L&T plans more than $300m to create chip company in India

• It will spend the money over three years in a bid to capture part of the burgeoning semiconductor market.
• Its strategy involves creating a fabless model, where the company will focus on designing and selling semiconductors while outsourcing the manufacturing.
• Move positions L&T alongside other major Indian conglomerates in an ambitious endeavour to build a robust semiconductor industry in India.

Larsen & Toubro Ltd (L&T), a prominent Indian multinational operating across various sectors from technology to construction, has announced a strategic investment of more than $300 million to establish a fabless semiconductor company in India.

The move positions L&T alongside other major Indian conglomerates in an ambitious endeavour to build a robust semiconductor industry in India, a nation that stands on the cusp of becoming a significant player in this critical field.

Historically, semiconductor manufacturing has been dominated by a handful of countries, notably the United States, Taiwan, South Korea, Japan, and more recently, China. These nations have invested heavily in semiconductor technology, resulting in a concentration of advanced manufacturing capabilities.

However, the ongoing geopolitical tensions, especially those between the United States and China, have created a compelling imperative for diversification. Countries like India are viewed as viable alternatives for semiconductor manufacturing due to their expansive market potential, lower production costs, and a developing technological ecosystem.

L&T’s initiative to develop L&T Semiconductor Technologies reflects this global shift, aiming to capture part of the burgeoning semiconductor market.

Ambitious targets

The strategy involves creating a fabless model, where the company will focus on designing and selling semiconductors while outsourcing the manufacturing.

This approach allows for flexibility and reduced capital expenditure, which is particularly beneficial in an industry characterised by high initial investments.

L&T plans to allocate this substantial investment over the course of three years, with ambitious targets set for product development and market entry.

By the end of the current year, the company aims to design 15 different semiconductor products, with plans to commence sales by 2027.

The targeted product segments include power chips, radio-frequency semiconductors, and mixed-signal integrated circuits, which are pivotal for applications in the automotive, industrial, and energy sectors. These areas, undergoing significant transformation with the adoption of electric vehicles and renewable energy technologies, present fertile ground for L&T’s innovations.

While L&T’s investment may appear modest compared to industry titans like Nvidia and AMD, which continually push the boundaries of semiconductor technology, it is a critical step for India’s ambitions in this field.

The emphasis on products that cater to rapidly evolving sectors enhances the potential for success and market capture, particularly as global trends push for more integrated and smarter technological solutions.

Government Support

Integral to L&T’s semiconductor venture is the supportive policy environment established by the Indian government, as part of its broader strategy to bolster local manufacturing capabilities and reduce reliance on imports.

The government has earmarked $10 billion to attract semiconductor manufacturers and suppliers, incentivising companies to set up operations in the country.

Initiatives like this have already garnered momentum, with significant projects launched by entities such as the Tata Group and Micron Technology, which have both established facilities in India, further solidifying the nation’s position in the semiconductor value chain.

L&T Semiconductor Technologies has recognized the importance of government support in this endeavor, advocating for design subsidies and incentives that would bolster the semiconductor ecosystem.

The company’s workforce, currently comprising approximately 250 skilled chip designers, is expected to double by the end of 2024. This growth in human capital is essential for cultivating an innovative culture and developing high-quality semiconductor products that can compete on a global scale.

Future outlook

The establishment of a semiconductor industry in India carries significant economic implications. The move towards self-sufficiency in semiconductor manufacturing not only reduces vulnerability to global supply chain disruptions but also opens avenues for job creation and technological advancement.

The growth of this sector could catalyse ancillary industries and stimulate a knowledge-based economy, fostering innovation and competitiveness in a range of fields.

Furthermore, as the United States, Germany, Japan, and Singapore expand their domestic chipmaking capacities amid concerns over supply chain reliability, India’s proactive approach positions it as a potential beneficiary of this global trend.

The ability to manufacture critical components locally can mitigate the risks associated with geopolitical tensions while providing strategic advantages in technology development.