India’s turn to join the Semiconductor party

Edition #12

Welcome to the 12th edition of Beyond Markets! In this issue, we explore the semiconductor market, exploring its rapid growth and the key players driving this boom. We also zoom in on the U.S. semiconductor industry and the critical role it plays in global tech dominance. Finally, we spotlight India's semiconductor opportunity and how the country is gearing up to become a major player on the world stage. Plus, we've included a timeline of India’s semiconductor journey, charting the key milestones that have shaped the industry so far.

Topics:?

1. Global semiconductor market - A Power’ing’ house
2. U.S.A. is the top Semiconductor designer, what about India?
3. India’s semiconductor opportunity - The road ahead
4. Bonus: Listed players in the semiconductor space
5. Infotrend

Events this week:

1. Friday, September 06, 2024: Forex Reserves (India)
2. Sunday September 08, 2024: Life and General Insurance Premium (India)
3. Tuesday September 10, 2024: State Governments Receipts & Expenditures | Mutual Fund Equity Inflows (India)
4. Thursday September 12, 2024: CPI Inflation (India)

Global Semiconductor Market - A Power’ing’ house

The global semiconductor market is currently valued at an impressive $754bn, reflecting a steady growth trajectory. With a revenue CAGR of 7% from FY19-23, this market is expected to accelerate to a 10% CAGR over FY23-26.

The driving force behind this surge??

The increasing demand for consumer products such as laptops, smartphones, electric vehicles (EVs), and AI-driven devices. The COVID-19 pandemic acted as a significant catalyst, with remote work and online learning fueling an unprecedented demand for semiconductor-enabled products. For instance, sales of chips used in consumer electronics surged by approximately 52% YoY between April 2020 and April 2021.

The semiconductor industry has witnessed considerable shifts in leadership over the decades. In the 1980s, Japanese firms dominated the scene, pioneering significant advancements. However, the United States has since taken the lead, bolstered by massive investments in research and development, favorable infrastructure, and the ability to attract global talent. By 2019, the top-five semiconductor suppliers accounted for 42% of the global chip sales revenue, with Intel leading the pack, followed closely by Samsung Electronics.

1. Integrated Circuit Design: USA has the maximum market share of 53%. It is followed by 13% from South Korea and 10% from Europe.
2. Manufacturing Equipment: The U.S. contributes 42% to the global semiconductor manufacturing equipment market. It is followed by Japan and Europe with 27% and 21% market share respectively.
3. Integrated Circuit Material: All major APAC countries have a significant portion of the market share in this segment. Taiwan leads this pack with a 23% market share. It is followed by China and South Korea who have cornered 19% and 17% respectively.
4. Wafer Fabrication:? Taiwan (73%), China (19%), South Korea (17%) and Japan (14%) corner 73% of the market share in this segment.
5. Outsourced Semiconductor Assembly and Test (OSAT): China and Taiwan dominate this segment with 35% and 28% respectively.

In the grand scheme of things?

• USA has 43.34% of the market share which amounts to ?34,816bn?
• South Korea has 12.64% of the market share which amounts to ?10,153bn
• Japan has 11.45% of the market share which amounts to ?9,195bn?

USA is the top Semiconductor designer, what about India?

The United States continues to dominate the semiconductor market, largely due to its superior design capabilities. Semiconductor design is crucial as it differentiates one chip from another and dictates how raw silicon wafers transform into cutting-edge technology. U.S. firms excel in this area, maintaining a significant lead in R&D, design, and process technology. Today, U.S.-based companies hold the largest global market share at 48%, far ahead of competitors from other countries, whose shares range from 7% (China) to 20% (South Korea).

The US semiconductor industry invests heavily in research and development, with spending typically ranging between 15% and 20% of annual revenue—about $40bn in 2021 alone. This investment creates a virtuous cycle, where technological superiority leads to higher market shares and profit margins, which in turn fuels further R&D spending.

While the US boasts nearly one-third of the world's semiconductor design engineers, there is a growing concern about the country's declining STEM (Science, Technology, Engineering, and Mathematics) enrollment rates. Current U.S. STEM enrollment stands at approximately 19%, compared to higher rates in China (40%), India (32%), South Korea (30%), and Western Europe (23%). Despite these challenges, the U.S. continues to be a magnet for global talent, largely due to its strong academic programs.

India ranks third globally, with nearly 20% of the global design workforce, but its contribution to semiconductor revenue remains limited. However, with the Indian government's Design-Linked Incentive (DLI) Scheme and increasing capital investments, India is poised to become a significant player in the semiconductor design landscape.

India’s Semiconductor Opportunity - The Road Ahead

India's semiconductor industry is on the cusp of a massive growth trajectory, with the market expected to reach USD 110 billion by FY30, growing at a CAGR of approximately 22% from FY20 to FY30. This represents a significant opportunity for India to contribute 10% to the global semiconductor market by FY30.

One of India’s strengths lies in its skilled workforce, especially in semiconductor design. Almost all major global design houses, including Intel, Texas Instruments, Qualcomm, and Arm Ltd., have a substantial portion of their workforce in India. Despite this, India's overall contribution to the global semiconductor revenue remains modest. The Design-Linked Incentive (DLI) Scheme, coupled with increased investments by Indian companies, is expected to drive substantial growth in this sector.

However, semiconductor manufacturing remains a largely untapped sector in India. To address this, India needs to focus on two key areas: (i) silicon-based technologies, which dominate the current market, and (ii)) emerging compound semiconductor technologies like Gallium Arsenide and Silicon Carbide. Currently, India has three fabrication units, but they primarily cater to ISRO and DRDO, limiting their impact on the broader market.

India has made significant strides in building a robust semiconductor ecosystem, but challenges remain. These include improving infrastructure, bridging the gap between academic knowledge and industry needs, and securing investments. With strategic collaborations and continued government support, India is well-positioned to become a global semiconductor powerhouse.

Bonus: Listed Players in the Semiconductor Space

According to a February 2024 JM Institutional report, several listed companies are making strides in India's burgeoning semiconductor industry under the Semicon India Policy Framework. Notably:

SPEL Semiconductor, HCL Technologies, Kaynes Technologies, and Syrma SGS Technologies have applied for initiatives focused on 'Compound and Discrete Semiconductors' and 'Outsourcing Assembly and Testing (OSAT).'

Reliance and Vedanta are also key players. While Reliance has been exploring various expansion and acquisition opportunities to enter the semiconductor market, Vedanta took full control of its joint venture with Foxconn in 2023.

The report highlights that the OSAT sector is expected to significantly benefit domestic Electronic Manufacturing Service (EMS) companies, leading to margin expansion and healthy return ratios.

Additionally, CG Power has sought approval to establish an OSAT facility in India. Kaynes was the latest company. Most recently the cabinet also approved a ?3,300cr chip proposal by Kaynes under the ?76000cr India Semiconductor Mission.

It’s important to note that while these listed companies are making headlines, many more public and private unlisted players form the backbone of India’s semiconductor landscape.

Infotrend

That's all for this edition of Beyond Markets by blinkX! Let us know in the comments what you think and what would you like us to cover in the next edition? Have a great week!