Tata Sons Chairman Natarajan Chandrasekaran recently confirmed their much-anticipated entry into the semiconductor space. In an interview with Nikkei Asia, Chandrasekaran revealed that the conglomerate has set up Tata Electronics in a bid to tap into the growing semiconductor space in India.

The conglomerate’s entry into the semiconductor space comes at a time when the Indian government is pushing to make India a semiconductor manufacturing hub. 

While it was anticipated earlier that Tata would look to set up a FAB in the country, the plan right now is to set up an Outsourced Semiconductor Assembly and Test (OSAT). Reports claim that Tata is currently scouting for land in three states—Tamil Nadu, Karnataka, and Telangana.

Tata Electronics was set up in 2020, and they hired Raja Manickam as the CEO of Tata Electronics OSAT India in 2021. 

In Partnership

Setting up a semiconductor assembly and test unit is not an easy task. Tata is reportedly planning to spend around USD 90 billion in the next five years to set up the planned OSAT unit.

However, since Tata does not have sufficient expertise in semiconductors, the route Tata is planning to take is to set up an OSAT unit in India in partnership with a foreign player. Tata could possibly rope in top players such as ASE, Amkor, and JCET, among others.

Earlier this year, Vedanta had announced its entry into the semiconductor space. The conglomerate, in partnership with Taiwanese electronics manufacturing giant Foxconn, signed a Memorandum of Understanding with the Government of Gujarat to set up a semiconductor manufacturing unit in the state. 

Tata is also expected to follow the same path and set up its OSAT. In this regard, Chandrasekaran revealed that the group is already in discussion with multiple players.

Why OSAT?

Instead of setting up a semiconductor fabrication unit, Tata announced their decision to set up an OSAT unit instead, but why? Like a FAB, the OSAT unit also plays a crucial role in the semiconductor supply chain. Further, setting up an OSAT unit is comparatively cheaper to setting up a FAB.

While semiconductor FABs provide only 50% of the services that are necessary to turn a product design into reality, the rest is dependent on OSATs which take care of the testing and packaging of the silicon chips made at the FABs before they are shipped to the market.

Setting up an OSAT unit would mean that Tata would have to invest heavily in equipment and processes that enable testing of different types of wafers and parts besides providing high-tech, research-driven packaging solutions. 

It is noteworthy that the high cost associated with it is the reason why companies choose to outsource the whole process. 

Gunning for self reliability?

Setting up an upstream semiconductor manufacturing process plant or FABs is even more challenging, both technologically and financially, in comparison to a downstream process of assembly and testing or an OSAT unit.

Nonetheless, Tata has not closed the door on a possible fabrication unit in the future. The conglomerate’s chairman has, in fact, revealed that they would eventually set up an upstream chip fabrication platform down the line.

This could go a long way in making the conglomerate self-reliant in terms of semiconductors, a shortage of which, in fact, cost the enterprise dearly.

We witnessed the global semiconductor crunch due to the COVID-19 pandemic along with the lockdown in China that impacted Tata Motors’ earnings and resulted in consequent production cuts. The impact was bad enough for Tata Motors to halt its plans temporarily.

Hence, setting up its own FAB along with an OSAT unit could prove to be monumental for Tata because it would not have to rely on the global supply chain for semiconductors.

In fact, in order to be self-reliant, Tata Motors has partnered with Japanese chip manufacturer, Renesas Electronics, to design and develop semiconductors. The partnership could prove to be pivotal for Tata in terms of designing chips for the upcoming Jaguar Land Rover electric cars.

Additionally, the need for semiconductors is not just limited to Tata Motors. The conglomerate has multiple businesses and operates data centres in 44 locations across the globe. Tata also has a strong presence in the aviation sector with three brands under its wing—Vistara, AirAsia, and Air India.

Further, there is no semiconductor industry in India yet. The time is thus perfect for Tata to establish itself in the space and cater to the ever-expanding Indian electronics market.