Applied Materials, World's Second Largest Fab Tool Maker Eyes India For New Manufacturing Unit Amid China Shift

New Delhi’s semiconductor push may finally be on the verge of a major breakthrough, as global toolmakers increasingly target India.

According to a report by Business Standard, Applied Materials, the world’s second-largest fab toolmaker with an annual revenue of $26.52 billion, is planning to establish a manufacturing unit in India, with Tamil Nadu as the preferred location.

In addition, the company is reportedly exploring the creation of an advanced AI-enabled technology development centre for semiconductor and equipment manufacturing in Taramani, Chennai, which could generate 500 jobs.

However, whether the focus will be on fab tool manufacturing or semiconductor production in India remains unclear.

“It is looking at a long-term play in India. The Tamil Nadu centre may be a curtain raiser. It may enter manufacturing once the Centre comes out with its updated incentives under the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS),” said an industry source aware of the development.

Semiconductor fabrication facilities, or Fabs, rely on various semiconductor manufacturing equipment (SME) from many different vendors. Because SME vendors often specialise in particular steps of the fabrication process, fabs have to combine equipment from several vendors for a process node.

The largest SME vendors are Applied Materials (AMAT), Lam Research (LAM) and KLA in the United States, Advanced Semiconductor Materials Lithograph (ASML) in Europe and Tokyo Electron (TEL) in Japan.

Applied Materials' interest in India is being seen as part of a "China Plus One" strategy, as China intensifies efforts to establish its own chip supply chain. The company is exploring new markets while contending with increasing US government restrictions, which in 2022 limited the export of chipmaking equipment for advanced semiconductors to China.

Despite these restrictions, Applied Materials continues to rely heavily on China, with 43 per cent of its sales coming from the country. However, Beijing’s push to develop a domestic chip supply chain could heighten competition for US equipment makers in the near future.

The California-based company has also faced setbacks in its financial performance. In 2023, Applied Materials lost its position as the world’s top fab toolmaker to Dutch rival ASML, which posted revenue of $29.83 billion compared to Applied’s $26.52 billion.