Can Kaynes Semicon Supercharge India’s Chip Manufacturing Ambitions?

India’s semiconductor landscape is going through a paradigm shift — from decades-old engineering and design play to now manufacturing chips, thanks to the centre’s intent to establish the country as a global semiconductor hub and rising demand for semiconductors across industries like electronics, automotive, telecommunications, and defence.

In the last few months, the Indian government has paved the way for several initiatives vital for companies to set up semiconductor fabrication plants (fabs) and outsourced semiconductor assembly and testing (OSAT) factories domestically. 

A prime example is Micron. The global semiconductor giant received the government’s approval last year to set up a semiconductor unit in Sanand, Gujarat. The plant will likely start rolling out India-made chips in 2025. Tata Electronics also received the Centre’s approval to set up two additional fabrication plants in Gujarat. 

In addition, Murugappa Group’s CG Power has joined hands with Renesas Electronics America Inc. and Stars Microelectronics (Thailand) Public Co. Ltd. to establish an outsourced semiconductor assembly and testing (OSAT) facility in Gujarat.

Observing the growing trends shaping the Indian semiconductor space, Kaynes Technologies, a electronics contract manufacturing company, ventured into the exciting world of chips in May last year (2023) via its subsidiary Kaynes Semicon Private Limited. 

For the unfamiliar, Kaynes Technologies is a four-decade-old listed integrated electronics manufacturer. It is now setting up a 47-acre OSAT facility under Kaynes Semicon. The fabrication unit will have the capacity to produce 60 Lakh chips per day.

Kaynes Semicon aims to provide its cutting-edge chips across industries and applications such as automotive, including EVs, consumer electronics, telecom, and mobile phones. 

Supported by an established electronics design and manufacturing (ESDM) business and government initiatives, Kaynes Semicon aims to capture a significant share of the Indian semiconductor market, which is projected to grow from $33 Bn in 2023 to $150 Bn by 2030.

Kaynes Semicon’s OSAT Mission

Semiconductor is already quite a capital-intensive line of work. Further, what makes this even more capex-heavy is setting up chip manufacturing plants or foundries. Therefore, it is a game played only by large enterprises with the government’s investment support.

For context, the cofounder and CEO of fabless semiconductor startup Mindgrove Technologies, Shashwath T R, once told Inc42 that setting up a single OSAT plant can cost more than $500 Mn. As ballpark as the number could be, Kaynes has set aside a budget of over $600 Mn for its proposed OSAT facility in Sanand, Gujarat.

OSATs are third-party vendors that provide assembly, packaging, and specialised testing of integrated circuits (ICs) to semiconductor manufacturers. 

 

“Once a fab produces wafers based on the designs provided by the design companies, they come to the OSATs who then cut, slice, dice, polish, and wire bond wafers to make a chip, which is then tested by us,” Raghu Panicker, CEO of Kaynes Semicon, said.

He added that the end product from an OSAT then goes for distribution and comes to EMS (electronics manufacturing services). “This is the entire cycle for semiconductor design, manufacturing, and EMS,” Panicker said.

As per Kaynes’ CEO, the rising demand for advanced packaging solutions is set to push the global OSAT market to $59.8 Bn by 2027 from $45 Bn in 2023.

As per Panicker, chips designed by SoC (system on chip) companies like Infineon, Texas Instruments, Microchip, NXP, and even Intel, AMD, and Qualcomm are already being consumed by new-age manufacturing startups like Ola Electric, Atomberg and others. 

“There is a possibility that OEMs like Ola will want to design their own chips to lower the cost of vehicles. In this case, they’ll have to come to OSATs like us for manufacturing,” Panickar said.

As per reports published earlier this year, Kaynes Semicon is in talks with Ola Electric to manufacture chips for its EVs. We must also note in this regard that Kaynes Semicon is trying to leverage Kaynes Technology’s existing strong customer base, which includes the top automotive manufacturers such as Mahindra, Maruti, Tata Motors, as well as new-age EV OEM like Ola Electric.

However, Kaynes Semicon plans to initially supply its chips to the power market and later expand into sectors like automotive, telecommunications, and other applications.

“The toughness in automotive is that they have a long lead time to qualification. If we have to start doing business, we look at industrial use cases that have lower lead time. So we will start working with industrial companies, for example, the ones building smart fans, to address the power market. Will go that route first and then we will start building technology and know-how in automotive, servers, which are more advanced,” Panicker said.

Kaynes Semicon’s parent Kaynes Technology has a strong customer base across other sectors, too, and it counts names such as Intel, Schneider Electric, Honeywell, Bosch, Tata Communications, and ISRO in its list of clients. 

Kaynes Semicon’s Work Plan 

As of now, Kaynes Semicon wants to cash in on semiconductor design companies and OEMs. It has already signed letters of intent (LOIs) with four clients and has another six in the pipeline. Kaynes Semicon intends to keep its customer base limited to only 10-12 companies. 

Besides the global fabless semiconductor players, the company is also working with Indian player FermionIC. It has also signed an MOU with Singapore-based Light Speed Photonics.

Kaynes also has collaborations with a few state-backed accelerator programmes and universities, including IIT Hyderabad and Semiconductor Fabless Accelerator Lab (SFAL), so that startups emerging from these institutions can get easier access to its OSAT facility. 

As far as the company’s operations are concerned, Kaynes Semicon has divided its OSAT operations into three distinct parts – legacy packages, advanced packages, and silicon photonics. 

While about 70% of its OSAT has been designated to work on advanced packaging, which includes silicon photonics, about 35-40% is dedicated to traditional or legacy packaging.

At its upcoming plant, the company has set a target to produce 100 Mn semiconductor packages in the next one to two years. It has set its eyes on 1 Bn+ packages in the next five years. 

Meanwhile, it is pertinent to note that the Centre will be giving a 50% subsidy to the company for building its INR 3,300 Cr OSAT facility while the state government will bear 20-25% of the cost. The remaining investment will be done by the company, Panikar said. 

Per Kaynes Semicon’s standalone financial statement for the financial year 2023-24 (FY24), the entity received INR 22.4 Cr from the holding company, Kaynes Technology, and INR 55.8 Cr from fellow subsidiary, Kaynes Electronics Manufacturing, in the form of loans and advances.

Kaynes Semicon’s Parent Has A Role To Play 

Kaynes Semicon is yet to start generating revenue but aims to achieve $250 Mn in sales within the next four years. It expects to contribute 25-30% of Kaynes Technology’s revenue over time.

Though Kaynes Technology will see this come to fruition after a few years, the company has already started bearing the fruits of developments at Kaynes Semicon.

Founded in Ramesh Kunhikannan in 1988, Mysuru-based Kaynes Technology went for an IPO in November 2022. Its shares were listed at INR 775 apiece on the BSE, at a 32% premium to its issue price. Currently, it is one of the multi-bagger stocks with shares trading at INR 5,580 apiece on the exchange.

While the success of the Chandrayaan-3 mission has had a major impact on the growth of its stock (Kaynes supplied electronic systems to ISRO for the moon mission), its shares are rallying on the back of the country’s semiconductor commitments. In just a little over a month, after Kaynes Semicon’s OSAT facility received the government nod, the company’s shares rallied 20%. Kaynes Technology reported INR 1,804.6 Cr in revenue for FY24.

Having said this, the futures of Kaynes Semicon look bright as the strong legacy of its parent company, along with its success in the public market, is expected to play a significant role in charting its future growth.

[Edited By Shishir Parasher]