Aniket PujariThe second mission, expected to follow the ₹76,000 crore chip incentive scheme launched five years ago, will focus on developing a more comprehensive semiconductor components ecosystem. The policy shift is prompting electronics manufacturing services (EMS) companies, mostly dependent on low-margin assembly work, to examine whether they can move up the electronics supply chain.
“Companies which missed out on ISM 1.0 have now got another window to foray into semiconductor manufacturing. We at Syrma SGS would be studying the policy guidelines and would seriously endeavour to enter this space,” Jasbir Singh Gujral, managing director of Syrma SGS, told Mint.
Dixon Technologies, meanwhile, took a more reserved stance. “We will evaluate (ISM 2.0), once the detailed guidelines are out,” Saurabh Gupta, director-finance and group chief financial officer at Dixon, told Mint.
Flagged ambitions
Dixon, to be sure, has flagged semiconductor ambitions before. At the company’s Q3FY25 earnings call a year ago, managing director Atul Lall told analysts that the company was “in active discussions” to set up a display fabrication plant with a foreign technology partner at a net investment of $3 billion. That plan has not materialized so far.
Analysts say the strategic appeal is clear even if near-term scale is limited.
“Most semiconductor projects will not come with the kind of scale that mobile phone and consumer electronics assemblies bring for EMS firms. However, venturing into semiconductors will prove significantly beneficial in the long run as companies will be able to expand their margins through vertical integration of a product line, and closer control of the entire electronics value chain,” said Harshit Kapadia, vice-president at brokerage firm Elara Capital.
If their plans fructify, Syrma SGS and Dixon would join a small but growing set of manufacturers straddling electronics assembly and semiconductor manufacturing.
Unlisted Tata Electronics, which began as a contract manufacturer assembling Apple iPhones, announced a chip fab in Dholera, Gujarat in February 2024 that is expected to operationalize by mid-2027. Taiwan’s Foxconn entered semiconductor fabrication in India in partnership with HCL Group in May last year. Kaynes Technology announced an outsourced semiconductor assembly and test (Osat) facility in September 2023. All three were backed under ISM’s first tranche of incentives, alongside nine other mostly assembly- and testing-focused ventures.
Ashok Chandak, president of industry body India Electronics and Semiconductor Association (Iesa), said a semiconductor push could lift the long-term value of EMS firms.
“Electronics manufacturers are naturally suited to venture into the semiconductor industry as they already have sectoral expertise in high-tech manufacturing. For most EMS firms, the ability to venture into semiconductor component manufacturing would mean memory and storage chip assemblies, as well as compound chips for industrial electronics. All of this would add increasing value to the business that electronics manufacturers are pursuing right now,” Chandak said.
Capital hurdle
Availability of capital remains a hurdle, but analysts do not see it as a major concern.
“Apart from Dixon, which has been battered in the markets because of its over-reliance on a slowing mobile phone market, all other EMS firms have grown through a tricky December. This shows that investors and shareholders are bullish on them, and it is unlikely that any of them will struggle to raise enough capital to venture into semiconductor fabrication and assembly,” Elara’s Kapadia added.
The pressures on existing business models are evident. Dixon, India’s largest listed EMS firm, saw revenue dip 28% sequentially as the global mobile phone market slowed, while Syrma SGS, with a more diversified mix spanning laptops, IT and telecom hardware and industrial electronics, reported a 10% sequential revenue rise in the December quarter.
Ankush Wadhera, managing director and partner, and India leader for semiconductors at BCG, said ISM 2.0 is designed to push the ecosystem upstream.
The second chip incentives scheme will focus on “building upstream semiconductor capabilities beyond assembly-led growth—by focusing on equipment, materials, full-stack design, industry-led R&D, skilling and the creation of Indian IP,” Wadhera said.
