Tata group to manufacture semiconductors in India

The Tata group, under the leadership of N Chandrasekharan, has never shied away from its grand plans of making semiconductors in India. Now, semiconductors or chips are the memory and intelligence that is stored in small circuits and form the algorithm for most electronic items ranging from computers to laptops, mobile phones to tablets and from white goods to automobiles. In a recent interview with the Tokyo based Nikkei Asia, Chandrasekharan has underlined that the group would start manufacturing semiconductors in India over the next few years, although an exact time line was not made available.

The idea is that, to leverage on domestic expertise, low labour costs and a massive captive market, the Tata Group will start manufacturing semiconductors in India over the next few years. The idea is to establish India in a sweet spot in the global semiconductor supply chain. In the last couple of years scores of companies faced major chip shipment problems as demand far outstripped supply. Tata Motors being in the auto business was among the global companies to face the brunt of this shortage. Tatas has already decided that it was time for the group to make a strategic foray into the semiconductors space.

Even as of date, most of the post COVID demand is yet to be met with adequate supply. Fabricating chips is a complex business and requires a high level of meticulousness and billions of dollars in investment to make it happen. Tatas want to make the group a key part of global chip supply chains. This will be in sync with its grand plans in the area of electrical vehicles. The entire chip business will be conducted under the aegis of a company called Tata Electronics and even the semiconductor assembly testing business will come up under the Tata Electronics umbrella. While the group has been cagey about details, Chandra underlined that they were open to going it alone or in partnerships with others.

According to preliminary estimates, the overall market opportunity of high-tech and high-end manufacturing of electronics is currently pegged at $1 trillion. That is too lucrative and salivating a business for the Tata group to let go. The eventual idea for the group would be to set up an upstream chip fabrication platform on the likes of what global chip giants like Taiwan Semiconductor Manufacturing Company (TSMC) are currently doing. However, that is more of a long range plan as it will need a high level of technology and manpower preparedness as well as billion of dollars of investment. But that is where the cream of the entire chip business is located and Tatas would not want to miss out on that.

The upstream semiconductor manufacturing process plant is generally called wafer fabrication plant, or in short it is just called a fab. It is extremely challenging technologically and also financially. In comparison, downstream processes like assembly and testing are less technology intensive and also less capital intensive. However, it is in fabs that the real margins exist, if the group wants to capture the cream of the business. The Tata group has plans to invest a total sum of $90 billion in such new age businesses which can propel the group to new heights and drastically modify the profile of its business portfolio.

Even earlier, N Chandrasekaran had explained in detail that alterations to the global supply chains for electronics were inevitable in the post-COVID scenario. Currently, the global electronics supply chain is overtly dependent on China. However, with the supply chain disruptions caused by the pandemic, most global businesses are not taking chances and are looking to broaden the supplier base. India and Vietnam are emerging as potential places to create such an alternate supply chain for the global electronics industry. It is into this supply chain that the Tatas propose to intersperse their business with the proposed chip factory.

In the last few years since Chandra took over at the helm of Tata Sons, the group has bene quick to pivot to new-age businesses. It acquired Tejas Networks for a larger share of 5G compatible telecom equipment manufacturing. Also, its super app is considered to be another big grand plan to bring all its franchises digitally under one banner. After all, the chip plans are not just about the opportunity size. It is also about rethinking the business model of the Tata group and preparing the group for the next 40 years.