Another large Indian multinational company is entering the semiconductor business, following in the footsteps of Vedanta, Tata, and the Hiranandani families. Larsen & Toubro (L&T) is branching out into fabless semiconductor chip design rather than semiconductor manufacturing.
L&T intends to invest Rs 830 crore in establishing a subsidiary. L&T’s Chief Financial Officer, R. Shankar Raman, revealed during the company’s second-quarter financial results call that the board of directors has approved the formation of a wholly-owned subsidiary involved in fabless chip design.
A fabless semiconductor company focuses on the design and manufacture of semiconductor chips without owning or controlling semiconductor manufacturing facilities, also known as “fabs” or fabrication units.
L&T
Unlike chip production, the fabless approach is a low-cost endeavor. These firms concentrate on designing and marketing hardware and semiconductor chips while outsourcing manufacturing to specialized foundries. As a result, they demand less working capital. NVIDIA, Qualcomm, and MediaTek are among the most well-known global fabless companies.
L&T has admitted that it is focusing on the low-investment segment of the semiconductor supply chain since it does not aim to compete with Chinese, Taiwanese, and South Korean enterprises to begin with.
Given the costs of establishing a fab, L&T’s decision to begin with semiconductor design is well thought out. It’s been more than a year and a half since Indian oil-to-gas behemoth Vedanta unveiled its chip intentions, but the company has yet to secure a technological partner. In addition, if seeking for a fab under India’s Rs 76,000 crore semiconductor program, the applicant must have a production-grade technology partner on board.
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