India strives to make a mark in chip assembly and packaging

Taiwanese chip giant Foxconn and Indian tech major HCL Group have recently announced they will jointly set up an outsourced semiconductor assembly and testing (OSAT) unit in the country. Foxconn will invest $37.2 million to acquire a 40% stake in the venture.

Foxconn had earlier formed a joint venture with Vedanta Group to set up a chip unit in the country, but it was subsequently suspended. 

India has been trying to attract a chip manufacturing company to set up a unit in the country. It introduced a $10 billion production-linked incentive (PLI) scheme in 2021 to enhance India's appeal to chip manufacturers.

While it hasn't been able to attract a semiconductor company to set up operations, the country seems to be making some progress in building its competence in the OSAT and assembly, test, mark and pack (ATMP) segments of the chipmaking sector.

These segments are eliciting a growing interest from Indian businesses because they demand lower investments and offer faster return on investments. OSAT and ATMP are specialized fields and establishing these units will not only develop skills and expertise in India but also help the country integrate in the global chipmaking supply chain. 

Last year saw several announcements related to OSAT and ATMP units. Micron unveiled an investment of $825 million in setting up an ATMP unit in Sanand, Gujarat. It is likely to create 5,000 direct and 15,000 indirect jobs over the next five years.

Another notable investment was by Tata Electronics, part of the Tata Group, which will spend INR400 billion ($4.81 billion) to set up an OSAT unit in Assam. Sahasra Electronics, meanwhile, announced that it would be investing INR3.5 billion ($42.11 million) over three years to build a chip packaging unit.

Several prominent chip makers have also outsourced chip design to India, a field where the country has strong capabilities. All this strengthens India's position in the semiconductor ecosystem and may help it realize its ambition to set up a fab unit in the country.

The geopolitical shift 

According to IDC, the OSAT market grew by 5.1% and was worth $44.5 billion in 2022. It is currently a segment dominated by Taiwan and China. However, there has been a shift from China to Southeast Asia in recent months.

"In terms of semiconductor assembly and test, given the influence of geopolitics, technological development and talents, leading integrated device manufacturers (IDM) in the United States and Europe have begun to invest more in the Southeast Asia market, and OSAT companies have begun to shift their attention from China to Southeast Asia," says IDC's recent press release. 

The changing geopolitical scenario clearly presents an opportunity for Indian players. However, India has only just started to make its presence felt in chip test, assembly and packaging industry; it will be a few years before it is able to really make a mark in this segment. 

However, they face several challenges, including tight margins in this segment. The absence of a foundry in India can also potentially lead to higher operational expenses for the companies. Because of the small margins, OSAT and ATMP units demand scale and this typically takes time.