August 18, 2019

India, Known for Outsourcing, Now Wants to Make Its Own Chips

So the Indian government is trying a new, carrot-and-stick approach.

In October, it quietly began mandating that at least half of all laptops, computers, tablets and dot-matrix printers procured by government agencies come from domestic sources, according to Dr. Ajay Kumar, joint secretary of the Department of Electronics and Information Technology, which devised the policy.

At the same time, it is dangling as much as $2.75 billion in incentives in front of chip makers to entice them to build India’s first semiconductor manufacturing plant, an important step in building a domestic hardware industry.

But like so much of India’s economic policy, it’s doubtful that either initiative will have the impact the government is intending.

“Nobody disputes India’s need to build up manufacturing. Not doing so would be fiscally irresponsible,” said Gaurav Verma, who heads the New York office of the U.S.-India Business Council. But Mr. Verma said that India’s efforts to force international companies to manufacture in the country are futile. “The government needs to not mandate this, but create an ecosystem.”

The domestic purchasing mandate, known as the “preferential market access” policy, seeks to address a real problem: imports of electronics are growing so fast that by 2020, they are projected to eclipse oil as the developing country’s largest import expense.

India’s import bill for semiconductors alone was $8.2 billion in 2012, according to Gartner, a research firm. And demand is growing at around 20 percent a year, according to the Department of Electronics and Information Technology.

For all electronics, India’s foreign currency bill is projected to grow from around $70 billion in 2012 to $300 billion by 2020, according to a government task force.

“The problem we are facing is that the demand is growing so much that it is reaching nonsustainable levels,” said Dr. Ajay Kumar, joint secretary of the agency.

Dot-matrix printers, outdated in most of the world, are one of the few electronic products that India manufactures. Around 400,000 dot-matrix printers were sold in India in the year ended March 31, an increase of 2 percent from the year before, according to the Manufacturers’ Association for Information Technology, a computer industry trade group in India.

The government accounts for about 40 percent of the country’s electronics purchases, according to PVG Menon, president of the Indian Electronics and Semiconductor Manufacturing Association.

Officials hope to use that purchasing power to jump-start manufacturing of other computer goods. However, the government has adopted a broad definition of what it considers locally made, since so few electronics are currently manufactured here.

If at least 30 percent of a computer’s components are made in India, then it would qualify. The policy also allows prospective suppliers to show “value addition” in lieu of actually manufacturing the goods in India, said Dr. Kumar. For example, India does not manufacture hard drives, but it assembles and tests them. Under the policy, a hard drive that is assembled in India would be considered to be made there.

Computer makers contacted for this article declined to discuss how the new policy would affect their sales.

The big fish the government would like to land is a factory to produce microprocessors for computers.

A computer processor typically accounts for 25 to 35 percent of the total cost of a PC or laptop. India hopes that such a plant, which could cost as much as $5 billion to build, would help spur a bigger high-tech manufacturing industry, said Dr. Kumar.

According to Indian media reports, two consortiums have been in talks with the government to build microprocessor foundries.

The first is led by the Jaypee Group, one of India’s largest construction companies, which built the country’s Formula One track in Uttar Pradesh. It has partnered with I.B.M., which will provide the technology.

The second bid is from the Hindustan Semiconductor Manufacturing Corporation, an American company that, despite its name, does not manufacture any chips. It has partnered with the Geneva-based chip maker
STMicroelectronics.

But Ron Somers, president of the U.S.-India Business Council, said he doubted that India could provide a new chip-making facility with the basic infrastructure it needed to even keep the lights on. There have been several failed attempts to set up chip plants in the past. The most recent was in 2008 by SemIndia, a United States company run by Indian-American entrepreneurs. It ended acrimoniously when a dispute arose over the terms of the agreement between the company and the state of Andhra Pradesh where the plant was to be housed.

Critics warn that India’s efforts to encourage a high-tech revolution may come to naught once again unless it reduces some of the barriers to doing business in the country.

In the case of some electronics, the import duty on a finished product is cheaper than on the component parts, said Mr. Menon. Costs are also higher because of a lack of reliable power and the extra time it takes to move goods on the country’s poor roads.

Spurred by the new “Buy India” requirements, Dell, the largest PC retailer in India, explored the possibility of setting up manufacturing facilities there. Dell assembles computers in India, but does not manufacture any components.

“They flew in their suppliers from China and Taiwan to see if they could set up facilities. They said no,” said an industry official, who requested anonymity since he was not authorized to speak on behalf of the Texas-based company. “The market is too small, and logistically it is a nightmare.”

Dell declined to comment.

India has a model for success, said Mr. Verma of the business council: its automobile industry. In the 1980s, India opened its automotive industry to foreign companies, and in 1982, Suzuki Motor bought a majority stake in Maruti Udhyog. The joint venture produced the Maruti 800, India’s first affordable car.

However, the real watershed moment came in 1991, when India dropped its local manufacturing requirements. The industry exploded, and there are now about 40 million cars on Indian roads.

“India now has the sixth-largest auto industry in the world because of the ecosystem the government created,” Mr. Verma said.

Pamposh Raina contributed reporting.

Article source: http://www.nytimes.com/2013/04/16/business/global/india-known-for-outsourcing-now-wants-to-make-its-own-chips.html?partner=rss&emc=rss

Intel 4th-Quarter Earnings Are Sharply Lower

The world’s biggest maker of semiconductors, which grew by supplying chips to most of the world’s personal computer makers, is now facing an erosion of that market. According to Gartner, a market analysis firm, PC shipments worldwide declined 3.5 percent in 2012.

The result was evident Thursday in Intel’s fourth-quarter earnings report. The company, which is based in Santa Clara, Calif., reported net income of $2.5 billion, or 48 cents a share, down 27 percent from $3.4 billion, or 64 cents a share, a year earlier. Revenue fell 3 percent to $13.5 billion from $13.9 billion.

“The PC business as we’ve known it is evolving,” said Paul S. Otellini, Intel’s chief executive, in a call to analysts. “The form factors are going to blur here.”

Instead of PCs, more people and businesses are buying smartphones and tablets. Intel gets 64 percent of its revenues and some of its highest profit margins from chips for PCs. It has scrambled to revive the market, while it aggressively tries to supply tablet and smartphone makers, so far with little success.

But even as it gets harder to sell PCs, Intel appears to have managed its business better than many investors thought possible. Revenue was in line with analysts’ expectations, according to a survey by Thomson Reuters, but net income was higher than the 45 cents a share that the analysts were expecting, on average.

Intel projected lower revenue and pressure on its profit margins for 2013, however, which sent its shares down about 5 percent in after-hours trading. Intel shares finished regular trading at $22.68, up 57 cents.

At the after-hours price, Intel’s market capitalization dropped below that of Qualcomm — a smaller maker of chips, but a company that makes chips for smartphones and tablets. Even a year ago, this would have been unthinkable.

Over the last six months, shares of Intel have fallen about 18 percent, while Qualcomm’s stock is up almost 20 percent. ARM Holdings, which sells designs for low-power chips popular in mobile devices, is up almost 90 percent in that time.

“Longer term, Intel will move more aggressively into smartphones,” said Bobby Burleson, an analyst with Canaccord Genuity. “But everyone worries about their long-term gross margins.”

Intel, which employs an engineering-focused staff of 105,000 people, plans to continue to invest heavily in research and development, as well as new manufacturing facilities. Intel operates on the principle that making the biggest volumes of the most advanced chips gives it a quality and profit margin advantage.

Despite the lower earnings, Intel said it would spend $18.9 billion on research and development, along with marketing and administrative costs, in 2013. Two years ago Intel spent $16 billion on those things, increasing that amount to $18.2 billion last year.

“Our manufacturing leadership becomes increasingly valuable,” said Stacy J. Smith, Intel’s chief financial officer. “People expect Intel to make more powerful, more efficient devices. That applies across all our businesses.”

That works, as long as the chips have buyers. Last year Intel hoped two PC industry initiatives would woo buyers back to PCs, but neither did. One, backed by a large investment from Intel, was in lightweight ultrabook laptop computers, many of which had tablet features, like touch screens. These came to market later than analysts had expected, at prices most consumers did not find attractive.

The other, Microsoft’s release of its Windows 8 operating system, has so far failed to excite buyers. Consumers and businesses did not buy new computers in order to use the upgraded system.

Mr. Otellini remained upbeat about ultrabooks, saying that there were now 140 types of the lightweight laptops on the market. The number of styles and different ways they use things like keyboards and touch screens, he said, would make it harder to tell a PC from a tablet.

“We’re in the midst of a radical transformation with the blurring of form factors,” he said, adding that this year Intel would introduce a new chip, called Haswell, which would help in the production of lightweight machines that have longer battery life. He said little about Windows 8.

Intel’s second-largest business, chips for computer servers in data centers, reflected an overall strength in that industry. Fourth-quarter sales to data centers was $2.8 billion, an increase of 4 percent from a year earlier.

Article source: http://www.nytimes.com/2013/01/18/technology/intel-earnings-are-sharply-lower.html?partner=rss&emc=rss