Tamil Nadu is one among three states in contention for Tessolve Services' $ 200 million (about Rs 890 crore) assembly and testing plant for semiconductors. The investment would be spread over a four-year period. Andhra Pradesh and Karnataka are the other states Tessolve would consider as location for the plant.

At a press conference today, P Raja Manickam, CEO and founder of Tessolve Services, identified the talent pool in Tamil Nadu as one of the state's more attractive features. Tessolve plans to carry out relatively sophisticated assembly and testing operations, with an emphasis on engineering intensive work.

Chennai currently has an assembly and testing operation for semiconductors. SPEL India, a subsidiary of SPIC, has an assembly and testing plant in Maraimalainagar, around 45 km south of Chennai.

Raja Manickam's presentation made it clear that government subsidies were an important part of the development of semiconductor industry the world over.

Dayanidhi Maran, Union minister of communications and IT, who addressed the press conference, said that matters such as subsidy on power supply for semiconductor-related manufacturing needed to be handled by the state government.

According to Raja Manickam, semiconductor manufacturing the world over has functioned with some sort of government subsidy. He forecast that ten years from now, the share of capital costs and power costs in total costs was likely to decline. The cost of direct labour, on the other hand, was likely to increase because of the advent of intelligent manufacturing.

The quality of manpower is expected to be critical to Tessolve's operations. Unlike the typical assembly and testing operation, Raja Manickam said the company would assist its customers even when the product was being designed. Tessolve does not intend to be a pure manufacturer. "We will be part of engineering and build products," he added.