Decoding Semiconductor Market for India

Santhosh Gandhi
Apr 18
7 min read

Updated: Apr 22

Recently, at the startup Mahakumbh event, Union Minister Piyush Goyal asked Indian entrepreneurs to focus on Semiconductors and AI Startups, comparing us with Chinese startups. This created a lot of discussion and debate on the internet.

Since I create content on startups and venture capital for aspiring entrepreneurs, I was personally curious about why the government gives so much importance to semiconductors.

So, as usual, I went through multiple sources to understand the semiconductor market. And now, I’m going to share that with you. Don’t worry — this blog won’t be technical. I won’t throw complex jargon at you or confuse you. I’ll keep it simple so that any layman will understand the semiconductor market.

First, what does the Semiconductor Industry do? They make and sell electronic chips.

If you open or break any modern device — like a smartphone, laptop, or smart TV- You’ll see a green board filled with small electronic chips. These chips are made using special raw materials called semiconductors, like silicon. That’s why this whole market is known as the Semiconductor Market. Semiconductors are not just chips; they are the brains of every electronic device, from your smartphone to self-driving cars, and even AI systems.

And there are different kinds of electronic chips.

Some chips store data, They are called memory chips. RAM, SSDs, and SanDisk memory cards fall under this category.
Some chips process data. They are called logic chips. CPUs, GPUs, and AI accelerators fall under this category.
Some chips sense light, sound, motion, temperature - they are called sensor chips. Your smartphone's auto-brightness or fitness tracker's step counter works because of these chips.
Some chips manage electricity - they are called power management chips. These chips are found in smartphones for fast charging and in electric vehicles to control battery usage.
Some chips handle real-world signals like radio waves & sounds - they are called analog chips. Wi-Fi and, microphone work because of these analog chips.

So all these Semiconductor chips are basic building blocks of any modern-day device. The global Semiconductor market size is around $600 billion. Yes, it's a huge market, but it's also a strategic one. Whoever controls electronic chip production controls the future of AI, defense, space tech, telecommunications, and automotives etc.

Right now, countries like the US, China, and Taiwan dominate this space.

Interestingly, in the US, for every single job in the semiconductor industry, it creates an additional 5 jobs across the wider US Economy.

India should catch up in the semiconductor space because currently India largely depends on imports to fulfill its need for semiconductor devices. While importing chips may work in the short term, it leaves India vulnerable in strategic sectors like defense, AI. Plus, it means we’re missing out on high-value intellectual property creation. So we need to build our own semiconductor ecosystem, and it will bring a lot of job opportunities in India.

Indian startups can play a role in India becoming a dominant player in the Semiconductor Market. Who knows, even someone reading this might become a player in that. That's why I write blogs for, but first, to realize the startup opportunities in this semiconductor space, we need to understand its existing value chain, business models, and emerging trends in it.

Now let’s look at the Semiconductor Industry Value Chain.

Like any manufacturing process, it starts with design and ends with a finished product.

(Note: I simplified a lot to make it layman-friendly. Semiconductor professionals, please forgive me :D)

First, the chip is designed digitally & simulated using special software.
Once the design is finalized, using raw materials like silicon, multiple chips are built physically together as a single piece - this is called fabrication.

Finally, it is divided into individual chips. Then each is assembled, tested, and packaged. So it can integrate into the green circuit board we all know.

When it comes to business models, there are primarily 4 business models:

Fabless: focus only on chip design.
Foundries: They focus only on chip fabrication.
Outsourced Assembly, testing, and packaging is a separate business model.
IDM (Integrated Devices Manufacturers): which does everything end-to-end in-house.

And there are other business models that support this whole manufacturing process.

Like supplying raw materials for making semiconductors.
Building and selling machinery, equipment needed for chip manufacturing & assembling.
There are also companies that build software tools for chip design — think of them as the Figma or AutoCAD of the semiconductor world.
Even building IPs, patents on chip design, and licensing them is also a business model here.

And in this whole chip manufacturing process, in most cases, 50% of value addition happens in design only. The power efficiency of chips, their processing speed mainly depends on their design. The interesting thing is capital expenditure needed to set up a fabless design business is relatively lower than other business models. Also, it has a higher gross margin than other business models.

Now let’s look at Emerging Trends in the Semiconductor Market:

AI accelerators/AI Chips: Generative AI has become an important growth driver for the semiconductor industry. According to Deloitte’s 2025 Semiconductor Industry Outlook, Logic chips that power generative AI could account for ~20% of total revenue in 2024. Due to the rapid growth of AI, demand for electronic chips that handle AI will going to increase in the future. However, CPUs and even some GPUs couldn’t process a large amount of the data needed to run AI applications. You might have seen Sam Altman tweeting, “GPUs are melting.
That’s where logic chips like AI accelerators (specifically designed to speed up artificial intelligence tasks ) demand increases. AI accelerators are not only helpful in Handling Generative AI, but they’re also very helpful in Autonomous vehicles, robotics because they handle real-time decision-making better than traditional chips. Also, AI Chip Startups secured significant venture capital funding last year.
AI in chip design: Like every industry, using AI to increase efficiency & effectiveness. AI is also increasingly employed in semiconductor chip design because. AI tools have the potential to autonomously test human designs, identify errors, and suggest improvements
Using advanced materials that replace silicon. Because the growing demand for electronic chips will outstrip the global silicon supply. So advanced materials like Silicon carbide, gallium nitride, and graphene are explored. A startup called black Semiconductor in Germany, building microchips based on graphene, received funding of 276 million dollars from the German government.
With the rise of smart gadgets, intelligent machines, and electric vehicles, the demand for sensor chips and power management chips is increasing.

And from my current understanding, any day reducing the chip size with more efficiency has significant demand in the semiconductor market.

So with all these emerging trends happening in the industry. Where does opportunity lie here for Indian startups?

First opportunity. Yes, it is fabless design.

Not just because of relatively low capital expenditures or high gross margin. India is already home to 20% of the world’s semiconductor design engineers. This large and skilled talent pool provides a strong foundation for fabless design companies. Indian engineers are already involved in the design of chips globally. Strengthening the domestic fabless design industry allows India to move beyond just providing talent and towards creating Indian chip companies with their own intellectual property.

It can also be seen as a strategic entry point into the semiconductor market for India because Design is where creativity and IP play a bigger role than brute force capital, perfect for agile, innovative startups. It allows companies to gain experience in design and develop partnerships with foundries.

Already this wave has started, and currently Indian 40+ fabless design startups are focusing on areas like high-volume, low-margin industries such as IoT, energy meters, toy controllers, where analog and power chips a mainly used.

So Indian startups can scale in two ways: focusing on the Mass Market by designing one chip that lots of companies use will help in sales and scaling, or working closely with a few big clients to build exactly what they need. Slower but can make more money per deal. But moving forward, using AI in chip design could be a big leverage. Creating IP in chips will strengthen the Indian fabless design ecosystem.

Even though the capital expenditure of the fabless design business model is low compared to capital expenditure for a semiconductor manufacturing setup but it still needs more risk and patient capital from Investors. The Indian government is also supporting this space via a Design Linked Incentive (DLI) Scheme that aims to offer financial incentives and design infrastructure support across various stages of semiconductor design.

2nd opportunity for India is Assembly, Testing & Packaging (ATP) OF Electronic chips

Currently, 75% of ATP happens in Taiwan and China. The Indian Government is pushing this segment by providing 50% of capital expenditure support for setting up ATP facilities.

India also has sufficient labor availability of technicians and entry-level engineering staff needed for this space.

Strategically, countries like Korea, Taiwan, and Singapore entered the chip industry through ATP before moving to fabrication. There are initiatives in Gujarat and Tamil Nadu for semiconductor plants, but I don’t know if they are ATP plants or foundries. If anyone reading knows what exactly it is, please share in the comments.

Venture Capital and Semiconductors

When it comes to venture capital (VC) funding in India’s semiconductor sector, Last year, Indian startups in semiconductor design and manufacturing secured around $150 million in funding. Startups focusing on analog chips and sensor chips also saw significant investments. For seed-stage startups in the semiconductor space, the typical revenue multiple is around 16x. This means that if a semiconductor startup has $1 million in revenue, it could be valued at $16 million. On average, these startups are receiving a post-money valuation of about $4 million after their funding round. This data indicates that venture capitalists are showing increasing interest in this sector.

If you’re a VC or a founder raising capital in the semiconductor space, one thing you must understand is that the industry is cyclical. It regularly swings between periods of high growth and sharp slowdowns. In the last 34 years, the industry has flipped from boom to bust nine times.

This cyclicality happens for a few reasons. First, semiconductor demand is closely linked to end markets like smartphones, PCs, EVs, and AI hardware. When these markets grow, chip demand spikes. When they slow down, the entire supply chain feels it. Second, companies tend to over-order chips during boom times, leading to excess inventory when demand drops. Third, building chips and fabs requires huge upfront investment and long lead times. If companies misjudge future demand, they end up with overcapacity. As an investor or founder, knowing this cyclical pattern and longer gestation is key.

Finally, Current government involvement in semiconductors — is it enough? Are there gaps?

Compared to China’s “Big Fund” (which committed over $50B) and the US CHIPS Act ($52B), India’s Semiconductor mission is a good start — but there’s still a lot of catching up to do. While India has strong talent in design, the infrastructure for large-scale fabrication and testing needs significant improvement. Only time will tell.

That’s it from me! If you have any feedback or if I missed any important insight, please do share it in the comment section.

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Sources & References

Need to focus on semiconductor & AI’: Piyush Goyal gives a reality check to Indian startups: https://www.youtube.com/watch?v=5_f9jAvbkDU
The Silicon Playbook: https://blume.vc/reports/the-silicon-playbook
Building a Fabless Semiconductor Business: A Practical Guide: https://www.linkedin.com/pulse/building-fabless-semiconductor-business-practical-nick-florous-ph-d--4djbf/
2025 global semiconductor industry outlook: https://www2.deloitte.com/us/en/insights/industry/technology/technology-media-telecom-outlooks/semiconductor-industry-outlook.html
Indian Semiconductor Mission: https://www.ism.gov.in/
‘Semiconductor Ecosystem’ Explained: https://www.youtube.com/watch?v=VJwnAaZw7Ac
Semiconductor Manufacturing Process: https://www.youtube.com/watch?v=Bu52CE55BN0