Contract manufacturing, in-house use part of Adani group’s chip play

The ports-to-cement conglomerate has tied up with Israel’s Tower Semiconductor to build the foundry in Maharashtra’s Raigad district. The state government last week said that of the total ₹83,947 crore investment, ₹58,763 crore will be infused in the first phase and the balance in the second phase. The project will have a total capacity of 40,000 wafer starts per month (WSPM) in the first phase, which will be doubled later.

“Adani will work as a contract manufacturer, like a foundry service, catering to global clients. Tower has technology in optical and analog mixed-signal chips, and they also have captive consumption from contracts with some of the chip manufacturers, which can be done from the India fab with Adani,” the person said. This will diversify Adani’s portfolio and give Tower an entry to the India market where it can cater to local demand, he said, adding the proposal was yet to get government approval.

Several global companies such as Apple, Nvidia and Qualcomm design chips and get them manufactured by another company, in a so-called fabless model, and Adani hopes to tap this market with the new chip plant. Adani’s chip business, to be led by a group company operating in allied sectors such as data centers, is expected to become one of its largest, the person cited above said.

Serving in-house demand from Adani companies also gives Tower a ready commercial base, the second person said.

“Adani-Tower would specifically target government contracts such as in smart meters and smart cities,” a third person said, adding Adani has product-making resources, and IP-driven, electronics and semiconductor capability through entities like Adani Green Energy Ltd; so , it will be able to leverage the Tower partnership in solar energy applications.

Access to Indian market

Tower makes chips in 45-300 nm range of nodes, used in products and components across sectors such as automotive, consumer electronics and display devices, medical devices and industrial equipment, which has a large market in India. The move may also help the Taiwanese company assess the Indian chip market. The partnership also opens the door to crucial government contracts in digital transformation in sectors like railways, aviation, defense, mining, telecommunications and oil and gas.

Queries sent to an Adani group spokesperson remained unanswered. Adani Enterprises earlier informed the exchanges that it was evaluating the project at a group level. “The company has not signed any binding document(s) in this regard; hence, we are unable to comment on the same at this stage,” Adani said.

Tower Semiconductor CEO Russell C. Ellwanger was in India last week, and attended a roundtable discussion with Prime Minister Narendra Modi and nearly a dozen other CEOs of global semiconductor companies, where India was pitched as a trusted partner in the semiconductor supply chain that could offer predictable and stable policy regime. Modi has also pegged semiconductors as crucial building blocks for the Indian electronics ecosystem, which he said was expected to become a $500 billion industry by 2030, making an attractive pitch for global majors to make in India.

Having a local manufacturing and supply chain has become a strategic requirement for countries post-covid, since concentration of chips with some countries like China and Taiwan had led to disruptions across world markets when supplies snapped due to the pandemic.

“It makes a lot of sense if Adani goes into semiconductor space. In the new world order, companies are diversifying their semiconductor strategy, and not only just from the growth perspective, but semiconductor has now become so important for any nation to have a good hold on the value chain, and India is also aiming to do the same,” said Tarun Pathak, research director at Counterpoint Research.

India’s semiconductor demand

Semiconductor demand in India alone is likely to exceed $100 billion by 2030 from $45 billion in 2023, he noted, outlining the commercial value potential of the Indian market, but also the challenges that a complex business of semiconductors will bring.

“No startup or small firms will have the means required to set up semiconductor operations in India, and the big industrial groups of India will therefore be our only bet. In the next three to five years, we should expect the Adani group to expand significantly into the semiconductor business ecosystem,” the second executive quoted earlier said.

Kanishka Chauhan, principal analyst, semiconductor and electronics group at Gartner said that for global firms, India is crucial due to the need for geopolitical decentralization, but an Indian partner will be needed. “Everyone is looking to get into the semiconductor business, and for global firms, partnering with a large Indian entity is fruitful in order to better navigate the Indian political and business intricacies—which they may otherwise struggle to do independently,” she said.

Adani will join the likes of Tata group, Murugappa group, Kaynes Technologies, L&T group and HCL Technologies that have plans for semiconductor manufacturing. Mint reported on Monday that Tata group intends to build two fabs in addition to the first fab coming up in Dholera, Gujarat with an investment of ₹91,000 crores.

“Indian conglomerates like HCL group, Tata group, Murugappa group and now Adani group, getting in semiconductor manufacturing is the biggest breakthrough for us, and a complete shift in dynamic because most of the global integrated design manufacturers are yet to commit to India,” Ashok Chandak, president of India Electronics and Semiconductor Association said. “This will make Indian semiconductor companies that can go global,” he added.