterprise dearly.

Questions

1) Tata can employ various plausible business models, including functioning as a semiconductor
manufacturing hub exclusively for its subsidiaries, giving them a significant competitive
advantage in their respective industries, or positioning itself as a major semiconductor supplier
for the Indian and international markets. Venturing into complex operations of such scale would
also raise the question of whether to brave it out on their own, or consider a potential strategic
partnership or acquisition, given that there are multiple companies specialising in various
segments of the semiconductor supply chain.

Keeping in mind these variables, construct a business plan for Tata’s foray into semiconductors
and provide a detailed roadmap highlighting an overall strategic direction for Tata’s future in the
semiconductor industry.

2) Considering the business model Tata chose within the realm of semiconductor manufacturing,
they can venture into manufacturing only a limited range of chip sizes. The various chip sizes
cater to differing applications, each bringing about its complications concerning the following:
a) Moore’s Law portrays the dynamic nature of the industry and the threat of larger chip
sizes becoming obsolete soon.
b) Smaller chip sizes are useful in higher-value industries and command greater premiums.
However, they are significantly more capital-intensive and have much higher technological
requisites than their larger counterparts.
c) Specific chip sizes are crucial in servicing Tata’s in-house semiconductor demand.

19
 BUSINESS
CLUB

Select an appropriate chip size range for manufacturing based on the following analyses:
a) An analysis of the financial feasibility of the chip range to be produced in terms of a
cost-benefit analysis or any other appropriate structure, keeping in mind capital costs,
manufacturing costs, demand characteristics (in-house and external), government
incentives offered on various chip sizes and any other relevant factors.
b) Analyse the operational feasibility of producing the desired chip range, keeping in mind
considerations such as raw material availability and technological requirements. Hence,
select an appropriate manufacturing location for Tata.
c) Any other analyses deemed relevant for selecting an appropriate chip range.

3) The availability of raw materials like UPW and silicon is a significant bottleneck for
semiconductor manufacturers. Having determined an appropriate chip range, Tata needs an
appropriate strategy to source raw materials required for semiconductor manufacturing, be it
through a strategic acquisition/partnership, leveraging their existing production capabilities or
anything else. Clarify the evaluation criteria for selecting this sourcing strategy among the
available options, and based on that, elaborate on the selected sourcing strategy.

20
 BUSINESS
CLUB

Rating Criteria and Qualification Requirements

For the final round, the teams will be evaluated on the basis of the following criteria:

❖ Quality of Analysis
❖ Creativity
❖ Feasibility of the Solution
❖ The overall Presentation of the Case

Note
❖ Teams must submit their presentation by 11:59 PM, 2nd Jan, 2023.
❖ Submission should be in PPT format (Max 20 slides excluding the introduction and final slide)
with a PDF copy of the same presentation.
❖ The solutions should be mailed to iccsubmission2023@gmail.com with attachments as <team
name>.pptx and <team name>.pdf
❖ Relevant information can be added for the analysis from the web or other suitable resources.
❖ Any form of plagiarism will be heavily penalized.
❖ Inclusion of an executive summary slide is mandatory.

Copyright Notice
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise,
without the prior written permission of Business Club, IIT Kharagpur.

This case is the intellectual property of Business Club, IIT Kharagpur.

For further information, visit our website at https://icc.bclub.co.in/ or contact us at our FB page
https://www.facebook.com/bclubkgp.

For any further queries, feel free to call or Whatsapp:

1. Dev Gupta - 9330782270
2. Abhinav Jain - 7973706150

21
 BUSINESS
CLUB

References

● Semiconductor Industry Analysis

● Chip Industry Future
● China Taiwan Conflict affecting the industry
● Chip manufacturing process
● Tata's interest in semiconductor market in India
● Investment in India for the growing industry
● India as next semiconductor hub
● Problems faced by India
● Major Players in semiconductor chip manufacturing
● Semiconductor Startups in India
● Chip shortage for automobile sector
● Waste management in semiconductors
● Labour Costs in semiconductor
● Cost of setting up a fab
● Moore's Law
● Crisis easing down

22