Fab City, Sem India, Semicon Policy.. What does it mean for Hyderabad ?

The hype and confusion still continue around the Fab City project of Hyderabad. Everyone was banking on the announcement of semiconductor policy in India which was finally revealed on thursday. Per the new policy, manufacturing plants in SEZS can avail 20% subsidy for semiconductor plants and those outside the SEZ's can avail 25% subsidy. This subsidy will be in the form of tax concessions, interest subsidy and interest free loans for subsidizing the capital expenditure incurred in setting up the manufacturing units for the first 10 years of its existence.

25% is exactly what SemIndia [ promoter of fabcity ] has been demanding saying that it needs atleast this much to sustain. New York state has recently granted a 28% subsidy to AMD to setup its fab in the state. So, what the Indian government is offering is no more than what a US state would offer. Korea is known to offer 80% of the costs incurred and malaysia is known to offer a double deduction for R&D etc.

In fab business companies operate at a 12% Margin irrespective of the location. About 88% of the cost of a chip fab are static and do not change regardless of the location the plants are in. So, India may serve as the testing, packing destination for a while instead of being a manufacturing site. A recent semiconductor vision summit also quashed some myths about the scale of initial operation. SemIndia's goals are to acquire fab's across the world , operate them as-is and then transfer them to India. One component that is guaranteed to come to Hyderabad is a chip design entity that will design chips for DSL Modems [ is that cutting edge anymore ?.. aren't there tons of these design shops in India already ? ], but the manufacturing will actually take place near Chennai in a 3rd party plant, followed by a semindia branding and sold to BSNL.

Recent and continuous announcements about an ATMP ( Assemble Test Mark Pack ) facility being the first in Fab City doesnt indicate that too much will happen in the near future in fabcity. No doubt, the growth will be slow, but dont be fooled by the hype around the 3 billion investments since it will be a long time before that really flows in.

While I really look forward to Hyderabad becoming a Fab center/Fab city, I do not see a clear roadmap to achieving the same from semindia. SemIndia from my research is not just focussing on Hyderabad, they have plans for other locations too..