Tower Semiconductor proposes $8 billion fab in India

Israel’s Tower Semiconductor has proposed to establish an $8 billion fabrication facility in India to produce 65 nanometer and 40 nanometer chips, according to The Indian Express.

The Indian government is assessing the proposal, and if approved under the country’s $10 billion chip manufacturing scheme, the government will contribute 50% of the cost.

This comes amid ongoing efforts by the Indian government to boost local semiconductor manufacturing, and announcements from companies such as Micron to set up OSAT plants.

However, despite significant promises, the crucial achievement of establishing a fabrication unit remains unrealized.

A big boost to chip manufacturing in India

Should the government approve Tower’s proposal, it would mark the entrance of a semiconductor firm with genuine fabrication expertise into India’s manufacturing initiative. This development would significantly enhance New Delhi’s aspirations in semiconductor production.

Along with Micron, Tower Semiconductor remains the only major global semiconductor company that has shown substantial interest in manufacturing in India. Other Indian companies that have set up OSAT have had to join hands with overseas partners.

Kaynes SemiCon recently partnered with Taiwan’s Aptos Technology for semiconductor packaging and testing training and technology licensing. In parallel, CG Power and Industrial Solutions launched a joint venture with Renesas Electronics America and Stars Microelectronics (Thailand). In January, Foxconn and HCL announced a collaboration plan to establish an OSAT facility in India.

“The arrival of Tower Semiconductor is particularly exciting, even more so than Micron’s announcement,” said Pareekh Jain, CEO of EIIRTrend & Pareekh Consulting. “While Micron’s investment focused on packaging, testing, and assembly, Tower’s proposal to establish a fabrication plant is a significant development. Fabrication facilities are more complex and serve as a strong testament to the global confidence in India’s capabilities.”

Tower’s repeated attempt

Tower Semiconductor’s proposal to establish a silicon chip fabrication plant represents a significant advancement in value addition within the semiconductor industry. Notably, Tower had previously expressed interest in setting up manufacturing operations in India nearly a decade ago but was unable to successfully enter the market at that time.

A more recent attempt with the chip consortium ISMC also failed to materialize.

“Tower has been interested in helping with opening commercial silicon fab in India at least since 2012,” said Arun Mampazhy, an independent analyst. “However, multiple efforts failed – the reasons varied as lack of coherent policy and process from the government, Indian partners that suffered financial issues and credibility, or both. We have yet to see the official details of the latest application. However, it is important that the government proactively facilitates it.” 

Although confidence in India from global players has noticeably grown over the past five years, the outcome of the current proposal also remains uncertain. This caution stems from past experiences where announced fabrication projects by companies such as Vedanta and Foxconn were prematurely terminated before any progress was made.

What will bring more chip makers to India?

News of Tower Semiconductor comes as governments worldwide continue to take steps to attract chip manufacturing. Reports suggest that the US is set to announce several billions in chip manufacturing in the coming weeks. However, analysts point out that India’s offering is no less attractive.  

“Our Research and Analysis (R&A) on India’s Semiconductor CAPEX linked subsidy program rates India’s semi-policy as amongst the most competitive and in the gamut of select few, including the US CHIPS Act and EU CHIPS Act in terms of execution,” said Danish Faruqui, CEO of Fab Economics – a US-based boutique semiconductor greenfield projects advisory firm.

However, the main attraction may be the global interest to avoid depending on one country or region alone for semiconductors. In the EMS segment, India is proving to be resourceful for the “China plus one” strategy, and this approach may work in chip-making, too.

“Achieving 100 percent self-sufficiency in such a vast and complex sector is practically impossible,” Mampazhy said. “What can happen, however, is that part of what China has been able to do can slowly shift out – in other words, China-plus-one can apply here also, though at a pace slower than what has happened to mobile assembly.”

There is also an interest in India’s engineering talent and the local market.

“The country’s growing market for semiconductor products, driven by a rising middle class and increasing tech adoption, presents revenue and market share opportunities for companies,” said Manish Rawat, semiconductor analyst at TechInsights. “Expansion also allows for strategic partnerships with local entities, fostering knowledge transfer and co-innovation.”

Still a long way to go

India offers several advantages, but analysts are quick to point out the challenges, too.

Thomas George, President of Cybermedia Group and CMR, said that success in India’s semiconductor sector hinges on broader-based policies supported by incentives across the entire supply chain.

In addition to manufacturing incentives, factors such as tax structures, import and re-export duties, and land, water, and infrastructure availability must align favorably.

“Building economies of scale and prioritizing skill development and labor costs are crucial for enhancing competitiveness,” said George. “Addressing these strategic elements will position India as a formidable player in the global semiconductor landscape.”