City beats Bangalore to Fab

Hyderabad/Bangalore, Feb. 9: Hyderabad beat Bangalore and grabbed the $3 billion Fab City, India’s first electronic hardware manufacturing complex. Companies at Fab City will manufacture a range of products from microprocessors (chips) and semiconductors to consumer electronics. The announcement that Hyderabad would get the project was made in Bangalore by Union IT and communications minister Dayanidhi Maran. He scooped the AP government which was waiting for the Centre to make changes in the IT policy to provide incentives for hardware manufacturing units.
SemIndia chief executive office Vinod K. Agarwal rushed to Hyderabad from Bangalore to make the announcement locally. SemIndia said it would set up the project in association with Advanced Micro Devices (AMD), the second largest manufacturer of microprocessors. SemIndia is a consortium of overseas Indians and Dr Agarwal, a former faculty member at McGill University in Canada.
The State government has allocated 1,200 acres of land at Tukkuguda of Maheshwaram mandal near Shamshabad, close to the international airport. Groundbreaking for phase-I of the project will take place in March. Dr Agarwal told reporters at the Chief Minister’s camp office that the State had emerged as the frontrunner because of the initiatives of Dr Y.S. Rajasekhar Reddy and his team to meet the requirements of the project.
According to a senior government official familiar with the negotiations with SemIndia, the government will be floating a special purpose vehicle (SPV) to implement the Fab City project, with APIIC holding a part of the equity for providing the land. “AMD will be setting up the first fab unit. Cypress Semiconductor is another company which will be setting up a unit. In all, we expect eight to nine fab units,” the official said.
Dr Agarwal said Fab City would consist of a range of electronic hardware units manufacturing products from microprocessors to communication equipment and consumer electronics. It would provide direct employment to thousands of skilled staff and lakhs of semi-skilled and unskilled personnel. With the fab units, India could emerge as a leading base for the electronics manufacturing and building industry that would be worth $40-47 billion by 2008, he said.
Dr Agarwal said work on the year-long $1 million first phase would commence immediately and comprise assembly and testing units. The actual fabricating unit would take another two years. Phase-II would commence in 2007, he said.
The Centre would have an equity of $250 million in the project. Half the remaining investment would be borne by SemIndia and AMD and the rest would be raised through debt financing. “The financial details are being worked out and we hope to achieve financial closure very soon,” Dr Agarwal said. AMD had announced an agreement with SemIndia covering manufacturing, technology licensing, and business development, during the visit of its chairman, president and CEO Hector Ruiz to New Delhi in November last year.
Dr Agarwal said that initially the skilled staff, most of them non-resident Indians, would be brought in from the United States. They would select staff within India and train them. Fab City would, therefore, consist of a large research institute where the latest advancements in the electronics industry would be studied. “It is a complete eco-system,” he said.
Dr Agarwal said the semiconductor unit planned by P. June Min, a South Korean entrepreneur, would be part of Fab City. “Apart from that it will have a lot of spin-offs in the form of ancillary units, providing employment to lakhs of people,” he said.
Dr Reddy said the project would not have materialised but for the initiative taken by Mr Maran, who convinced Fab companies in the US to set up units in India. He assured that the State government would provide infrastructure, including water and electricity, for the project. “I am confident that Andhra Pradesh would emerge as a top player in the hardware industry,” he said. The project reportedly needs 10 million gallons of water daily and 65 MW of power besides a waste treatment plant.
Dr Agarwal founded LogicVision, a yield learning technology provider in San Jose, California, in 1992, and was its CEO till 2003. He resigned from LogicVision’s board on November 7 last year.
While it is unclear whether Dr Agarwal has the financial muscle to bankroll a multi-billion dollar project, according to a November 9 filing by LogicVision with the Securities and Exchange Commission in the United States his severance package from the company totalled $400,000 (about Rs 1.9 crore). Asked whether the State government had done due diligence on Dr Agarwal to prevent the recurrence of a Volkswagen-like debacle, the official said, “Due diligence was done by the Centre, and it is also planning to invest in the equity of Fab City.”