Electronics Majors Reassess Semiconductor Ambitions After ISM 2.0 Announcement
India's leading listed electronics manufacturers, Syrma SGS and Dixon Technologies, are actively reconsidering their strategies to venture into semiconductor and chip component manufacturing. This strategic reassessment comes in response to the Union Budget 2026-27 announcement of India Semiconductor Mission (ISM) 2.0, a new incentives program designed to build deeper and more comprehensive chip capabilities within the country.
Policy Shift Prompts Supply Chain Evolution
The second semiconductor mission, expected to follow the initial ₹76,000 crore incentive scheme launched five years ago, aims to develop a more holistic semiconductor components ecosystem. This policy shift is encouraging electronics manufacturing services (EMS) companies, traditionally reliant on low-margin assembly work, to explore opportunities to move up the electronics value chain.
"Companies which missed out on ISM 1.0 have now got another window to foray into semiconductor manufacturing. We at Syrma SGS would be studying the policy guidelines and would seriously endeavour to enter this space," stated Jasbir Singh Gujral, managing director of Syrma SGS.
Dixon Technologies has adopted a more cautious approach, with Saurabh Gupta, director-finance and group chief financial officer, noting: "We will evaluate (ISM 2.0), once the detailed guidelines are out."
Strategic Appeal Despite Scale Challenges
Analysts recognize the clear strategic value of semiconductor ventures, even if immediate scale may be limited compared to traditional electronics assembly. "Most semiconductor projects will not come with the kind of scale that mobile phone and consumer electronics assemblies bring for EMS firms. However, venturing into semiconductors will prove significantly beneficial in the long run as companies will be able to expand their margins through vertical integration of a product line, and closer control of the entire electronics value chain," explained Harshit Kapadia, vice-president at Elara Capital.
If successful, Syrma SGS and Dixon would join a growing cohort of manufacturers bridging electronics assembly and semiconductor production. This group includes:
- Tata Electronics, which announced a chip fabrication plant in Dholera, Gujarat, expected to be operational by mid-2027
- Foxconn's partnership with HCL Group for semiconductor fabrication in India
- Kaynes Technology's outsourced semiconductor assembly and test (OSAT) facility
Industry Support and Long-Term Value Creation
Ashok Chandak, president of the India Electronics and Semiconductor Association (IESA), emphasized how semiconductor expansion could enhance the long-term value of EMS firms. "Electronics manufacturers are naturally suited to venture into the semiconductor industry as they already have sectoral expertise in high-tech manufacturing. For most EMS firms, the ability to venture into semiconductor component manufacturing would mean memory and storage chip assemblies, as well as compound chips for industrial electronics. All of this would add increasing value to the business that electronics manufacturers are pursuing right now," Chandak noted.
Capital Availability and Business Pressures
While capital availability remains a consideration, analysts are optimistic about funding prospects. "Apart from Dixon, which has been battered in the markets because of its over-reliance on a slowing mobile phone market, all other EMS firms have grown through a tricky December. This shows that investors and shareholders are bullish on them, and it is unlikely that any of them will struggle to raise enough capital to venture into semiconductor fabrication and assembly," added Kapadia.
The pressures on existing business models are evident in recent performance. Dixon, India's largest listed EMS firm, experienced a 28% sequential revenue decline amid global mobile market slowdowns. In contrast, Syrma SGS, with its diversified portfolio spanning laptops, IT and telecom hardware, and industrial electronics, reported a 10% sequential revenue increase in the December quarter.
ISM 2.0: Building Upstream Capabilities
Ankush Wadhera, managing director and partner at BCG and India leader for semiconductors, highlighted ISM 2.0's focus on upstream development. The second chip incentives scheme will concentrate on "building upstream semiconductor capabilities beyond assembly-led growth—by focusing on equipment, materials, full-stack design, industry-led R&D, skilling and the creation of Indian IP."
This comprehensive approach signals India's commitment to establishing a robust semiconductor ecosystem that extends beyond assembly to encompass the entire value chain, from design and materials to manufacturing and testing.
