SemIndia gets Exalted, will buy 2 more

IP-driven model puts firm with $3bn chip fab plan on aggressive acquisitions path

Experts continue to debate the logic of setting up a chip foundry in India. But SemIndia, which is working to set up a $3 billion silicon wafer fabrication unit here, has charted out an aggressive M&A path for itself in the global semiconductor space, and thereby create an intellectual property-driven business model.

As a first step towards this SemIndia has recently acquired Bangalore based fabless semiconductor company Exalted Networks in an $8 million cash and stock deal, a source close to the investors said.

The SemIndia consortium, promoted by former McGill University don Vinod Agarwal, includes the world’s second largest chip-maker AMD, fabless ASIC semiconductor design and manufacturing giant Flextronics, private equity fund Sandalwood Partners among others.

Significantly, it has kicked off parleys with global private equity funds to raise the money for acquisition of Assembly, Testing, Marking and Packaging (ATMP), plants and fab units across the world, Ajay M Marathe, chief operating officer, SemIndia USA Inc, said.

Marathe, till recently president of AMD India, is slated to take charge formally on February 12 as the COO of SemIndia.

He refused to divulge the extent of these investments, but said the local fab will cater to the domestic market, while the overseas fabs, which could be ultimately shifted to India, would initially cater to customers abroad.

A source close to the investors said while SemIndia may not buy old fabs and will focus only on acquiring new equipment, it was nevertheless scouting for ATMP units in Thailand, Malaysia, Singapore and Taiwan.

These acquisitions will be in the range of $100-200 million and there could be at least three such deals.
SemIndia kicked off work on a $100 million ATMP unit in the FabCity complex here and expects to commission it by the end of the current calendar year.

The FabCity is also promoted by SemIndia which wants to tap the huge potential market for outsourced ATMP services from global chip makers. Testing and packaging constitutes between 25-35% of the cost of the chip and is a major cost factor in chip making.

Exalted Networks has now been rechristened SemIndia Systems Pvt Ltd, and has 100 engineers working for it. The company is expected to close the current financial year with a turnover of Rs 100 crore.

Interestingly, it has already started marketing third-party products with the SemIndia brand in the country. It has shipped out the first batch of ADSL modems made by co-investor Flextronics to BSNL. SemIndia is close to closing two similar deals as Exalted, he added.

However, he did not name the target companies. Further, it is understood that AMD, which is till now a technology partner in the $3 billion wafer fabrication unit, will pick equity pari passu with the government.

How much this will be therefore depends on the fine print in the National Semiconductor Policy (NSP), cleared in-principle by the Union government.

The industry has demanded between 25-26% equity participation by the Centre apart from a host of other sops.

But sources close to the Andhra Pradesh government said the state was willing to kick in its own equity participation if Centre only partially or even does not agree to the 25%-26% equity participation

While Sandalwood Partners and Flextronics have picked up 5% each in the project totaling to $20 million, main promoter and former McGill University don Vinod Agarwal hold the remaining. AMDs investment could therefore work out to roughly $50 million if the government were to agree to pick up around 25% equity in the project.

“SemIndia will never be a classic foundry as it will be mainly IP driven with innovative products as the main focus”, Ajay Marathe said elaborating on the company’s business strategy. “That is why it will go around buying up product design IP”, he added.

3 ATMP units in far-east on radar
SemIndia to private equity funds for raising money for ATMP and fab acquisitions

It may buy 3 ATMP units worth $100m -$200m each located in Thailand, Malaysia, Singapore or Taiwan

AMD to be pari passu equity participant with government

AMD India chief Ajay Marathe to be COO, SemIndia

Andhra may pick up equity in SemIndia project