Indian Semiconductors Industry Presentation 060109

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S e m i c o n d u c to rdecember 2008

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contents

• Semiconductor Sector – overview

• Semiconductor – An upcoming Sector

• regulatory Framework in the Semiconductor Sector

Semiconductordecember 2008

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Semiconductor Sector – overview

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indian Semiconductor – A Sunrise Sector

Semiconductor Sector–overviewdecember 2008

Indian Semiconductor Sector

the semiconductor sector comprises pre-fabrication, fabrication (fab) and post-fabrication verticals. in the last four years, the indian semiconductor market has grown from about uS$ 2.1 billion to about uS$ 4.1 billion. Further, semiconductor market is expected to reach uS$ 9.8 billion in 2012. india accounted for 1.3 per cent of the global semiconductor revenue in 2007. the country’s share is expected to reach 1.62 per cent by 2009 at a cAGr of 26.7 per cent. the demand for semiconductor solutions, the heart of the electronic systems, is also expected to get a fillip as the consumption of electronic equipment in india is expected to grow at a cAGr of 29.8 per cent over 2005–2015 to uS$ 363 billion.

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Indian Semiconductor Sector

• the growing demand for it hardware and office automation products, and consumer electronics products such as mobile phones, automotive products, etc., is spurring the demand for semiconductor and a full-fledged semiconductor ecosystem in india.

• the major semiconductor end-user segments have been identified as communications, it and consumer electronics. At the same time, the important product sub-categories that are expected to drive the semiconductor market in india are mobile handsets, wireless equipment, set-top boxes and smart-card terminals.

• Semiconductor are poised to impact human life far more as they open up new possibilities in nano-sciences, biotechnology, medical sciences, electro-mechanical devices, photonics, remote sensing and so on. while still in its nascent stages, the semiconductor sector in india posseses immense potential to emerge as a global hub.

indian Semiconductor – A Sunrise Sector


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Share of the indian Semiconductor Sector in the global semiconductor market is expected to increase to 1.6 per cent by 2009

the semiconductor sector involves pre-fabrication, fabrication (fab) and post-fabrication verticals. the semiconductor segment can be divided into semiconductor designing, semiconductor manufacturing and semiconductor AtmP.

Semiconductor market in india (2003-2009)

2009E

2007

2006

2005

2004

2008E

2003

0 61 2 3 54

1.6

4.4

2.1

2.8

2.7

4.1

5.5

US$ billion


Source: ISA 2007 report, F&S

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Percentage Share of the indian Semiconductor market in the Global Semiconductor market (2006-09)

1.751.400.00 0.35 0.70 1.05

2006

2007E

2008E

2009E 1.62

1.42

1.27

1.09

Percentage

Share of the indian Semiconductor Sector in the global semiconductor market is expected to increase to 1.6 per cent by 2009

Accrding to an iSA 2007 report, the indian semiconductor market has grown from approximately uS$ 2.6 billion to approximately uS$ 4.1 billion. the semiconductor market is expected to grow from uS$ 2.7 billion in 2006 to uS$ 5.5 billion in 2009. the country accounted for 1.09 per cent of the global semiconductor revenue in 2006 and this share is expected to reach 1.62 per cent by 2009, which will represent a cAGr of 26.7 per cent.


Source: ISA 2007 report F&S

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the semiconductor design requirements of verticals such as automotive, electronics, telecommunications, commercial electronics and it hardware and office automation, provide an opportunity to multinational companies to enter into india and tap the potential.

reasons for growth in the semiconductor sector

Significant export potential

Increased semiconductor content in the electronic

industry

Growth in the Chip Design industry

Unprecedented growth in domestic consumption of

electronic goods

Reasons for growth in the semiconductor sector


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telecom segment is expected to be the main growth driver in the Semiconductor Application market

• the it and office Automataion segment along with the telecom segment dominate the demand for semiconductor products in india. these two segments control more than 75 per cent of the total semiconductor requirement in the country.

• the telecom segment is the largest application segment contributing to the semiconductor market. According to iSA, it registered a market share of approximately 43 per cent in 2006 and is expected to grow to 46 per cent by 2009.

total Semiconductor Product market in 2006

n Telecom n IT & OA n Consumer Electronics n Industrial n Automotive n Others


46%

30%

8%

6%2%

8%

44%

32%

6%

8%3%

7%


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Semiconductor design revenues expected to witness cAGr of 29.5 per cent

india is on the world map in chip designing; the growing production and consumption of electronics across various sectors is further driving growth of semiconductor designing in the country. According to data provided by iSA the semiconductor designing segment generated revenues worth uS$ 6 billion in 2007 and is expected to reach approximately uS$ 14.4 billion and uS$ 43.1 billion by 2010 and 2015, respectively. during 2005–2015, it is expected to register growth at a cAGr of approximately 29.5 per cent.

total Semiconductor designing market in india

300 505 15 20 40

2011E

2012E 23.7

18.5

2013E 29.0

2014E 35.4

2009E 11.2

2005 3.3

2006E

2007E

2008E 8.6

6.6

4.6

2010E 14.4

2015E 43.1

10 3525 45

2004 2.4

US$ billion



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Semiconductor design revenues expected to witness cAGr of 29.5 per cent


engineering workforce employed by indian Semiconductor design market

2011E 0.36

2010E 0.29

0.23

2006E

2008E 0.18

0.10

2012E

2013E 0.55

0.45

2009E

2005

2007E 0.10

0.07

0.30 0.750.150 0.45 0.60

2014E 0.65

2015E 0.78

in million0.90


the growth in the indian semiconductor design market is expected to lead to growth in the engineering workforce employed by this segment. According to the iSA, it employed an estimated 0.13 million engineers in 2007 and the employment figure is likely to grow to 0.29 million by 2010 and 0.78 million by 2015, growing at a cAGr of approximately 27 per cent during 2005–2015.

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embedded software is a leading segment in semiconductor designing

indian Semiconductor design market revenue Break-up

n VLSI Design n Embedded software n Hardware/Board Design


2007 2015 E

Source: ISA, F&S, The Economic Times

4.86%

0.78%0.36%

36..34%

5.09%1.64%

• iSA-Frost & Sullivan report on the indian semiconductor sector estimates that the number of chip designs executed in india will increase at a cAGr of 13 per cent from 320 in 2005 to 1,075 in 2015.

• revenue of the different sub segments – embedded software, vLSi design and hardware/board design – is expected to register a cAGr of approximately 30 per cent, 24 per cent and 27 per cent, respectively, from 2005 to 2015.

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competitive landscape in semiconductor designing

VLSI DESIGN COMPANIES IN INDIA

Foreign Companies Domestic Companies

Freescale Semiconductor, Inc. TATA Consultancy Services Ltd.

Intel Corporation Wipro Technologies Ltd.

National Semiconductor Corporation Tata Elxsi Ltd.

Texas Instruments, Inc. Sasken Communication Technologies Ltd.

NXP Semiconductor MindTree Consulting Ltd.

Cisco Systems, Inc. HCL Technologies Ltd.

Tessolve, Inc. Hexaware Technologies Ltd.

Foreign and domestic companies operating in Semiconductordesigning Segment

At present, the top 10 fabless design companies and 19 of the top 25 semiconductor companies have their operations in india.


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EMBEDDED SOFTWARE COMPANIES IN INDIA


Alcatel-Lucent HCL Technologies Ltd.

Cisco Systems, Inc. Ittiam Systems

NXP Semiconductor Satyam Computer Services Ltd.

Intel Corporation Wipro Tecnologies Ltd.

Flextronics International Ltd. TATA Consultancy Services Ltd.

D-Link Corporation MindTree Consulting Ltd.

Embedded Communications Computing Group Tata Elxsi Ltd.

HARDWARE/BOARD DESIGN COMPANIES IN INDIA


Cisco Systems, Inc. Wipro Technologies Ltd.

NXP Semiconductor Sasken Communication Technologies Ltd.

Advance Micronic Devices Limited MindTree Consulting Ltd.

Intel Corporation HCL Technologies Ltd.

Flextronics International Ltd. Ittiam Systems

competitive landscape in semiconductor designing


there are 125 integrated chips (ic) design companies operating in india and almost 50 per cent of the semiconductor design work in the country is carried out in the areas of wireless and wired communications.

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trends in semiconductor designing

chip designing companies are looking forward to not just india-designed chips but also india-focused chips as these companies are also looking at india as a key product market. this confidence is based on the country’s sharp growth in mobiles and consumer electronics sector.


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trends in semiconductor designing


Emerging Trends in Semiconductor Designing

many multinational semiconductor companies have also started either offshoring their developing and designing work to india or opening their own captive centres in the country. these designing companies in india are now moving up the value chain by moving from low end-to-end design activities to front-end design work.

Moving up the Value Chain

many domestic and foreign start-ups are coming into the picture and expanding their operations in the country. currently, it is not difficult to establish a start-up unit, as financing schemes for these start-ups are available in the country. this trend will firmly embed india on the global map in the field of semiconductor designing.

Emergence Design Start-ups

various semiconductor consuming sectors, such as digital media, consumer electronics, auto and wireless, are demanding devices with multi-features having different technologies on a single platform. Further, the growth of mobile applications is driving the combination of microprocessors and digital signal processors in order to take advantage of both technologies.

Technology Convergence

india is attracting a large number of vcs to invest in the domestic semiconductor design segment. the country is now becoming a preferable destination for vc firms due to factors such as availability of skilled labour, strong local market and flexible regulatory framework of the it ministry.

Venture Capital

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expansion plans of semiconductor design companies in india


MAGMA

magma design Automation has 200 employees spread across three centres in india. its Bengaluru operations has moved to a new 40,000 sq. ft facility, which will enable magma to expand in the region and provide prompt support to its growing customer base in india. the company is also focused on expanding its product portfolio and building its expertise in ic implementation.

Management Dynamics, Inc.

management dynamics, inc. expanded its operations in Asia Pacific by sales and operational units in europe and india to meet the demands of its growing Asian customer base.


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Freescale Semiconductor

Freescale Semiconductor is expanding its indian operations with the development of a 300,000-sq ft campus in noida. the company plans to increase its headcount in india to 1,500 engineers over the next four years to support its global r&d efforts.

CISCO

in 2005, cisco announced to invest uS$ 1.1 billion in india over the next three years, i.e., uS$ 750 million on r&d activities, uS$ 150 million on providing leasing and other financial solutions, uS$ 100 million on funding of indian start up companies and uS$ 100 million on customer support operations.


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CISCO in 2005, cisco announced its plans to invest uS$ 1.1 billion in india over the next three years, i.e., uS$ 750 million on r&d activities, uS$ 150 million on providing leasing and other financial solutions, uS$ 100 million on funding of indian start up companies and uS$ 100 million on customer support operations.

Alliance Semiconductor Corp

Alliance Semiconductor corp., a leading world-wide provider of analog and mixed signal products, systems solutions, and high performance memory products, announced to invest approximately uS$ 50 million in its india design centre over the next five years.

Conexant Systems, Inc. conexant Systems, inc., a leader in fabless semiconductor solutions for broadband communications and digital home, is investing approximately uS$ 250 million in india over the next few years.




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Fairchild Semiconductor Fairchild Semiconductor has opened a new r&d centre in Pune to design and develop the company’s new generation of power moSFets and iGBt technology for supporting applications such as solar inverters, uninterruptible power supplies (uPS), automotive, lighting and ballast applications.

Alereon, Inc. Alereon, inc. announced the opening of Alereon Semiconductors Pvt., the company’s new product oriented r&d facility in Pune, india. the r&d centre will focus on developing the company’s patented uwB chipsets for the next generation products.



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Semiconductor manufacturing in india

the increasing spending on electronics products offers a large opportunity to global semiconductor companies to set up their manufacturing plants in the country. recently, setting up of some new fabs has been proposed and the already approved fab units are expected to be operational by 2009 and 2010. the indian government has also proposed to develop a ‘Fab city’ in Hyderabad, which is expected to house 10 manufacturing plants and to create 5,000 jobs by 2009 and up to 1.4 million jobs by 2016 in over 200 ancillary industries


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• it is estimated that approximately seven to eight Solar Photovoltaic (SPv) units will be set up in india, at an investment of uS$ 5–6 billion. the number of solar chip fab units in india is expected to surpass the number of semiconductor chip fab units in the country in the next few years.

• currently, there are no operational wafer fabs in the country and semiconductor manufacturing is limited to only three government companies (Bharat electronics Limited, Society for integrated circuit technology and Applied research, and Semi-conductor Laboratory).

Semiconductor manufacturing in india


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Factors fuelling growth in semiconductor manufacturing the indian Government is currently offering various incentives to the global semiconductor companies to set up their chip manufacturing plants in the country.

Factors Fuelling Growth

• chip manufacturing is getting a fillip in india as various electronics manufacturing services (emS) providers and mobile phone equipment manufacturers, such as Samsung, motorola and nokia, are setting up their plants in india. For example, according to a Gartner report, by 2011, 10–20 per cent of mobile phone production in india could be for exports. there is potential for chip manufacturing companies to partner with these emS players and leverage this opportunity.


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Factors fuelling growth in semiconductor manufacturing • the indian Government has announced various

tax incentives to companies that are starting chip manufacturing operations in the country. the incentives are expected to provide an impetus to companies plannning to set up their chip manufacturing plants in india.

• the newly operational international airport in Hyderabad is expected to boost chip manufacturing in india. ‘Fab city’ is located just outside Hyderabad and Hyderabad is well connected to all major cities in india as well as all major cities in the middle east and South east Asia.


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Assembly testing mark Pack (AtmP)

AtmP is the post-fabrication stage, where the chip reaches the testing lab and undergoes various tests. At this stage, faulty chips are identified and the rest are taped out for shipment. this post-fabrication stage completes the overall value chain of the semiconductor sector and complements the indian semiconductor ecosystem.


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ATMP in India

Market

• the number of AtmP units in india is very small but various firms including both domestic and foreign testing and packaging companies are foraying into ic testing. For india to emerge as a complete semiconductor solution provider, it has to develop as an AtmP hub.

• the global AtmP market is valued at approximately uS$ 20 billion (as of 2007) and if india can tap even five per cent of this market by 2015, it will translate into big business for the country.



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Exemptions

AtmP units are entitled to tax exemptions under Software technology Parks of india (StPi) norms. Some of these exemptions are:

• custom duty exemption

• excise duty exemption

• central sales tax reimbursement

• corporate tax exemption on 90 per cent export turnover

• Sales in domestic tariff Area (dtA) upto 50 per cent of the ‘free on board’ (FoB) value of exports permissible



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Growth prospects for AtmP

cost competitive manpower is typically the deciding factor for AtmP units, a resource that india has in plenty. the second factor that makes india a good location for AtmP units is the presence of a growing domestic electronics market.


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Growth prospects for AtmP

Upcoming Fabs and Manufacturing Facilities

the upcoming semiconductor fabs in india may require in-house operations to carry out assembling and testing of their ics to have full control over the manufactured ics. At the same time, plans of some of the consumer electronic majors, such as Samsung, nokia, LG and dell, to set up their manufacturing plant in india, are favourable for assembling, testing and packaging of chips and final products.

Growing Domestic Electronics Market

the presence of a growing domestic electronics market consisting of mP3 players, personal computers (Pc), digital cameras and mobile handsets offers a great opportunity for mix-signal testing, flash testing and packaging memory devices.

India – A Cost Competitive Country

AtmP units are located predominantly in cost competitive countries. india with its abundant skilled, low-cost, and competitive workforce offers tremendous opportunities for AtmP units.

Growth Prospects for AtmP units in india


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investment Plans in AtmP

InTEl intel plans to invest uS$ 400 million to establish a testing and assembly facility in india near Bengaluru or chennai.

SemIndia Semindia is setting up a uS$ 100 million AtmP unit at maheshwaram, near Hyderabad, and plans to roll out its first chip by march 2008.

Tessolve tessolve along with its investors has announced plans to undertake an investment of uS$ 200 million for a testing Assembling Packaging and Prototyping (tAPP) facility in chennai.

SPEl

SPeL, india’s only commercial semiconductor chip assembly and testing company, plans to invest uS$286 million in a special economic zone near its existing facility in chennai.


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Venture Capital Targeting ATMP Segment

Some vc firms are targeting the indian semiconductorAtmP segment. For example, Sandalwood capital Partners, an india-focused venture fund, is keen to invest in the AtmP segment. Sandalwood invested uS$ 30 million in the Semindia’s Phase 1 proposed test and assembly facility in Hyderabad. currently, Sandalwood is increasing its corpus in india from uS$120 million to uS$500 million. it aims to increase its investment to uS$ 1 billion in the next three years in technology-related business.

current trends in AtmP



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Outsourcing of Assembly and Testing Services

outsourcing of assembly and testing services is expected to give a fillip to the revenue of AtmP units in india. Foreign companies are expected to outsource their work to these AtmP units in india and at the same time, captive design centres of semiconductor companies such as intel, ti and Amd are also expected to outsource their work to these AtmP units. this trend is further supported by the fact that the market for outsourced assembly and testing services has grown from 30 to 40 per cent in the past five years.

current trends in AtmP

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Semiconductor An uPcominG Sector

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Semiconductor Sector: Advantage india

Strong Growth in Related Verticals

the indian semiconductor sector is likely to witness a strong growth rate due to expected growth in some related sectors, such as automotive, consumer electronics and durables, it hardware and office automation, telecommunications, etc.

Strong Academia

Semiconductor being a knowledge intensive sector requires a large pool of engineering workforce. Here, india has an edge over other countries owing to its large talent pool.

Engineering Workforce Employed by Different Design Sector Verticals in India

YEAR TOTAL DESIGN MARKET

EMBEDDED SOFTWARE

DEVELOPMENT MARKET

VLSI DESIGN MARKET

HARDWARE/BOARD DESIGN MARKET

2005 74,850 60,220 11,300 3,330

2006E 102,120 83,500 14,200 4,420

2007E 140,235 116,305 18,060 5,870

2008E 178,675 148,790 22,300 7,584

2009E 227,265 190,030 27,455 9,780

2010E 286,220 241,000 33,135 12,085

2011E 360,440 305,665 39,850 14,925

2012E 454,010 387,665 47,910 18,436

2013E 545,665 465,196 57,700 22,770

2014E 653,365 558,236 67,000 28,130

2015E 781,780 669,885 77,150 34,745

Semiconductor – An uPcominG Sectordecember 2008

Market for Semiconductor Across Different Industry Verticals (US$ million)

YEAR Automobile Sector

Electronics and Durables

Sector

IT Hardware and Office

Automation Sector

Telecommunication Sector

Commercial Electronics

Sector

2004 76.3 202.9 660.0 828.6 121.6

2005 100 297.9 780 1281.5 153.4

2006 121.9 378.4 1000 1884.3 186.9

2007 145.9 471.4 1280 3010 245.4

2010E 240.2 791.1 2610 7980.8 484.7

2015E 459.5 1529.5 6960 24297.2 1647.6

Source: ISA 2007 report

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Semiconductor Sector: Advantage india Cost Savings

india offers a large pool of technically and scientifically skilled english-speaking workforce. At the same time, the country also offers plenty of semiconductor design talent at competitive cost. For example, an employee in the engineering services cost uS$ 25 per hour in india, which is approximately one-third for a similar employee of comparable skill and experience in the uS. Approximately 20 per cent of the Fortune 500 companies have their research and development operations in india and recruit managerial and engineering staff locally for their indian operations.


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Semiconductor Sector: Advantage india Government and Industrial Support

initiatives taken by the government and the industry are providing new business opportunities to the existing companies to move up the value chain. the Government of india has been taking various initiatives to support business activities of the semiconductor sector in india. to attract electronics companies to invest in india, it is working towards establishing a favourable Fdi environment, reducing taxation rates and is giving fiscal and financial benefits to the sector.


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reGuLAtory FrAmework in tHe Semiconductor Sector

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regulatory Policy and incentives offered in the Semiconductor Sector

to become self-reliant in chip manufacturing and attract semiconductor companies to set up their manufacturing plants in the country, the indian Government announced ‘national Semiconductor Policy’ (nSP) or ‘Fab Policy’ in 2007. under this policy, the government has proposed a special incentive plan to encourage companies to come to india for semiconductor and related ancillary manufacturing

Regulation of nSP the threshold investment for a semiconductor manufacturing (wafer fabs) plant would be uS$ 575 million (approx.) and uS$ 220 million (approx.) for other ancillary units (storage devices, organic Led, micro or nano-technology products).

reGuLAtory FrAmework in Semiconductor Sectordecember 2008

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regulatory Policy and incentives offered in the Semiconductor Sector

reGuLAtory FrAmework in Semiconductor Sectordecember 2008

incentives offered by the government

the policy covers Lcds, storage devices, plasmas, photo-voltaics, solar cells and nanotechnology products, and also includes assembly and testing of these products.

State Governments can provide additional incentives to semiconductor companies.

20 per cent of the capital expenditure of a semiconductor manufacturing unit located in a Special economic Zone (SeZ) will be borne by the government for the first 10 years.

in case of units located outside an SeZ, the government will bear 25 per cent of the capital expenditure for the stated time duration.

in case of units located outside the SeZ, the countervailing duties (cvd) on capital goods will be exempted.

Assuming a 1:1 debt to equity ratio for the project, the government restricts its participation to 26 per cent of the equity capital.

Incentives under the national Semiconductor Policy

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this presentation is for information purposes only.

diScLAimer

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while due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of the Author’s and iBeF’s knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice.

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Indian Semiconductors Industry Presentation 060109