India faces hurdles in winning chip factory investments

A decision by Intel to build a $2.5 billion chip factory in China represents a key loss for India, which won’t likely see any chip factory projects from major companies this year due to its poor infrastructure, a Gartner analyst said in a report Sunday.

India had offered to finance up to a quarter of the cost of the project for Intel, but still lost the deal, said Ganesh, an analyst for Gartner.

“Intel’s decision to move to China was driven mainly by China’s superior infrastructure facilities, compared with those in India, and Intel’s need to be closer to its customers in China and Japan, even though China’s supply of semiconductor talent is considered to be weaker than India’s,” said Ramamoorthy, in the report.

With the world’s second largest population, India is battling to gain a foothold in manufacturing, which China dominates. In the semiconductor business, factory investments represent multi-billion dollar projects and thousands of technical jobs. Although there is no shortage of labor talent in the nation, chip production has not caught on as investors remain focused on the Pacific Rim.

The main investments in new chip production lines last year were in Japan, the U.S., Taiwan, and South Korea, according to figures published by Semiconductor Equipment and Materials International, an industry trade group. Spending in China grew faster than any other area, up 74 percent to $2.3 billion, but the overall figure is still dwarfed by Japan, at $9.2 billion, and the other three leaders, which each saw over $7 billion in spending.

India, which is best known for its research and development prowess and focus on outsourced services, has been trying to attract chip factory investments to build up its manufacturing talent. Last month, the government passed a series of investment incentives aimed at attracting new chip factories, which would reportedly finance up to 35 percent of an entire project, a huge sum of money.

The country is also growing as a market for electronics devices, an argument China has used to attract investments. The number of mobile phone users in India has grown at a steady pace of over 6 million new subscribers in each of the past several months, a figure rivaled only by China. India also boasts universities which produce about 133,000 new engineers each year, according to a study published by the India Semiconductor Association and Ernst & Young.

Plentiful engineering talent has helped the country emerge as a place for chip R&D investment, but it hasn’t helped India gain any chip factory investments.

The country’s infrastructure and logistics outweigh all other issues, Gartner said. The new investments in China and projects such as an Intel initiative to invest $45 million to establish a semiconductor training site at a local university near its Dalian factory site will help China narrow its engineering gap with India, Ramamoorthy said. The Indian government needs to take more proactive measures on its infrastructure if it hopes to win chip factory projects over the next few years.