L&T Chose Fabless Chip Design As It's Not Balance-Sheet Intensive, Says CFO

Larsen & Toubro Ltd.'s decided to enter fabless chip design instead of manufacturing due to lesser complications, according to Chief Financial Officer R Shankar Raman. 

"The rationale is that we...do not want to be balance sheet intensive in pursuing these opportunities," he told BQ Prime's Sajeet Manghat in an interview. “We decided to take the fabless space as it does not need scale to compete and is less complicated to unwind.”

The importance of semiconductors is growing and volume is expected to double by 2030 from the current $27 billion in India, Raman said. L&T will invest up to $100 million over a three-year period to design 40-nanometer semiconductor chips, he said. 

The company announced on Tuesday that its board approved incorporating a wholly owned subsidiary to engage in the business of fabless semiconductor chip design and product ownership.

"Through this, we will go one step higher in the value chain and look at areas that can be patented," Raman said. There is also a bit of play available in terms of domain expertise as L&T Financial Services Ltd. does a lot of back-end work in chip designing, he said.

“If you look at the semiconductor area as an opportunity, it is a very interesting space.”

The company will be designing "mature models" over "sophisticated advanced models" as it has a low risk of failure and does not need huge resources for research and development, Raman said.

L&T will be designing the 40 nanometer chips on an analog basis with a design studio in the U.S., he said.  

"We will have our marketing outpost in all major automobile and industrial equipment manufacturing, keeping Japan, Europe, and the U.S. as the primary market. India will also be an interesting market, going forward,” Raman said.

Watch the full conversation here: