We live in an era of automation and technology that makes life more convenient for mankind. Since this modern world cannot function without its smart devices which are a result of advanced technological progress, the importance of the Semiconductor Industry has increased astronomically. These electronic chips allow us to finely control the working of our devices and increase their functionality.

But, the Semiconductor Industry was one of the most affected industries during the pandemic. The production of semiconductors slowed down and this led to supply shortages all over the world. The insatiable demand for semiconductors will only increase with technological progress.

 Table of Contents:

What are Semiconductors?

Semiconductor Chips Manufacturing

Semiconductor startups in India

How to Invest in Semiconductor Companies?

What are Semiconductors?

Semiconductors are those materials whose conductivity lies between that of conductors (such as Copper, Aluminium, Gold, etc.) and insulators (such as wood, ceramics, glass, etc.). They can be in the form of pure elements (such as silicon or germanium), or compounds (such as cadmium selenide or gallium arsenide).

The conductivity of these materials can be altered through a process called doping. In this process, small and controlled amounts of impurities (called dopants) are added to the semiconductors. This can lead to p-type and n-type semiconductors. When these are placed beside each other in the crystal structure, it gives us a semiconductor with a p-n junction. These are used in diodes, transistors, etc.

Some properties of these Semiconductor devices include passing current more easily in one direction than the other, sensitivity to light or heat, and variable resistance. Therefore, devices that use semiconductors can be used for energy conversion, amplification and switching. ICs (Integrated Circuits) are also made using semiconductors.

Semiconductor chips are used in electronic devices such as computers, cloud servers, smartphones, air conditioners, medical equipment, automobiles, etc. They increase efficiency and energy savings.

Semiconductor Chips Manufacturing

Semiconductor chip manufacturing is a complex, technology and capital-intensive process to fabricate semiconductor wafers. Very few countries are semiconductor chip manufacturers. China, Japan, South Korea, USA, Germany, Thailand, Singapore, Philippines, Malaysia, and the Netherlands are the biggest semiconductor chip manufacturers in the world. They have mastered the production of these chips while the rest of the world imports semiconductors from them.

India imports Semiconductors worth approximately $24 billion and it is estimated that imports will soon reach $100 billion. In order to reduce the forex outflows, the Indian Government is encouraging setup of semiconductor fabrication plants in the country with a ₹75,000 Crore Production-linked Incentive (PLI) Plan. This has led to the setup of an Independent Business Division of India’s Semiconductor Mission (ISM) within the Digital India Corporation.

ISMC, IGSS Ventures, and a Vedanta Foxconn Joint Venture have proposed the setup of electronic chip manufacturing plants with an investment of $13.6 billion and seek government support of $5.6 billion under the Semicon India Programme. Valenkani Electronics, HCL, SPEL Semiconductor, and Syrma Technology have registered for semiconductor packaging plants under this scheme. In addition to this, Trispace Technologies, Curie Microelectronics, and Terminus Circuits are seeking government support under the Design-linked Incentive Scheme. The ISM has acknowledged these applicants and will coordinate with states to provide funding and infrastructure.

Semiconductor startups in India

Semiconductor Industry is capital-intensive and this makes it difficult for startups to enter this space. But India’s PLI plan of ₹75,000 Crore might make it possible for startups to participate in this industry. Some of the semiconductor startups in India that use these chips are listed below:

1. Saankhya Labs: Founded in 2007, it is one of the first chip companies in India that made a TV demodulator on a standard CMOS integrated circuit (IC).

2. NanoSniff: Founded in 2011, it is an R&D start-up developing products around MEMS (Micro-electromechanical systems) and nanotechnology for medical diagnosis, security, surveillance, hazard detection, and applied research areas.

3. Cirel Systems: Founded in 2013, it provides integrated and optimized solutions to power application processors, battery charging, integrated regulators for peripherals, and monitoring functions.

4. Tinymesh: Founded in 2011, they provide two-way wireless communication solutions, data capture and device control for street lighting, smart meters, etc.

5. Semtronics Micro-systems: Founded in 2010, it is an IC and IC-based power system design and manufacturing company that operates in the Communication and Power Domain.

How to Invest in Semiconductor Companies

The demand for semiconductors is growing as the global use of electronic devices has increased. This is leading to the growth of the Semiconductor Industry and making it a lucrative investment option. This leads us to the question of how to invest in semiconductor companies.

As of now, the best way to invest in this industry is to invest in the best semiconductor companies in India. The top companies are:

1. Tata Elxsi

This company manufactures 5G network equipment and has entered the semiconductor industry. Their plant is expected to start operating by late 2023 and will provide employment to more than 4,000 workers.

It has a market capitalization of ₹55,619 Crore and an EPS of 81.1.

    2. Dixon Technologies

They have recently announced a joint venture with Bharti Enterprise Ltd. for the manufacturing of routers, Internet of things (IoT) devices, set-top boxes, and other devices used in telecom and networking.

Market capitalization:₹27,336 Crore

EPS: ₹29.2.

    3. Moschip Technologies

This company designs, tests, and packages semiconductor chips. But manufacturing of these chips is not carried out.

Market capitalization:₹1,119 Crore

EPS:₹0.27.

    4. ASM Technologies

They provide consulting services in the system software and embedded software space. They specialise in offering prototyping, network design, testing, wireless and cloud security products, pilot production, etc.

Market capitalization:₹654 Crore

EPS:₹12.3.

    5. SPEL Semiconductor

They are the only company that offers semiconductor IC assembly and testing in India.

Market capitalization:₹310 Crore

EPS:₹-2.71.

    6. Ruttonsha International Rectifier

They carry out the manufacturing of traditional semiconductor devices such as rectifiers, thyristors, and power modules. They have acquired a 100% stake in Visicon Power Electronics Pvt. Ltd. which focuses on manufacturing silicon carbide (SiC) chips.

Market capitalization:₹230 Crore

EPS: ₹3.62.

The Bottom Line

While investing in the above-listed semiconductor companies in India is the best way to invest in the semiconductor industry, there are several factors that must be taken into consideration before selecting the right company which will lead to capital appreciation for investors.

      1. Revenue Growth

Revenue Growth is an important factor since the increase in sales over the years plays a big role in the company’s profitability and growth.

       2. Profit Margins

High-profit margins are preferred since this enables companies to reinvest the profit in research and development and in the expansion of operations.

      3. Strong Financials

Balance sheet, financial ratios, annual returns, etc. help us determine the financial performance of the company and tells us whether it is a good investment or not.

The above factors should answer any investors’ questions about how to invest in semiconductor companies.