Semiconductor Riches: Keep an Eye on the Ecosystem

The world has become an increasingly volatile place to live in.

Russia Ukraine war...

China Taiwan tensions...

Israel Palestine issue slowly engulfing other Middle Eastern economies...

Growing trade wars targeted at weakening other nations, leading to a lose lose situation and potential escalations to more conflicts...

... the last few years have seen the rise in antagonism and polarization of the world.

Much as we lament these unfavorable developments or try not to get involved directly, the only guarantee for peace and security is the ability to retaliate. Especially as we are surrounded with some of the hostile economies.

No wonder then that defence has become one of India's topmost priorities in the last few years.

India's defence budget has been rising over the years. And the way things are shaping up, it's only likely to go up further.

In the Union Budget of FY24-25, Ministry of Defence (MoD) has been allocated Rs 6.2 trillion (approx. US $75 billion), the highest among all the ministries.

Yet, this might not be enough.

You see, in the biggest battles that the world has seen in the past, the battles were fought by men on land, sea and air. Steel, aluminium and atomic weapons were the keys to military supremacy.

But with the great march of technology, things have shifted.

As the author of Chip War, Chris Miller lays out in detail, the next big war is likely to be won by nations with chip supremacy.

If you think this is far-fetched, you should hear External Affairs Minister S Jaishankar. He has warned that the next world war will be fought on chips.

This product with small dimensions is at the base of every big revolution unfolding - Digitalization - smart phones, communication systems, missiles, electronics, drones, navigation, cars, to name a few.

The post Covid chip shortage amid supply chain disruptions was an abrupt speed breaker for multiple industries, and a gentle reminder to how dependent we have become on chips in our day to day lives.

We have been woefully late to the world's most critical technology.

The US has tech expertise for chip design. South East Asia has captured the major market in chip making. Europe offers some critical tools and machines for manufacturing advanced chips. China has done a good job of copying and then catching up.

We have no claim to fame yet.

But thankfully, India is realizing and willing to change that.

I do think it's going to be a long journey. But the first steps are a welcome.

So, let's look at some companies that are participating in this revolution.

Astra Microwave is in the business of design, development and manufacture of sub-systems for Radio Frequency and microwave systems used in defense, space, meteorology and telecommunication.

Its subsidiary Aelius Semiconductors Pte Ltd develops Gallim arsenide and gallium nitride products that are used in defense radio frequency electronic systems.

In FY24, it has entered an agreement with Teledyne e2v HiRel, to provide semiconductor services to support the aerospace, defense and the reliability electronics market.

In the recent quarter, it has signed a JV with Manjeera Digital Systems to focus a making NavIC (navigation with Indian constellation) chips and the GNSS products (global navigation satellite system) using these chips.

The company has healthy return ratios and benign debt to equity ratio.

Axiscades Technologies Ltd is another company in this space. It offers engineering solutions and services to meet engineering, technology, manufacturing and digital needs of fortune 100 clients in aerospace, defence, heavy engineering, automotive, energy & medical equipment sectors.

12% of its revenue come from semiconductor vertical. Here, the company offers hardware design and software development, IoT (internet of things) device programming and design services. The Indian government's initiatives to bolster semiconductor fabrication and manufacturing is a strong tailwind for the company.

Some other companies with semiconductor aspirations include IZMO, Jyoti CNC, Sahasra Electronics (SME), Trident Techlabs (SME).

For more names in domestic semiconductor space, click here and here.

This article does not carry or imply a view or recommendation on any of the stocks.

I don't think it's going to be a smooth or linear journey. The semiconductor business is subject to long gestation periods, with massive capital requirements, tech prowess, and policy support. The fact that other nations are more competitive makes this race harder.

Nonetheless, this is one of the fastest rising sectors in India. Keep an eye on the ecosystem. Spotting opportunities well in time could help you ride semiconductor riches.

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Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)