Chip Wars: How Infy, HCLTech, Wipro and Tech Mahindra are walking the semiconductor talk

Indian and global IT services giants are betting big on semiconductor engineering, research and development (ER&D) services as the next crucial segment, amidst chipmakers making massive investments to expand manufacturing plants following the global chip shortage.

What is interesting is that this moment has been in the making for the past few years, with top Indian and global IT services companies, like Accenture, Infosys, HCLTech, Capgemini, Wipro and Tech Mahindra, acquiring semiconductor firms to offer third-party R&D services and take advantage of the burgeoning sector.

Semiconductors or semiconductor chips are the various memory chips and microprocessors used in electronic devices.

Last week, both HCLTech and Wipro announced partnerships with Intel Foundry. HCLTech is collaborating with Intel Foundry to co-develop customised silicon solutions for semiconductor manufacturers, system OEMs and cloud services providers to enhance foundry services, while Wipro will be its key design services and alliance partner to develop Intel’s most advanced process nodes.

The acquisition route

In January, Infosys announced the acquisition of InSemi, a leading semiconductor design and embedded services provider, to strengthen its portfolio of semiconductor-focused ER&D capabilities.

Among Infosys’s Indian peers, HCLTech acquired Sankalp Semiconductor in 2019, Tech Mahindra acquired Cerium Systems in 2020 and Wipro acquired Eximus Design in 2020.

“IT services companies have been working with semiconductor companies and speaking about it for some time now. But given the current scale and the limelight around semiconductors, you get to hear more public announcements of deals and partnerships. IT companies want to be a part of this growing activity in the semiconductor sector,” an equity analyst, who didn’t want to be named, told Moneycontrol.

IT companies’ acquisitions are now bearing fruits as following the global chip shortage of 2020-2023, chip makers around the world have announced new investments worth billions of dollars to expand semiconductor fabrication and manufacturing plants. To be sure, policymakers and governments too are coming up with initiatives to attract these investments and strengthen the industry in their countries.

A case in point is India’s Rs 76,000-crore production linked incentive (PLI) scheme for semiconductor manufacturing. In fact, on February 29, the Union Cabinet approved three semiconductor plant proposals for an estimated cost of Rs 1.26 lakh crore.

These proposals included India’s first semiconductor fabrication plant or fab by Tata Electronics and Taiwan’s Powerchip Semiconductor Manufacturing Corp.

Chip-to-cloud strategy

According to Dinesh Rao, Executive Vice President, Co-Head of Delivery, Infosys, the IT company’s collaboration with InSemi will accelerate Infosys’ “Chip-to-Cloud strategy” by bringing niche design skills at scale and will also pair seamlessly with existing investments in engineering services, AI/automation platforms, and industry partnerships.

“The semiconductor industry is poised for a significant growth with advances in areas like 5G, AI/ML, IoT, high-performance computing and autonomous technologies. The IT services industry is well positioned to take advantage of the growth in this segment,” Rao told Moneycontrol.

In March last year, HCLTech even said that it plans to double its semiconductor business over the next 3-4 years. HCLTech’s parent HCL Group is currently in the process of setting up electronic chip plants under the PLI Scheme. HCLTech will be assisting with end-to-end processing of chips.

Vijay Anand Guntur, President, Engineering and R&D Services, HCLTech calls this trend of acquisition of semiconductor R&D firms by the IT industry a strategic response to the growing demand for advanced technologies.

"The global semiconductor industry is projected to become a trillion-dollar industry by 2030. This market sizing is exciting for HCLTech as it aligns with our investments. Furthermore, the demand to design and produce specialized AI chips that can empower technologies like ML, large language models, VR, cloud and analytics is on the rise," he told Moneycontrol.

Guntur added that the demand is coming from customer companies trying to create custom silicon to get a competitive edge over peers. HCLTech is helping them develop custom silicon designs at substantial cost savings and accelerated development timelines, he said.

For Tech Mahindra, the hi-tech segment has been one of its highest growing segments in the last two years, and the company believes that semiconductor is going to be a crucial part of this story, going forward.

“You cannot ignore the opportunity that the semiconductor business brings. Semiconductor businesses have a very strong capability of engineering, design and what you see as foundries,” Jagdish Mitra, head, India business and corporate affairs, Tech Mahindra, told Moneycontrol.

He added that technologies are becoming more and more integrated with the demand for the digital segment, especially as the AI world starts to become more device-centric. This will make semiconductor and chips a critical part of Tech Mahindra’s capability to address that segment.

The company, like its peers, chose the acquisition route since this is not a home-grown technology and the speed of response was important, Mitra said.

Queries sent to Wipro didn’t elicit any response till the time of publishing this report.

Core IT services business slowing down

While core IT services business have started to slow down with revenue growth halving to 3.8 percent in FY24, as compared to 8.4 percent in FY23, ER&D services continue to remain a growth hotspot that companies want to bank on, according to tech industry body Nasscom’s Strategic Review 2024.

Moneycontrol had previously reported that ER&D services is poised to see at least 10-12 percent growth in India over the next five years.

“Engineering service providers want to play in the whole stack from chip to products to software, all the way up to cloud. Not being present in this whole stack means giving an opening to competition,” Pareekh Jain, founder of consulting firm EIIRTrend, said in his blogpost explaining the trend.

India’s next big opportunity

Boston Consulting Group’s (BCG) managing director Rajiv Gupta calls this a post-COVID phenomenon, driven by growing demand for ER&D services from segments like autonomous driving, R&D in healthcare, software engineering, platform engineering and financial services, to name a few.

Coupled with India’s geopolitical push and policymaking in semiconductor manufacturing, this becomes two intersecting areas in a Venn diagram, Gupta said.

“The push towards semiconductor is massive. There's a clear mandate to make India the next big semiconductor manufacturing hub. One of the biggest things in semiconductor manufacturing, especially chips, is the design and the engineering services,” Gupta told Moneycontrol.

While a lot of this capacity for semiconductor manufacturing built here is meant for global consumption, India too is expected to drive significant demand as a consumer of semiconductor products.

In terms of India’s semiconductor consumption, it is expected to reach $64 billion by 2026, tripling in size from $22 billion in 2019, with a projected 16 percent compound annual growth rate (CAGR) over that period. This is estimated to nearly double to reach $110 billion by 2030, at which point analysts anticipate India will account for an approximately 10 percent share of direct global semiconductor consumption, according to an India Electronics and Semiconductor Association (IESA) and Counterpoint Research report.

'Talent pool will be better utilised'

BCG’s Gupta also highlighted that the growth in ER&D services would mean India’s huge existing engineering talent pool will be better utilised. Most engineers in the country have been largely used for software coding, but this trend brings an opportunity to engineers specialising in other areas like mechanical, automobile, electrical, civil as well.

According to a recent report commissioned by the Semiconductor Industry Association (SIA) and the IESA, by venturing into semiconductor manufacturing, India will only build upon its decade-long experience in semiconductor design, where it accounts for 20 percent of the world’s integrated circuit (IC) design workforce, over 125,000 workers.

Forrester Research India’s head of research Ashutosh Sharma said that even as fabrication grows in the country, the real innovation and talent deployment will continue to be in chip designing.

“The number of chips that organisations will need for all sorts of things for IoT, AI etc., is growing. That demand will require not just the fab part of it which is expensive, but once you bought machines from ASML (a Dutch multinational corporation), and bought other things that go into their making in the  manufacturing process, the upfront design is where most of the brainy stuff happens,” he told Moneycontrol.

“That's where the innovation is going to be in terms of advanced nodes of 7 nanometer, 9nm to 3-4 nm…and that’s where demand will be from end customers,” he said.

Demand for workforce

The Semicon India Future Skills Talent Committee's report said that the semiconductor sector will need a workforce of 1.5 million by 2032, for activities such as chip design and fabrication.

According to specialist staffing firm Xpheno, the sector, at present, is hiring professionals in the design, manufacturing and R&D roles. It extends opportunities to engineers across diverse domains, including electrical engineering, hardware and software development, and telecom engineering.

From an IT services perspective, however, Prasadh MS, Head of Workforce Research at Xpheno, told Moneycontrol that semiconductor-related R&D and engineering work at IT companies have become tech-driven, using platforms and tools that were available to the automotive sector earlier.

Further, IT companies have made these acquisitions or have gone through the acquisition route to find readily trained semiconductor talent, to begin with.

“IT companies are using both the inorganic and the organic route to build semiconductor capabilities. The inorganic way of acquisitions will give them the early-mover advantage while they will start building an ecosystem of in-house talent around it. They will ramp up and train as per project requirements,” he said.

(This article was updated to include HCLTech's comments.)