SPEL plans to double capacity

SPEL Semiconductor, SPIC's subsidiary that carries out part of the semiconductor manufacturing process, plans to more than double its production capacity.

The move is aimed at tapping opportunities in an industry that is forecast to nearly double in size to $26.6 billion over the next five years.

Ar Rm Arun, vice-chairman, SPEL, felt the company was well positioned to deal with two important challenges: competition from Chinese companies and the likelihood of Intel setting up manufacturing operations here.

Intel's manufacturing operations here are expected to be captive in nature, while SPEL's key clients are companies such as Fairchild Semiconductors, Alliance Semiconductors and Pericom Semiconductors.

Arun said SPEL enhanced its competitiveness by concentrating on the quality of service. Quite a few of the company's customers allowed it to directly send the products to final buyer "" an indication of the confidence in the work quality, Arun claimed.

SPEL plans to raise $10 million this fiscal to expand its manufacturing capacity from 15 million units a month to around 37.5 million units a month.

The company aims to capture new business from areas such as Europe and Japan to supplement the capacity increase.

SPEL is engaged in assembly and testing processes in semiconductor manufacturing. These processes are at the tail end of the manufacturing. Semiconductor manufacturing is a four stage process that starts with design (US companies dominate here and get most of the intellectual property) and fabrication, which is largely done in Asia-Pacific.

SPEL's chief executive officer, Sam Varghese, said the company was unlikely to move up the value chain to the fabrication process in the immediate future because the industry here had not yet reached the necessary level of sophistication.

Today, SPEL is in a position to raise money for capacity expansion as it has repaid most of the Rs 15 crore borrowing from institutions on its books, and bolstered its equity base by converting unsecured loans from its promoter, SPIC, in to equity. SPIC currently owns a 56 per cent stake in the company.

SPEL, which recorded a turnover of Rs 41 crore in 2004-05, had accumulated losses of Rs 7 crore in its books recently. "We feel we can clear accumulated losses this fiscal," says Arun. SPEL's net profit in 2004-05 was Rs 1.47 crore (Rs 43 lakh).

Also as part of the company's exercise to improve its financials, an old plan of making magnetic tapes has been shelved. SPEL has also begun looking for a buyer for the magnetic tape assets that have been valued at about Rs 7 crore.