India Wants to Build Its Own Chips to Satisfy Electronics Demand

India hasn’t had much success nurturing electronics manufacturing. Its inefficient labor markets, unreliable power supply, and creaky transportation infrastructure have discouraged investments from multinationals.

Even companies that assemble TVs in India, such as Samsung Electronics(005930:KS) and LG Electronics (066570:KS), import most of the valuable equipment and then slap them together in the country. “What happens in India is pretty low-end,” Menon says. And when it comes to semiconductors, “today we have zero capability. All the chips we use are imported.”

“India has one of the biggest domestic electronics markets, and that is set to get even bigger” —Niju V.

In Asia, Taiwan Semiconductor Manufacturing (TSM) and South Korea’s Samsung and SK Hynix (000660:KS)dominate chipmaking. While some Japanese companies, notably Toshiba(6502:JP), are still in the game, others, including Panasonic (6752:JP), have decided to scale back because building state-of-the-art plants is so expensive. While foreign companies make chips in China successfully, local companies have tried, with little success, to build chip industries from scratch. Shanghai-based Semiconductor Manufacturing International has struggled: Its stock dropped 20 percent on Feb. 17 and 18 after it forecast lower revenue.

Optimists argue that it’s too early to dismiss India’s chances. In China, costs are rising, so many multinationals are shifting elsewhere. India has advantages, says Anand Srinivasan, an analyst with Bloomberg Industries, including “a large labor pool [and] engineering talent that is cheaper compared to the Western world.” The demand is there, too. “India has one of the biggest domestic electronics markets, and that is set to get even bigger,” says Niju V., director of automation and electronics at Frost & Sullivan India. “And all of that will need a chip. If we don’t get on to it in the next 10 to 12 months, India will miss the bus forever.”

Links to sources: http://www.bloomberg.com/bw/articles/2014-02-27/india-wants-to-build-its-own-chips-to-satisfy-electronics-demand