How US-Iran war threatens India's semiconductor ambitions
What's the story
The ongoing conflict between US-Israel and Iran in West Asia is posing a threat to India's semiconductor ambitions. The rise in crude-linked costs and supply chain disruptions are likely to hit outsourced semiconductor assembly and test (OSAT) players the hardest, industry experts have warned. However, while energy-intensive fabs may face cost inflation, immediate operational disruptions aren't expected.
Risk assessment
Fabs relatively insulated, but supply chain risks loom
Devendranath AM, CEO of Feedback Advisory, said India's upcoming semiconductor fabs are relatively insulated from energy-related issues as they don't rely on oil or natural gas. However, these fabs are still vulnerable to global supply chains for key materials and equipment. Delays and cost escalations due to logistics disruptions around the Strait of Hormuz could pose a threat to their operations.
Helium crisis
Helium supply disruption poses significant threat
A major risk for semiconductor fabs is the disruption of helium supply. The gas, a byproduct of liquefied natural gas production, is crucial to semiconductor manufacturing and can't be easily replaced. Disruptions in Qatar's LNG output have already tightened global helium availability and sharply increased prices, posing a potential threat to India's semiconductor sector.
OSAT struggles
OSAT players face dual challenges
Unlike fabs, OSAT players are grappling with both cost inflation and supply chain vulnerability. Ashwath Rao, a senior analyst at Counterpoint Research, said crude price volatility is driving up costs of petrochemical inputs such as epoxy, resins, and polymers—key materials used in semiconductor packaging. Given their structurally lower margins, OSAT firms are more sensitive to these input cost increases.
Import reliance
Logistics bottlenecks and cost spikes raise execution risks
OSAT units heavily rely on imported materials such as helium from Qatar and bromine from Israel and Jordan. This makes them more vulnerable to logistics bottlenecks and freight cost spikes. Disruptions in shipping routes and higher insurance costs are also increasing lead times, raising the risk of execution delays. However, unlike fabs, OSAT facilities can substitute helium with alternatives like nitrogen, albeit with efficiency trade-offs.
Potential impact
Prolonged disruptions could impact India's semiconductor competitiveness
Neil Shah, VP at Counterpoint Technology Market Research, said supply disruptions are likely to continue for the next four to five months. This coincides with the planned pilot and early production phases of several Indian semiconductor projects. Shah warned that if disruptions persist beyond three to four months, the cumulative impact could start affecting India's cost competitiveness in the semiconductor value chain.