The Hindu Business Line : Flextronics to invest in SemIndia project

CHIP AGREEMENT: (From left) Mr Peter Tan, President & MD, Flextronics Asia; Mr. Dayanidhi Maran, Minister for IT & Communications; Dr Y. S. Rajasekhara Reddy, Chief Minister of Andhra Pradesh; and Dr Vinod K Agarwal, President and Chief Executive Officer, SemIndia; after signing an agreement in the Capital on Tuesday. - Kamal Narang

New Delhi , April 4

Betting big on India's semiconductor potential, Singapore-based Flextronics on Tuesday announced it would pick up minority stake in SemIndia, which is embarking on an ambitious $3-billion chip manufacturing project in Hyderabad.

"Under the strategic partnership, Flextronics will manufacture electronic products for SemIndia, and SemIndia would make semiconductor chips for the various product categories that Flextronics manufactures in India. These include chips for cell phones, set-top boxes and personal computers," Mr Peter Tan, President and Managing Director (Asia), Flextronics, said after signing the Memorandum of Understanding with SemIndia, in the presence of the Union Communications and IT Minister, Mr Dayanidhi Maran, here.

Mum on quantum

Mr Tan said that the investment in the SemIndia project reflected the potential that Flextronics saw in the electronics manufacturing sector in India. He, however, declined to divulge the quantum of equity that the company would pick up in the project or the investment it would infuse.

Commenting on the strategic partnership, Dr Vinod Agarwal, Chairman of the Board and CEO, SemIndia Inc, said that in addition to chip manufacturing, the consortium also intended to get involved in market-making activities for its customers.

"For those products where we create market for our customers, Flextronics will be our preferred supplier," he pointed out.

Financing details

The $3-billion project has a 2:1 debt equity ratio where $1 billion would be raised as equity, and the balance through debt finance, vendor finance and project finance.

"We expect $250 million from the Central Government as equity, another $250 million from strategic partners such as Flextronics, and the balance $500 million would come in as private equity," Dr Agarwal said, adding that $2 billion debt would be arranged from financial institutions.

The project will also have some equity by Andhra Pradesh Government, he said, adding that the State Government would not have any direct investments in the project, but instead offer incentives in terms of land, infrastructure and tax concessions.

Linkages in place

"With the Flextronics partnership we are now creating an ecosystem that did not exist in India. While chip design and embedded software existed in India, the missing links were logistics, material movement and infrastructure all of which will be addressed by the upcoming fab city in Hyderabad. In addition, we need hardware manufacturers and Flextronics has taken a lead. With today's partnership, the entire ecosystem including design, research and development all the way to production and marketing will exist in India," he said.

According to Frost & Sullivan estimates, the consumption of electronic equipment in India is set to increase to $363 billion by 2015 from $28.2 billion in 2005, pushing the total market for semiconductors to a whopping $36.3 billion by 2015.