Tata's chip making plan facing headwinds

Mumbai: The Tata Groups' reported plans to set up a $300-million semiconductor manufacturing facility on a wartime basis is likely to face some headwinds given the absence of raw materials in India and its scarce availability outside due to the ongoing shortage globally since the pandemic, says a report.

The pandemic and its after effects on increased demand for data and consumer electronics have left semiconductor makers unable to keep up with supplies. Adding to the pains are the extreme weather and natural disasters in many producing countries such as the Taiwanese drought; hurricanes, extreme cold weather and flooding in the US; and a major fire at the Renesa's plant in Japan, which have all put further pressure on supply chains, according to a note by Fitch Solutions, an affiliate of Fitch Ratings.

The Tata Group is reportedly in discussions with several states to identify the land to build a $300 million chip making unit. According to reports, the country's largest conglomerate is planning to run the group as an outsourced semiconductor assembly and testing facility. So far, Tamil Nadu, Karnataka and Telangana have been identified as possible locations for the plant and the Tatas aim to finalise the location this month itself and have it up and running by late 2022.

The facility will assemble and test semiconductor chips after sourcing the sophisticated silicon wafers from semiconductor foundries like Taiwan-based TSMC, Fitch Solutions said quoting media reports.

The Tata plant will rely on wafer production from offshore chip foundries, which are already struggling under intense demand. Tatas will, therefore, be vulnerable to further disruptions to silicon wafer manufacturing, the report said.

Noting that the country presents a favourable environment for manufacturers of electronic components given the incentive schemes to promote local manufacturing, and the Tata's announcement is timely and opportunistic, coming at a time of global chip shortages, the report however warned that "reliance on silicon wafers made by offshore foundries, growing geopolitical tensions in the region and the emergence of new Covid variants all pose considerable downside risks to Tata's plans."

Chip Crunch

♦ Tata Group plans to set up a $300-mn semiconductor manufacturing facility on a wartime basis

♦ However, absence of raw materials in India becomes a major problem

♦ The proposed facility will assemble and test semiconductor chips

♦ It'll source the sophisticated silicon wafers from semiconductor foundries like Taiwan-based TSMC

♦ Reliance on silicon wafers made by offshore foundries amid geopolitical tensions in the region and Omicron outbreak will pose operational risk to the plant