Intel-Tower Split: A Blow to Karnataka&#8217;s Chip Ambitions?
The Karnataka Government’s aspirations to establish a fabrication facility within the state might have encountered a substantial setback. Last year, the International Semiconductor Consortium (ISMC), a collaborative effort between UAE’s Next Orbit Ventures and Israel’s Tower Semiconductor, had ambitious plans to establish a fabrication unit in Karnataka, India. Cementing this vision, ISMC inked a Memorandum of Understanding (MoU) with the Karnataka government, outlining their intent to build a $3 billion fabrication plant. The consortium also intended to secure 150 acres of land within the Kochanahalli industrial area for this purpose. However, ISMC’s quest to set up a fab was hinging on Intel’s deal to acquire Tower Semiconductors. But recently Intel terminated the deal to acquire the Israeli semiconductor company. According to the Santa Clara-based tech giant, the deal was terminated because it failed to acquire necessary regulatory approvals on time. The agreement needed endorsements from global regulators, including China but despite Intel CEO Patrick Gelsinger‘s recent trip to China to secure approval, Chinese regulators did not grant clearance for the deal by the August 15 deadline. Initially, ISMC, IGSS Ventures, and the Vedanta-Foxconn JV were the three applicants seeking government incentives to establish fabrication units in the nation. However, the Vedanta-Foxconn joint venture is no longer operational, and in the wake of the Intel-Tower deal’s collapse, it appears highly probable that the Israeli semiconductor firm will reevaluate its strategic direction concerning endeavors in India. Setback for Karnataka? The MoU ISMC signed with the Karnataka government with ISMC, in which Tower was a technology partner, is most likely off, according to Arun Mampazhy, an independent semiconductor analyst. To get some concrete answers, AIM wrote an email to Tower Semiconductors, to which they are yet to respond. The consortium’s initial blueprint outlined the construction of a 65-nanometer analog semiconductor fabrication facility. This endeavor aimed to generate 1,500 direct job opportunities and more than 10,000 indirect employment prospects within seven years. ( Signing of the Memorandum of Understanding between ISMC and Karnataka Government) The ISMC plant in Karnataka would have made the state a place to look forward to in the semiconductor space, according to Basavaraj Bommai, who was the chief minister of Karnataka at that time. But now, since the deal with Intel is off, Tower Semiconductor is no longer bound by Intel and not even ISMC, Mampazhy said. Moreover, even if Tower chooses to proceed with its intention to establish a fabrication unit in India through an alternative joint venture, the likelihood of selecting Karnataka once more seems minimal. A blessing in disguise for Indian businesses While the Intel-Tower deal termination could be a setback for Karnataka, it could be a blessing in disguise for Indian players looking to enter the semiconductor space. Mampazhy believes Intel’s inability to acquire Tower Semiconductor presents an opportunity for the likes of Vedanta and Tata Electronics. After the JV with Foxconn fell through, Vedanta is in search of a new technology partner. At Semicon 2023, Vedanta Chairman Anil Agarwal did hint that they are in discussion with a ‘world-class’ technology partner. However, partnering with the likes of Tower Semiconductor could prove to be pivotal for Vedanta. “If the partnership with STMicroelectronics is turning out to be too tough, Vedanta could look to partner with Tower Semiconductor,” Mampazhy told AIM. Similarly, last year, in an interview with Nikkei Asia, Tata Sons Chairman Natarajan Chandrasekaran revealed that the conglomerate has set up Tata Electronics in a bid to tap into the growing semiconductor space in India. While the plan initially for Tata is to set up an Outsourced Semiconductor Assembly and Test (OSAT), eventually Tata would like to get to the fabrication stage. For them too, Towers could emerge as a potential technology partner. Moreover, another potential scenario involves an Indian business entity potentially acquiring Tower Semiconductor outright. “With Intel’s prior offer of 5.4 billion and the likelihood of share prices declining due to the terminated deal, the opportunity might arise at a slightly reduced price. This presents the prospect for an Indian business to contemplate a complete acquisition,” Mampazhy said. However, the likelihood of Chinese regulators approving such a deal remains an entirely separate question. Much of it depends on Tower Semiconductor Nonetheless, a substantial portion of the decision hinges on Tower Semiconductor’s choice – whether to sustain their existing joint venture with Next Orbit Ventures or initiate a new collaboration with an Indian partner, or to disengage completely. However, another viable option in front of Tower is to act as a technology provider, instead of a technology partner. “The concept of technology providers involves a technology transfer agreement where ongoing support is provided until the new fabrication facility integrates the technology successfully. A licensing fee is levied for this service. After the facility becomes operational and the technology functions effectively Tower Semiconductor disengages. However, the Indian government seems less inclined towards this approach,” Mampazhy said. What the Indian government wants is for the technology provider to be a technology partner as well, meaning that Tower to has to be an equity partner in a JV, if they were to participate in establishing a fab in India. For Towers, to become a technology partner, won’t require a significant investment, given 50% of the cost will be borne by the central government and state governments would chip in with another 20-25%. Hence, a scenario where Tower becomes a technology partner to one of the Indian business houses is the most welcoming scenario from an Indian perspective.
ISMC’s initial blueprint outlined the construction of a 65-nanometer analog semiconductor fabrication facility
The MoU ISMC signed with the Karnataka government with ISMC, in which Tower was a technology partner, is most likely off, according to Arun Mampazhy, an independent semiconductor analyst.
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I have a keen interest in creative writing and artificial intelligence. As a journalist, I deep dive into the world of technology and analyse how it’s restructuring business models and reshaping society.