HCL Technologies US$ 300 Million Bet on India's Semiconductor Industry

As the world grapples with a semiconductor shortage, India is emerging as a key player in this critical market.

One after another big names are flocking to the Indian semiconductor market. One of them being HCL Tech. The HCL Group is contemplating setting foot in India's expanding semiconductor space.

As of 19 July 2023, HCL Tech is the 12th most valued company in India by market capitalisation. The company's market capitalisation is Rs 2.2 trillion (US$ 29 billion). The company has also consistently generated substantial profits, creating wealth for its shareholders.

HCL Tech's shares have returned 562.4% in the past ten years. This means an investment of Rs 100 in HCL Tech's shares ten years ago would be worth Rs 662.4 today.

Apart from this, the company has a knack for declaring big consecutive dividends. To put things into context, this will be its 85th consecutive dividend declaration. The company has paid out dividends consistently for more than 80 consecutive quarters!

Let's delve deeper into HCL Tech's plans for this groundbreaking endeavour.

HCL Group's Semiconductor Expansion

According to the media reports, HCL Group is eyeing expansion in India's thriving semiconductor sector.

The group is expected to submit a proposal to the Indian government to establish an assembly, testing, marking, and packaging (ATMP) facility for semiconductors, with an estimated project value of US$ 200-300 million (approx. Rs 15-22.5 bn).

HCL Group will be leading this project. The group's IT exports division is valued at US$ 12.6 bn (approx. Rs 940 bn).

The HCL Group plans to apply for standard operating procedures (SOPs) under the US$ 10 bn semiconductor incentive program. This program offers subsidies from the central and state governments up to 75% of the capital expenditure for setting up semiconductor facilities in India.

This announcement follows close on the heels of Micron's recent plans to establish an Outsourced Assembly and Test (OSAT) facility in Gujarat.

Micron, a US chipmaker, intends to invest US$ 825 m in the project, with a total investment of US$ 2.8 bn in collaboration with the Indian government and the Gujarat state government. Micron's project is expected to contribute significantly to the growth of India's chipmaking industry.

In November 2022, there were reports that the HCL Group was considering acquiring a stake in ISMC Analog, a semiconductor wafer fab applicant. ISMC Analog had chosen an electronics cluster near Mysuru, Karnataka, to establish a US$ 3 billion fab.

India's semiconductor push

The semiconductor sector in India has been witnessing substantial growth for the last couple of years. The Modi government's ambitious mission to build the world's largest semiconductor ecosystem in India is conducive to its growth.

The centre announced the ambitious Semicon India Program under the India Semiconductor Mission (ISM) in December 2021 for developing the semiconductors and display manufacturing ecosystem in India. This program has a financial outlay of Rs 760 bn.

In September 2022, this scheme was modified on industry feedback to bolster its competitiveness and relaunched as the Modified Semicon India Programme. A Rs 760 billion program to promote the development of a sustainable semiconductor and display manufacturing ecosystem in India.

In addition to the Semicon India Programme, the government is launching the Design-led Manufacturing (DLM) Program to promote the design and manufacturing of semiconductors in India.

Conclusion

It is a good time for the country to cement its chipmaking base given the lingering Sino-US trade tiff and the crippling semiconductor supply chain globally.

Global chipmakers are now eyeing India as the next big host to set up their manufacturing units.

The group's decision to enter the semiconductor manufacturing space is being seen as an organic growth strategy given the company's relation with chipmakers, such as Intel.

HCL already has a strong presence in the semiconductor space, offering a range of services such as lithography, etching, ion implantation, assembly, packaging, and testing on a global scale.

This positions the company well to expand its operations and contribute to the growth of India's semiconductor ecosystem.

By capitalising on this momentum and establishing a robust chipmaking base, India can reduce its dependence on imports, enhance domestic production capabilities, and foster innovation in the semiconductor sector.

This strategic move by HCL Group highlights the company's commitment to India's semiconductor growth story. It will solidify its position in the global semiconductor landscape.

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