India wants to enter the semiconductor industry through a realistic entry point: chip packaging and testing. The partnership between Kaynes Semicon, Japanese AOI Electronics, and Mitsui & Co. strengthens this strategy, positioning the Sanand project in Gujarat as one of the country’s most visible efforts to capture part of a global supply chain seeking alternatives to China, Taiwan, and Southeast Asia.
Kaynes Semicon, a subsidiary of Kaynes Technology India, is developing an OSAT (Outsourced Semiconductor Assembly and Test) facility with an approved investment of 330.7 crore rupees. The Indian government estimates that this facility will be able to produce over 6.33 million chips daily, serving industries such as automotive, electric vehicles, consumer electronics, telecommunications, and mobile devices.
This project doesn’t turn India into a high-end chip manufacturing powerhouse overnight. However, it aims for a pragmatic entry into the value chain. Before competing in cutting-edge nodes, India can gain ground in assembly, packaging, testing, power modules, and back-end services—areas less glamorous than large fabs, but essential for bringing semiconductors to market.
Japan provides technology and supply chain support
The missing piece for Kaynes was industrial technical expertise. AOI Electronics will contribute experience in back-end processes, advanced packaging, panel-level packaging, and wafer-level redistribution layer (RDL). Mitsui, for its part, will support access to raw materials and suppliers—including critical materials for packaging and production—and facilitate sales and connections with Japanese and global companies.
This combination is significant because an OSAT project depends not only on having a plant and government subsidies. It requires process recipes, validation, reliable materials, customers, production engineering, certifications, and a learning curve that typically takes years. The Japanese alliance helps reduce some of that risk.
| Element | Role in Kaynes’ project |
|---|---|
| Kaynes Semicon | Operator of the OSAT project in Sanand |
| AOI Electronics | Back-end technology and advanced packaging |
| Mitsui & Co. | Raw materials, suppliers, and commercial support |
| Indian government | Incentives under the Semicon India program |
| Gujarat | Industrial location and regional support |
| ISO Technology | Complementary technology cited by the Indian government |
Mitsui confirmed in March 2026 that it will support the startup of Kaynes’ OSAT operations using AOI’s expertise in back-end processes. It also obtained exclusive rights to manage raw materials purchased by Kaynes from Japanese suppliers, not Indian ones. In an industry where delays in materials like lead frames, molding compounds, gases, or chemicals can halt production, this part of the alliance is as important as the technical transfer.
AOI Electronics has stated that the agreement aims to support Kaynes in establishing its OSAT business in India and fostering new supply chains connected with Japanese semiconductor companies. The company targets a commercial launch in the first half of 2027—a significant point compared to some market forecasts predicting contributions as early as 2026.
Why OSAT is the most logical entry point for India
India has been trying for years to reduce its dependence on foreign electronics and semiconductors. The Semicon India program, with an allocation of 76,000 crore rupees, aims to attract manufacturing, design, packaging, testing, and auxiliary ecosystem investments. However, building advanced fabs requires billions of dollars, specialized talent, stable water and energy supply, high-volume customers, and industrial experience that cannot be hurried.
Packaging and testing represent a more accessible entry point. The wafer-thin chips are cut, encapsulated, connected, tested, and prepared for integration into final products. For power devices, automotive applications, industrial modules, or consumer electronics, this phase can determine reliability, thermal efficiency, cost, and performance.
| Supply chain stage | Situation for India |
| Chip design | Growing, but needs more fabless companies |
| Wafer fabrication | More costly and complex, still under development |
| OSAT | Most viable short- to mid-term entry point |
| Advanced packaging | High-value, growing-demand area |
| Materials and equipment | Need for international alliances |
| End customers | Automotive, industrial, electronics, telecom |
This strategy echoes the evolution of other Asian countries. Malaysia, for example, spent decades building a strong position in assembly, packaging, and testing before moving into more complex segments. India aims to accelerate this trajectory by leveraging geopolitical dynamics and the interest of global manufacturers to diversify supply chains as discussed here.
The Kaynes case fits into this framework. It’s not about replacing TSMC or Samsung but capturing a portion of the supply chain that could grow due to the rise of electric vehicles, industrial electronics, AI-enabled devices, telecom, and power modules.
Sanand gains prominence on India’s semiconductor map
Kaynes’ plant in Sanand joins other projects transforming Gujarat into one of India’s main semiconductor hubs. The government has already approved units in Sanand and Dholera—projects from Micron, CG Power, and Tata Electronics. This concentration of investments creates what India needs: critical mass.
According to the Indian government, Kaynes’ facility will have the capacity to produce over 6.33 million chips daily, focusing on wire bond interconnects and substrate-based packages—technologies relevant for industrial, automotive, power electronics, consumer, and telecom applications. Not all will be state-of-the-art advanced packaging, but these are necessary capabilities for a broad industrial base.
| Kaynes Semicon project | Main data |
| Location | Sanand, Gujarat |
| Approved investment | 330.7 crore rupees |
| Expected capacity | Over 6.33 million chips per day |
| Target segments | Industry, automotive, EV, consumer electronics, telecom, mobile |
| Technologies cited by the government | Wire bond interconnect and substrate-based packages |
| Technology partners | ISO Technology and AOI Electronics |
| Supply chain support | Mitsui & Co. |
The involvement of AOI and Mitsui also carries geopolitical significance. Japan aims to strengthen its semiconductor supply chains and reduce vulnerabilities, while India seeks partners who will not only invest but also transfer knowledge and connect with clients. For both, the back-end segment of semiconductors offers a practical cooperation avenue.
Kaynes seeks to move beyond traditional EMS profile
Kaynes Technology originated and grew as an electronics and integrated manufacturing service provider. Its portfolio includes design, electronic manufacturing, IoT, and solutions for automotive, industrial, aerospace, defense, medical, rail, and energy sectors. Transitioning into OSAT marks a significant shift in the company’s story.
Moving from EMS to semiconductor services can improve margins and valuation if scaled, but it also involves higher risks. Validation cycles are longer, customers are more demanding, and capital investments are larger. Having orders is not enough—proving yield, quality, process stability, and consistent deliveries is essential.
| Before | Kaynes with OSAT |
| Electronics manufacturing and EMS | Back-end semiconductor services |
| Lower technological barrier | More specialized processes |
| Diverse industrial clients | Chip and module clients | Lower margin pressure | Potential for higher value-added |
| Dependence on project execution | Dependence on validation, yield, and ramp-up |
This evolution brings short-term financial tension. In May 2026, Kaynes Technology reported a 22% year-over-year decline in net quarterly profit, down to 91 crore rupees, despite a 26% revenue increase. The company and market partly attribute this pressure to delays in execution, including postponement of a railway order linked to Kavach. Nonetheless, the firm maintains a robust order backlog estimated around 9,000 crore rupees in various communications.
For industrial investors, the key is to separate two layers: short-term operational volatility and the building of a strategic semiconductor capacity. The first can impact near-term results; the second could transform the company’s profile if the Sanand plant gains significant customers and volumes.
India’s pursuit of an alternative to Taiwan-Malaysia-China axis
Chip packaging is gaining importance for technical and geopolitical reasons. Technically, because modern chips increasingly rely on modules, chiplets, advanced packaging, interconnects, and thermal solutions. Geopolitically, because companies want to diversify away from concentration in a few regions.
India aims to position itself as an alternative. It has market scale, engineering talent, government support, and a growing electronics industry. However, it still faces serious challenges: energy and water supply, logistics, specialized training, local suppliers, process quality, and ability to meet international standards.
| India’s advantage | Remaining challenge |
| Large domestic market | Lack of deep manufacturing experience |
| Strong government support | Industrial execution and ramp-up |
| Engineering talent | Specialized training in OSAT and packaging |
| Geopolitical diversification | Competition from Malaysia, Vietnam, Thailand, and China |
| Competitive costs | Quality, yield, and reliability | Growing domestic electronics demand | Establishing local material and equipment suppliers |
Partnerships with Japan help address some of these gaps. AOI provides processing expertise. Mitsui offers supply chain networks and supplier access. Kaynes contributes local manufacturing. The government offers incentives. While this combination doesn’t guarantee success, it reduces the risk of a project remaining a plant without adequate technology or secured materials.
Advanced packaging as the real test
Referring to advanced packaging and RDL is crucial because it distinguishes basic OSAT from higher-value ambitions. Advanced packaging enables the integration of more complex chip forms, improved connections, space reduction, performance enhancement, and more sophisticated modules. In AI, automotive, and power electronics, this layer is becoming increasingly critical.
Kaynes will not immediately compete with the most advanced Asian packaging leaders, but it can start with segments where India has internal demand and where transitioning from EMS to OSAT is more natural: power, automotive, industrial, communications, and consumer electronics. If volume is achieved, the company can gradually increase complexity.
Monetization timelines should be approached cautiously. Market reports suggest revenues from the OSAT segment in 2026 or 2027, but AOI mentions a competitive launch in the first half of 2027. This gap could reflect stages of testing, initial shipments, customer validation, or commercial ramp-up. For semiconductor projects, it’s common to see a delay between announcement, testing, qualification, and sustained production.
A small step for the global market, a big one for India
From a global perspective, Kaynes is still a minor player. The global OSAT market is dominated by decades-old, large-scale companies in Taiwan, China, Malaysia, Singapore, Korea, and the Philippines. But industry movement isn’t solely about current market share; it also depends on the direction of investments.
The Kaynes-AOI-Mitsui alliance indicates that India is beginning to attract not just capital but also technology and supply chain partners. This is more significant than merely announcing new factories without technical backing. The “Make in India” ambition needs to evolve into “Package in India,” “Test in India,” and eventually “Design in India” with global customers.
The operation also sends a message to Europe and the U.S. that diversifying semiconductor supply chain isn’t just about onshoring fabs. It also involves building reliable nodes for packaging, testing, and materials in allied or partner countries. India seeks to fill that role, and Kaynes is among the leading candidates.
If Sanand successfully moves from project phase to steady production, the impact will be twofold. Kaynes could transform into a company with higher technological value, and India would gain an industrial reference in a critical part of the semiconductor supply chain. The real test will be execution—customers, volumes, quality, performance, and competitiveness against hubs with decades of experience.
Frequently Asked Questions
What is the Kaynes OSAT project in Sanand?
It is a semiconductor assembly and testing plant in Gujarat, approved with an investment of 330.7 crore rupees, with a planned capacity of over 6.33 million chips daily.
What does AOI Electronics contribute?
AOI Electronics provides Japanese expertise in back-end processes, advanced packaging, panel-level packaging, and wafer-level redistribution technologies.
What role does Mitsui play?
Mitsui supports Kaynes with raw materials, suppliers, and supply chain access, and facilitates relations with Japanese and international companies.
Why is OSAT important for India?
Because chip packaging and testing is a more realistic entry point into semiconductors than building advanced nodes immediately. It also helps reduce external dependency in a critical supply chain phase.
via: sahi.com
