Spel Semiconductor Ltd Management Discussions

Global Semiconductor Industry

Global Semiconductor Industry — one of the most critical pillars of the modern economy, underpinning consumer electronics, automotive, healthcare, defence, AI. Encompasses design, fabrication, assembly, testing, distribution. FY 2025-26 a landmark year: record revenues, structural shifts from AI infrastructure buildout, accelerating geopolitical realignment of supply chains.

• Global semiconductor market: record revenues USD 795.6 billion in CY2025, YoY growth 26.2% — strongest single-year expansion in over two decades (WSTS March 2026 update).
• Surpasses USD 526.8 billion recorded in 2023; sharp recovery from 2022-23 inventory correction and AI-related demand surge.
• Projected to approach USD 975 billion in 2026; USD 1 trillion milestone anticipated by 2027 — ahead of earlier consensus.
• Long-term CAGR revised upward to approximately 10-12% through 2030, driven by structural AI demand, electrification of transportation, proliferation of connected devices.

• Asia-Pacific (APAC): Dominant region, >60% of global semiconductor consumption and vast majority of manufacturing capacity. Key hubs: Taiwan (TSMC), South Korea (Samsung, SK Hynix), Japan (Renesas, Kioxia), China (SMIC, Yangtze Memory). Geopolitical pressure reshaping APAC role; new fab investments across Japan, India, Southeast Asia to diversify away from Taiwan.

North America: US CHIPS and Science Act catalysed over USD 400 billion in committed private semiconductor investments as of early 2026. TSMC Arizona Fab 21 Phase 1 (4nm) commenced volume production Q4 2024; Phase 2 (2nm) on track for 2028. Intel 18A process node returned to competitive technology leadership. NVIDIA, AMD, Qualcomm anchor worlds most prolific fabless design ecosystem.

Europe: European Chips Act targets doubling Europes global semiconductor market share to 20% by 2030. TSMC Dresden fab (Fab 36) broke ground 2024, targeting 12-16nm specialty nodes for automotive/industrial. Intel Magdeburg mega-fab and STMicro Crolles-3 expansion are key pillars of European semiconductor sovereignty.

India: Discussed in detail in Section 3. Emerging as newest strategic node in global semiconductor geography.

• AI Infrastructure Buildout: Single most powerful demand driver in 2025-26. Hyperscalers (AWS, Microsoft Azure, Google Cloud, Meta) collectively invested over USD 300 billion in AI infrastructure in 2025 alone. Every layer of semiconductor stack benefits from AI capex.
• Automotive Electrification and Intelligence: Modern EV contains USD 900-1,200 of semiconductor content vs USD 450 in conventional ICE vehicle. Global EV fleet crossed 50 million vehicles in 2025; forecasts project 80 million annual EV sales by 2030. ADAS (L2+/L3), V2X communication, in-vehicle infotainment multiply content per vehicle.
• 5G and Beyond (6G Research): 5G subscriber base surpassed 2.5 billion globally in 2025. Sub-6GHz mass market rollouts maturing; mmWave accelerating in dense urban environments. 6G research advancing, commercial deployment targeted 2030.
• Edge AI and IoT: Proliferation of AI-capable endpoint devices — smartphones, wearables, smart cameras, industrial sensors — generating demand for energy-efficient inference chips. Apple A18 Pro and Qualcomm Snapdragon 8 Elite exemplify on-device AI shift, reducing cloud dependency.
• Data Centres and Cloud Computing: Hyperscale data-centre construction at record pace. IEA estimates data-centre electricity consumption will double by 2028, driving demand for compute chips, power semiconductors, optical transceivers, advanced packaging.
• Sustainability and Energy Efficiency: Regulators in EU, US, Asia tightening energy-efficiency mandates. Companies responding with GaN-based power solutions, advanced node transitions (better performance per watt), sustainable fab practices including renewable energy procurement and water recycling.

• Geopolitical fragmentation: US export controls on advanced chips and chip-making equipment to China accelerated bifurcation of global supply chain. Chinas countermoves — domestic chip investment exceeding USD 150 billion since 2020 and retaliatory controls on gallium and germanium — reshaping global flows.
• Cyclicality and inventory management: Despite record 2025 revenues, industry prone to demand-supply mismatches. Parts of automotive and industrial semiconductor markets remained in inventory correction through mid-2025.
• Capital intensity: State-of-the-art 2nm fab costs USD 20-30 billion to build, limiting number of players capable of frontier manufacturing. Even advanced packaging lines require USD 1-2 billion capex.

• Skilled talent shortage: Global shortage of semiconductor engineers, process technicians, advanced packaging specialists is a binding constraint on industry expansion.
• Rare earth and materials dependencies: Supply of gallium, germanium, indium, specialty gases remains concentrated in China — strategic risk.

• Synopsys-Ansys merger (USD 35 billion, 2024): creates dominant EDA+simulation software stack critical for chip design, particularly AI and automotive.
• Intels partial divestiture of Altera FPGA division (2024): sold majority stake to Silver Lake; separates FPGA business to enable focused investment in core foundry operations.
• Renesas-Altium acquisition (completed 2024, USD 5.9 billion): strengthens Renesas end-to-end embedded and automotive electronics portfolio.
• Qualcomm-Intel discussions (2024): reported discussions around potential acquisition of Intels PC chip business attracted regulatory attention; no transaction resulted.
• Continuing consolidation in OSAT: ASE Group and Amkor made strategic acquisitions to expand advanced packaging capacity for AI chip customers.

Future Outlook: Industry entering new era defined by AI-led structural demand, sovereign technology competition, rise of advanced packaging as primary vector of performance improvement. USD 1 trillion revenue milestone is "when" not "if". Companies that navigate geopolitical fragmentation, invest in advanced packaging, build energy-efficient product portfolios, and cultivate deep customer relationships in AI, automotive, industrial end markets best positioned for sustainable long-term growth.

Global OSAT Industry — crucial final stages of semiconductor manufacturing value chain: packaging dies into usable components, rigorously testing before delivery to system integrators and OEMs. Transformed from commoditised cost-reduction tool into strategic enabler of cutting-edge semiconductor performance, particularly AI and heterogeneous integration.

• Global OSAT market valued at approximately USD 47.1 billion in 2025; projected to reach USD 77 billion by 2031, CAGR approximately 8.5-9% (Yole Group and SEMI).
• Advanced packaging fastest-growing sub-segment: projected to account for over 45% of OSAT revenues by 2028, up from approximately 28% in 2023.

• Traditional packaging: Wire bonding, flip-chip, QFP, BGA — volume backbone for mainstream applications.
• Advanced packaging: Fan-Out Wafer-Level Packaging (FOWLP), 2.5D interposer (CoWoS), 3D stacking (SoIC), System-in-Package (SiP), Embedded Multi-die Interconnect Bridge (EMIB). Essential for AI accelerators where raw transistor scaling alone no longer delivers sufficient performance.
• Co-Packaged Optics (CPO): Emerging packaging technology integrating optical engines directly into chip package to reduce interconnect power and latency for AI data-centre switches and GPUs.
• Chiplet integration: Disaggregation of monolithic SoCs into specialised chiplets (compute, memory, I/O, analog) connected via high-density die-to-die interfaces (UCIe, BoW). OSATs play critical role assembling multi-chiplet packages.

• Wafer-level testing, known-good-die (KGD) qualification, functional testing, burn-in, reliability stress testing, system-level test (SLT).
• AI-enhanced automated test equipment (ATE): machine learning algorithms embedded into test flows to predict failure modes and optimise test coverage, reducing test time and cost.
• HBM testing: High Bandwidth Memory requires specialised burn-in and functional testing infrastructure. OSATs with HBM test capabilities command significant pricing premiums.

• Advanced Packaging as the New Frontier: With transistor scaling slowing below 3nm, advanced packaging is primary vehicle for performance improvement. Demand for CoWoS and HBM packaging — driven entirely by AI GPU demand — so intense in 2025 that TSMC and major OSATs were effectively on allocation; customers paid premium prices and extended lead times.
• AI-Driven Packaging Revenue Uplift: AI chip packages carry 4-10x packaging cost of conventional chip due to complexity (CoWoS, HBM stacking, large substrate area). Structurally improving OSAT ASPs and revenue per unit.
• Geopolitical Realignment: US restrictions on advanced chip exports to China accelerated China+1 supply chain strategy. Global OEMs and semiconductor companies actively seeking OSAT capacity outside China, benefiting providers in Taiwan, South Korea, Malaysia, Vietnam, India. Multi-year structural tailwind for non-China OSAT players.
• Nearshoring and Regional Diversification: US, EU, Japan, India implementing policies to incentivise domestic/regional OSAT capacity. Japans Rapidus project, Indias ISM, EU Chips Act all have OSAT/ATMP components. Diversification reduces concentration risk but increases cost for end customers.
• Fabless Semiconductor Growth: Fabless model continues to expand — Apple, Qualcomm, NVIDIA, AMD, MediaTek, hundreds of AI chip startups outsource 100% of manufacturing and packaging. Structurally sustains and grows OSAT addressable market.
• Sustainability Mandates: OSATs under increasing pressure from Scope 3 emissions requirements imposed by hyperscalers and automotive OEMs. Lead-free packaging, lower-energy bonding processes, renewable energy procurement, ISO 14001 certification becoming baseline expectations.

• Taiwan: TSMCs advanced packaging (CoWoS, SoIC) and ASE Groups OSAT operations make Taiwan undisputed advanced packaging hub. Taiwan accounts for ~40% of global OSAT revenue.

• China: Under pressure from export controls, but domestic OSATs (JCET, Tongfu Microelectronics, TFME) continue to serve domestic market and lower-end global customers.
• South Korea: Amkors Korea operations and Samsungs in-house OSAT serve advanced memory and logic packaging markets.
• Southeast Asia (Malaysia, Vietnam, Thailand): Growing as low-cost and geopolitically neutral alternatives. Penang (Malaysia) significant OSAT hub.
• India: Emerging rapidly. Micron ATMP (Sanand), Tata Electronics OSAT (Assam), CG Power-Renesas OSAT (Sanand) represent Indias entry into global OSAT landscape. Discussed in detail in Section 3.

• ASE Group (Taiwan) — largest OSAT by revenue (~USD 17 billion); strong in advanced packaging and automotive.
• Amkor Technology (USA/Korea) — second largest; expanding Korea and US advanced packaging capacity.
• JCET Group (China) — largest Chinese OSAT.
• Tongfu Microelectronics (China).
• Siliconware Precision Industries / SPIL (Taiwan) — subsidiary of ASE Group.
• King Yuan Electronics (Taiwan).
• Utac Group (Singapore).
• STATS ChipPAC (Singapore).
• Micron ATMP (India — new entrant, 2026).

• AI packaging supercycle: Demand for advanced packaging for AI chips (CoWoS, HBM, SLT) is multi-year structural opportunity repricing entire OSAT industry upward.
• Chiplet ecosystem growth: As industry shifts to chiplet architectures, OSATs capable of multi-die assembly with tight interconnect tolerances gain significant differentiation.
• Indias ATMP incentive scheme: Central Government capex subsidy of 50% and Tamil Nadu State Government additional 25% subsidy represent transformative opportunity to upgrade facilities and improve cost competitiveness.
• China+1 sourcing diversification: Global OEMs actively seeking non-China OSAT alternatives create addressable new customer base for Indian OSATs like SPEL Semiconductor.
• Automotive semiconductor growth: AEC-Q qualified OSAT services for automotive-grade chips are premium, sticky revenue stream as EV and ADAS adoption accelerates globally.
• Nearshoring tailwinds: US and EU companies increasingly prefer OSATs with friendly-shore footprints for supply chain risk management.

• New domestic competition: With ISM approvals, India will see Tata Electronics, Micron ATMP, CG Power-Renesas as new OSAT competitors, increasing pricing pressure domestically.
• Withdrawal of export incentives: Government of India withdrew Merchandise Exports from India Scheme (MEIS) benefits for semiconductor exporters. Company actively pursuing reinstatement through appropriate government channels.
• Rising input costs: Employee costs, energy tariffs, specialty consumables (bonding wire, substrate materials) continue to escalate, compressing margins.
• Global inventory corrections: Industrial electronics and certain consumer electronics segments experiencing inventory normalisation, leading to order slowdowns.
• Technological disruption: Rapid shift to advanced packaging may disadvantage traditional wire-bonding-focused OSATs lacking capital to invest in flip-chip, fan-out, or SiP capabilities.
• Geopolitical and trade policy volatility: US tariff escalations and retaliatory trade measures create uncertainty in customer sourcing decisions and may affect import costs for raw materials.
• Cybersecurity and IP risks: As an OSAT handling proprietary chip designs, maintaining robust cybersecurity and IP protection protocols is both business necessity and regulatory requirement.

OSAT Industry Outlook: Global OSAT industry entering one of its most transformative decades. Convergence of AI-driven packaging complexity, geopolitical supply-chain restructuring, automotive electrification, and government-backed regional capacity expansion simultaneously elevating strategic importance of OSATs and raising bar for technological capability. Players investing in advanced packaging, maintaining world-class quality systems (IATF 16949, ISO 9001), and aligning with supply-chain diversification imperative of global OEMs positioned to capture disproportionate value.

The Indian Semiconductor Industry: Entered decisive inflection point in FY 2025-26. Backed by largest government incentive framework in nations manufacturing history and gathering of global and domestic players, India transitioning from primarily design and R&D services hub into integrated semiconductor nation encompassing assembly, testing, packaging, and early stages of fab-based manufacturing.

• Launched December 2021 with outlay of Rs76,000 crore (~USD 9.4 billion).
• 10 semiconductor and display projects approved as of March 2026, aggregate private investment commitments exceeding Rs1.6 lakh crore (~USD 19.5 billion).
• Micron Technology ATMP (Sanand, Gujarat): inaugurated February 28, 2026; designed capacity over 5 crore semiconductor chips per month; serves Microns global DRAM and NAND supply chain; Indias first operational semiconductor packaging facility of global scale.
• CG Power – Renesas Electronics – Stars Microelectronics OSAT (Sanand, Gujarat): pilot production commenced August 2025; first Made in India automotive and microcontroller chips rolled off line.
• Tata Electronics OSAT (Morigaon, Assam): first phase commissioning targeted April 2026; planned capacity 48 million chips per day; focus on advanced packaging for consumer electronics, automotive, industrial.
• Tata Semiconductor Assembly and Test (TSAT), Dholera, Gujarat: greenfield OSAT with investment of Rs27,000 crore; targeting production from late 2026.
• ISM 2.0 announced in Union Budget 2026-27: expanded mandate covering semiconductor equipment, specialty materials, design IP, R&D infrastructure support; additional Rs10,000 crore allocated.

Semiconductor Design Ecosystem: India remains worlds second-largest semiconductor design talent base after US. Over 2,000 chip design teams from more than 300 companies — including Intel, Qualcomm, AMD, NVIDIA, Broadcom, MediaTek, Texas Instruments — operate R&D centres in India. Bengaluru, Hyderabad, Pune, Chennai are global design hubs. Chips to Startup (C2S) programme supported over 100 fabless semiconductor startups, several advancing to tape-out stage on advanced nodes.

Automotive and EV Semiconductor Demand: India projected to become third-largest automobile market globally by 2026. EV segment growing rapidly — Tata Motors, Mahindra Electric, Ola Electric, TVS leading adoption.

Automotive (contd.): Government mandates for FAME III subsidies and stringent ADAS requirements for new vehicle platforms driving semiconductor content per vehicle upward — direct addressable market for Indian OSATs providing automotive-grade packaging and testing.

5G and Digital Infrastructure: Indias 5G subscriber base crossed 150 million by end of 2025; Reliance Jio and Bharti Airtel collectively deployed over 500,000 5G base stations. Semiconductor demand for base-station power amplifiers, RF front-end modules, network processing chips growing. BharatNet Phase III expanding fibre and 5G to rural India, multiplying endpoint device demand.

• PLI Scheme for Semiconductors and Display Fabs: Financial incentives up to 50% capital expenditure support for approved fab, OSAT, display projects under Modified Programme for Semiconductors and Display Fab Ecosystem.
• ATMP/OSAT-Specific Incentive: Dedicated capex subsidy up to 50% from Central Government for ATMP/OSAT units with minimum threshold investment of Rs50 crore. Tamil Nadu State Government supplements with additional 25% of Central subsidy (i.e., 12.5% of project cost), making Tamil Nadu-based OSATs especially competitive.
• Atmanirbhar Bharat and China+1: Indias policy dovetails with global OEMs China+1 diversification strategies — compelling value proposition for India-based OSATs seeking orders diverted from Chinese assembly facilities.
• Semiconductor Research Centre (SRC): Established under IIT Bombay; developing indigenous packaging technologies, materials characterisation, failure analysis capabilities; provides Indian OSATs access to world-class R&D infrastructure.

• Absence of a domestic logic fab: India does not yet have operational advanced semiconductor fabrication facility; limits capture of full value chain. Tatas planned 28nm fab in Dholera most advanced project, production targeted 2027.
• Infrastructure gaps: Consistent power supply, ultra-pure water, vibration-free facility environments, specialty chemical logistics remain challenges for some locations.
• Skilled manpower: Large pool of engineering graduates, but specialised semiconductor process engineers, packaging technicians, quality systems experts in short supply; command global wage competition.
• Supply chain localisation: Substrates, bonding wire, moulding compounds, specialty gases, ATE almost entirely imported. Developing domestic materials and equipment ecosystem is medium-to-long-term imperative.

Indian Semiconductor Industry Outlook: India on irreversible trajectory to becoming meaningful participant in global semiconductor supply chain. Combination of government commitment, global OEM interest in supply-chain diversification, world-class design ecosystem, proven manufacturing capabilities of Indian conglomerates (Tata, Mahindra, CG Power) creates once-in-a-generation opportunity. With multiple OSAT facilities operational between 2025 and 2027, India will for first time serve global semiconductor customers with domestic assembly and test value proposition.

• Government Incentives — Central and State: ATMP/OSAT capex subsidy up to 50% plus Tamil Nadu additional 25% (of Central subsidy) — transformative opportunity to modernise and expand assembly and test facility. Company actively exploring structured finance arrangements with banks and financial institutions to leverage scheme optimally.

• China+1 Supply Chain Diversification: US-China trade tensions, US export controls on advanced semiconductors, Chinas retaliatory measures on critical materials prompted global OEMs and fabless companies to diversify OSAT sourcing away from China. SPEL Semiconductor, as established India-based OSAT with over three decades of manufacturing experience, well-positioned to attract orders diverting from Chinese OSATs.
• Automotive and EV Semiconductor Growth: As Indias automotive sector transitions to EVs and ADAS-equipped vehicles, demand for locally assembled and tested automotive-grade components rising. SPELs geographic proximity to major automotive OEM clusters in Tamil Nadu and Pune is a logistical advantage.
• ISM Ecosystem Development: As Indias semiconductor ecosystem matures, opportunities for subcontracting, tier-2 partnerships, technology licensing with larger OSAT players (Tata, CG Power-Renesas, Micron) may emerge, enabling SPEL to participate in larger supply chains.
• Digital India and 5G Demand: Expansion of 5G infrastructure, BharatNet connectivity push, proliferation of Made-in-India electronic devices under PLI scheme for electronics generating domestic demand for semiconductor packaging and testing services that SPEL can address.

• Intensifying Domestic Competition: ISM approvals brought Tata Electronics (Assam), CG Power-Renesas (Gujarat), Micron ATMP (Gujarat) into Indian OSAT market. These entities significantly larger in capital base, enjoy strong government and global customer relationships. SPEL must differentiate through agility, cost efficiency, customer service quality.
• Withdrawal of Export Incentives: Government of India withdrew MEIS (Merchandise Exports from India Scheme) benefit previously available to semiconductor exporters. Company striving to have benefits reinstated through representations to relevant government bodies. Remains financial headwind until resolved.
• Rising Input Costs: Employee costs, energy tariffs (electricity and diesel), costs of bonding wire, substrates, specialty chemicals continue to escalate. Customer pricing pressure, particularly from large-volume buyers, limits ability to pass through cost increases in full.
• Order Slowdown from Global Inventory Correction: Global inventory correction processes among semiconductor component suppliers and OEMs — particularly industrial electronics, consumer electronics, legacy automotive platforms — continue to suppress near-term order volumes.
• Technology Transition Risk: Shift from wire bonding to advanced packaging technologies (flip-chip, fan-out, SiP) requires significant capital investment and process re-engineering. Failure to keep pace could result in loss of competitiveness for next-generation product lines.
• Geopolitical and Trade Policy Volatility: Escalating US tariffs and retaliatory trade measures introduce uncertainty in export markets; may affect cost of imported raw materials and equipment.
• Cybersecurity Risk: As custodian of customers proprietary chip designs and test data, SPEL exposed to cybersecurity risks. Company implemented precautionary measures for internal server security and cyber-attack prevention; will continue to invest.

Financial Performance: FY 2025-26 covered in detail in Directors Report; to be read in conjunction with this MD&A. Key highlights summarised therein.

Note: Financial ratios for March 31, 2026 will be updated upon completion of the statutory audit. Prior year ratios are as reported.

• Net loss and consequent drop in Return on Equity ratio primarily attributable to old inventory write-off charges recognised during the year.
• Increase in Debt-Equity ratio and deterioration in Debt Service Coverage ratio reflect additional term loan of Rs2.25 crore availed from bank, compounded by reduction in net equity from accumulated losses.
• Decline in Net Capital Turnover ratio attributable to decrease in sales turnover during the year.

Internal Control Systems and their Adequacy: Company maintains structured system of internal controls appropriate to size, scale, complexity of operations. HO & Whole-Time Director and CFO Certification in Annual Report addresses adequacy of internal control systems and procedures over financial reporting per Regulation 17(8) and Schedule II Part B of SEBI (LODR) Regulations, 2015. Internal control framework encompasses controls over financial reporting, operational controls for assembly and test facility, procurement and vendor management controls, quality assurance (ISO 9001 certified processes), and information security controls. Board, through Audit Committee, periodically reviews adequacy and effectiveness.

Information Technology: Company continues to invest in reliability and security of IT infrastructure. Precautions implemented to ensure safe operation of internal servers and guard against cyber-attacks, malware, ransomware, unauthorised access. As SPEL operates in sector where customers entrust proprietary semiconductor designs and test data, cybersecurity is highest operational priority. IT security policies reviewed periodically and updated per evolving threat landscapes.

SPEL Semiconductor values human resources as most critical and enduring asset. HR philosophy centres on attracting, retaining, continuously developing talent across all levels, with particular emphasis on building semiconductor-domain expertise — scarce and strategically valuable in Indias rapidly expanding semiconductor ecosystem.

Company provides collaborative and inclusive working environment encouraging creative thinking, cross-functional collaboration, continuous learning. Structured training programmes covering technical skills (assembly and test processes, quality standards, ESD handling, safety protocols) and soft skills (leadership, communication, problem-solving) conducted for employees at all levels during the year.

HR programmes focus on capability building, employee engagement, succession planning to support organisational resilience and sustainable future growth. Industrial relations remained harmonious throughout the year, reflecting commitment to fair employment practices and open communication with workforce.