Asset manager 360 ONE suggests investors focus on electronics manufacturing services (EMS) like Avalon Technologies and Syrma SGS instead of high-risk semiconductor fabrication. With $18 billion committed to Indian chip projects, the firm warns that building wafer plants involves significant upfront spending and technical hurdles, making established component suppliers a safer route for exposure.
India’s semiconductor sector is shifting from government policy announcements to physical construction. With over $18 billion in capital already earmarked for 12 approved projects under the India Semiconductor Mission, the industry is entering a critical execution phase. While the macro outlook suggests strong domestic demand through 2030, asset manager 360 ONE has cautioned that the road ahead for direct chip fabrication is filled with challenges that investors should carefully evaluate.
The Challenges of Chip Fabrication
Building a wafer fabrication facility, or 'fab,' is essentially a massive infrastructure project. These plants require enormous upfront spending on equipment and infrastructure, and they take several years to become operational. Beyond the initial cost, the primary risk is operational execution. Achieving competitive yields—the percentage of working chips produced versus defective ones—and meeting the strict quality standards of global customers are complex technical tasks. 360 ONE notes that for pure-play fabricators, there is a risk of incurring losses for a long period before the plants reach the scale needed to be profitable. Investors should understand that these are long-term, high-risk, and high-capital ventures where a single execution delay or failure to secure customers can significantly impact financial health.
Why EMS Players Offer More Stability
Rather than taking on the risks associated with building chips from scratch, 360 ONE suggests that risk-averse investors look toward the broader electronics manufacturing services (EMS) and component ecosystem. Companies like Avalon Technologies and Syrma SGS Technology play a supporting role in the semiconductor industry by providing services such as cleanroom maintenance, testing, and component assembly.
These businesses generally operate with a different risk profile. They provide necessary support services and assembly that are essential for the final electronics market. Because they are already established in the electronics supply chain, they offer a way to participate in the growth of the sector without being directly exposed to the technical and binary risks of chip manufacturing. The growth for these companies is driven by increasing domestic electronics production, which acts as a more predictable tailwind compared to the uncertain timeline of a new fabrication plant.
Investor Monitorables
When evaluating this sector, investors should look beyond the headline numbers of multi-billion dollar project approvals. The most important factor will be the actual execution of these projects. For EMS players, the key will be their ability to scale their services as local demand grows and to maintain healthy profit margins amidst competition. For those tracking the fabrication space, the monitorable will be the progress in achieving commercial production and securing long-term contracts with global customers. As 360 ONE suggests, investors should view this growth trajectory through a long-term lens, focusing on companies that provide critical, incremental support to the industry rather than those relying on the success of capital-intensive, nascent fabrication plants.