Hyderabad: The AP government and SemIndia have announced the setting up of a $3-billion (Rs 13,500 crore) project to manufacture semiconductors used in computers, mobile phones and other digital devices at a 1,200-acre site near the upcoming Hyderabad international airport, 40km from the city.

Two other semi conductors makers Nano Tech and Cypress Semiconductor have evinced interest in locating their bases in the FabCity and negotiations are on to woo some more semiconductor companies.

Chennai, Bangalore and Hyderabad, have been hotly pursuing the project. While work on the first phase of the SemIndia project, at an investment of $1 billion, would begin next month, the second phase would have an overall investment of $2 billion. However, within months an Assembly Test Mark Pack Plant used by chipmaker and Intel's main rival AMD (Advanced Micro Devices) will be set up. AMD is SemIndia's technology partner.

State chief minister Dr Y S Rajashekhara Reddy, SemIndia chairman Vinod K. Agarwal, STPI director B V Naidu, and venture capitalist Pratap Kondumuri, said this was one the largest investments ever made in the country in the technology sector and would have the potential for a spin-off effect of drawing more companies.

Government officials said this is as a first step towards India becoming a $33.6-billion semiconductor market employing about 36 lakh people by the year 2015, as projected by consultants Frost & Sullivan.

Though the officials did not divulge the exact details of the equity structure, the project may have 50 per cent equity from promoters and strategic partners and 50 per cent debt component. Given its capital-intensive nature, the investment by strategic partners would be crucial. SemIndia also expects to support Broadcomm's chip requirements.

Dr Agarwal said STPI had discussed the project with the three southern states and while TN had shown little enthusiasm for it, Karnataka and Andhra Pradesh had hotly contested to have the project located in their respective states. He said the support from Dr Reddy and his team, and from union minister for IT and communication Dayanidhi Maran had clinched the deal in favour of AP.

Maran told reporters that the Andhra Pradesh government had promised to provide subsidy, power and water, besides making available 1,200 acres of land required for the project. He added that the AP government had even promised accommodation to key officials at the posh Jubilee Hills area in Hyderabad. As the project required a huge quantum of water for the reverse osmosis and water treatment plants, the state government has promised them enough water.

Maran said the Fab City project has the capacity to provide employment to over 15 lakh people by 2015. But this talent pool has to become available. He said the Indian Semiconductor Association should come forward to provide this skilled workforce which the project will need in its second phase.

He said that though India was a late starter in the semi conductor race it would catch up soon as the coming years would be crucial for the Indian semiconductor industry as a lot of foreign majors were entering India, promising huge investment over the next couple of years.

"AMD has already agreed to come in and is transferring the microprocessor technology to SemIndia. Nokia has agreed to set up a manufacturing plant in Chennai. Even Motorola and Siemens are coming in," Maran added. The centre as well as state governments need to wake up to these calls in a proactive manner, he added.