India plans to join ranks of chip makers

By Sumeet Chatterjee

SEOUL (Reuters) - Having carved a niche in global software development and services outsourcing, India's search for the next big thing in high-tech could see it take on the rest of Asia in the crowded chip manufacturing market.

Semiconductor firms such as Intel Corp. (INTC.O: Quote, Profile, Research, Stock Buzz), Advanced Micro Devices Inc. (AMD.N: Quote, Profile, Research, Stock Buzz) and Freescale Semiconductor Inc. have already tapped India for chip design, but not manufacturing.

New government incentives to boost chip making, coupled with India's low labor costs and surging demand for electronic goods from a fast-growing middle class, could change that.

"India would be the only country in the world with robust models in chip design, chip manufacturing and electronics manufacturing," said Poornima Shenoy, president of lobby group India Semiconductor Association.

In March, Hindustan Semiconductor Manufacturing Corp., which is backed by a group of Indian investors based in Silicon Valley, announced plans to build two chip-making plants in India for up to $4.5 billion using technology from Germany's Infineon Technologies AG (IFXGn.DE: Quote, Profile, Research, Stock Buzz).

"Our focus is clearly the Indian market, although we plan to export out of the country as well. The growth in mobile phones and computers has enabled the demand for chips," said Deven Verma, chairman of Hindustan Semiconductor Manufacturing.

Mobile phone subscribers in India rose 68 percent in March from a year earlier to 166 million. Still, only about 15 percent of India's 1.1 billion people own a mobile phone, compared with around 35 percent in China.

"The global demand for chips will always go through a cycle of oversupply and shortages, but the potential in India is going to be huge in the years to come. Whether we make it or not, India will continue to buy chips," Verma said.  Continued...