Tessolve Services, an American semiconductor manufacturer that does most of its development work in Bangalore, India, said Monday it would invest $200 million in India over four years to build an assembly and testing plant for semiconductors.

The San Jose, California-based company did not specify where the plant will be located, but said it would be built in either Karnataka, Andhra Pradesh, or Tamil Nadu in southern IndiaTessolve plans to invest $50 million in the plant by July 2006. The facility is expected to be operational by early 2007. By May 2006, an overseas partner will also be involved, suggested Tessolve CEO P. Raja Manickam.

Tessolve is not the only company to announce plans recently to build a chip factory in India.

India

Earlier this month, SemIndia, a semiconductor manufacturing company set up by a consortium of Indians in the United States, and other investors, finalized plans to set up another chip manufacturing plant in Andhra Pradesh (see India Revs Up Fab City Plans).

Earlier this month, SemIndia, a semiconductor manufacturing company set up by a consortium of Indians in the ).

SemIndia will spend $1 billion in the first phase of constructing the $3-billion plant, which includes testing and assembly.

Growing Chip Market

But the investment should position companies like Tessolve, and SemIndia to take advantage of a growing market.

The semiconductor and embedded design market in India is expected to grow from $3.25 billion today to $14.42 billion in 2010 and $43.07 billion by 2015, according to a study released earlier this month by Frost & Sullivan and the India Semiconductor Association.

The study forecasts that consumption of electronics equipment in India will reach $363 billion by 2015. The semiconductor component of that total will be $36.3 billion.

India

These figures provide ample incentive for semiconductor companies to become local suppliers. Dozens of semiconductor design companies already offer hard-to-find skills to multinational firms that source their help from India.

India

Semiconductor-testing factories are capital-intensive, requiring heavy investments in high-end test equipment, expensive test programs, and high-salaried employees.Yet setting up such a plant in India at this point makes sense because of the projections for heavy demand from the growing base of semiconductor vendors in the country.

at this point makes sense because of the projections for heavy demand from the growing base of semiconductor vendors in the country.

Mr. Manickam believes the challenge is to ensure that the order books are full, to eliminate idle capacity. ‘‘A critical mass is needed as it does not make business sense to keep expensive testing equipment idle,” he said.

Tessolve was founded in the U.S. by engineers of Indian origin. Unlike a typical Indian assembly and testing firm, Tessolve plans to provide input beginning at the design stage.

U.S.

“We in India are ready to leapfrog, if there is sustained investment in technology aided by a clear focus and direction by the government,” said Mr. Manickam. “We need to focus on creating a market for new applications in the areas of digital consumer devices, smart cards, set-top boxes, and the like.”