L&T announces $100 million investment to set up chip design subsidiary

Larsen and Toubro Ltd (L&T), India’s largest engineering conglomerate, is foraying into fabless semiconductor chip design by setting up a wholly-owned subsidiary.

The company’s board has approved the incorporation of the subsidiary with an initial capital of $100 million. 

The move was announced by R Shankar Raman, L&T’s chief financial officer, during a conference call with reporters after the company announced financial results for the second quarter of 2023-24.

L&T achieved consolidated revenues of ₹51,024 crore ($6.12 billion) for the quarter ended 30 September 2023, recording a year-on-year growth of 19%. International revenues during the quarter was at ₹21,898 crore ($2.52 billion), constituting 43% of the total revenue.

“We will get into design for fabless semiconductor chips. We have decided to stay at the design end because it can be patented and will be most valuable,” Raman said. 

Raman added the company will focus on the “low investment” part of the supply chain and does not plan to get into manufacturing, Moneycontrol reported. 

“We are mostly focused on designing automobile and industrial chips, at the moment it will be less investment, low manufacturing, but getting our positioning accessed for the design (of semi-conductor chips),” he said. 

“We believe it will take a lot to compete in the (semi-conductor chip) manufacturing space with the likes of Chinese, Taiwanese, and Korean companies, so that is not an area we are targeting at the moment,” he added.

The company may set up a research and development center for fabless semiconductors in the US, he further said. 

The government has been pushing for investment in chip design and manufacturing to develop India as a semiconductor hub. Ashwini Vaishnaw, the Union minister for electronics and information technology, on Tuesday said that India is set to emerge as a hub for semiconductors in the next five years.

“When we look at our strengths and capabilities, the biggest strength is design. The second strength we have is clean power, green power. The third strength is the ability to handle very complex liquids and chemicals. These are three large strengths which place us in a sweet spot, where we can become a player which is designing and manufacturing chips,” Vaishnaw told Hindustan Times.

The government has announced a $10 billion production-linked incentive scheme to encourage local chip manufacturing. The PLI scheme last year attracted firms like Vedanta and Taiwan’s Foxconn, who promised multi-billion dollar investment in setting up units to manufacture chips, which are used in products ranging from mobile phones to cars.

There are currently 10 applications by chipmakers under the PLI scheme, with two of the proposals being for silicon fabs, three for compound semiconductor fabs, and five for packaging chips.