Putting India on the semiconductor map

The Indian semiconductor market is growing rapidly and it has attracted the attention of global majors. As per an ISAFrost & Sullivan report, the semiconductor industry is expected to contribute $35-40 billion to India's GDP by 2015 offering employment to no less than nine million people. By Faiz Askari

It is always a motivating factor for any developing economy like India, when some new area of growth springs up. India is home to quite a few booming industries right now—IT, telecom, manufacturing and now, semiconductor design.

The growing domestic production and consumption of electronics has enormous potential and an ecosystem is evolving to address this growing market. The semiconductor industry is expected to contribute $35-40 billion to India's GDP by 2015 offering employment to no less than nine million people as per an ISA-Frost & Sullivan report.

Casting light on this phenomenon, Jaswinder Ahuja, Vice-Chairman, India Semiconductor Association (ISA) and Corporate Vice President and Managing Director of Cadence Design Systems (I) Pvt Ltd., said, “Captive companies or subsidiaries of multinationals have scaled up to the point where they are carrying out end-to-end design and development activities. A promising statistic is that design starts in India are set to rise from 710 in 2006 to 3,248 in 2015.”

The ecosystem of this industry vertical consists of VLSI design, board design and embedded software companies. Multinational and domestic companies have established setups across the country and the industry’s turnover is estimated at $4.6 billion at present. With a growing engineering workforce the turnover is estimated to reach $43 billion by 2015 at which point it will provide jobs to 780,000 engineers.

India needs creative products that address unique, local needs. Power for instance is an ever-present problem across the country. While emphasizing the driving forces of the semiconductor market, Ganesh Guruswamy, Country Manager and Director, Freescale Semiconductor India Pvt. Ltd., said, “Digital inverters present a huge opportunity. The two-wheeler market is another untapped segment; on the telecom front, there is a lot of focus on developing low-cost mobile solutions—we will increasingly see designs for products that cater to the domestic market. Therefore, it is necessary to diversify from just providing design services for global requirements and look at creating products and designs relevant to the Indian Market and those of other developing nations.”

Analyst’s take

The key driver behind the surge in semiconductor related activity happens to be the growth of local electronic equipment manufacturing in India—the profile of electronics manufacturing in India has changed drastically since 2006. Until 2005, color TVs were the only equipment to be manufactured in high volumes, and the semiconductor content in them was on the lower side. Ganesh Ramamoorthy, Principal Research Analyst at Gartner said, “Today, mobile phones have taken over completely. Other equipment like DVD players/recorders, desktop computers, flat panel monitors etc, that have higher semiconductor content in them are set to be manufactured in high volumes in the coming years. This means that the overall semiconductor consumption will increase as the production of such equipment increases.”

Commenting on how companies are looking at semiconductor R&D business in India, Ramamoorthy said, “Such companies have a major benefit of being able to access a large talent pool of skilled semiconductor design engineers in India. The challenges, of course, are in spotting, recruiting and training this talent. Semiconductor manufacturing is low in India but it is growing.”

Enforcing elements

According to the ISA - Frost and Sullivan report, microcontrollers, sensors, DRAM and memory chips used in various sectors are in demand. Automotive electronics such as air bag control units, power windows and taximeters; industrial products like inverters and smart cards; wireless communications systems are all driving consumption.

Guruswamy of Freescale added, “Rapid growth in the telecom and wireless sector has set the pace for a rise in semiconductor demand in this sector.”

According to Dasaradha Gude, Managing Director, AMD – ATI Technologies India, “The growth of design activity in India includes rapidly growing local markets, a strong education infrastructure with industry participants collaborating with academics for training manpower in microelectronics, low-cost design talent, short product lead-times, reduced barriers to entry, government support, and improved infrastructure.”

It is true that semiconductors are at the heart of all electronic devices. This statement itself proves the vast potential of the semiconductor market, Ahuja added, “Thanks to the ever-increasing demand for electronic gadgets, top drivers of the semiconductor market are mobile handsets, desktops and notebooks, GSM base stations, set top boxes and energy meters.”

Some say that certain video applications—both wired and wireless—will be the most important growth enablers in the future. Vivek Sharma, Director, India Design Center and Vice President EMR, ST Microelectronics India said, “We also see applications in areas such as video surveillance and security, IP set-top box, portable media players, etc., driving growth globally. Similar trends exist in India as well. In particular, semiconductor solutions for communication electronics, medical, etc., are likely to grow rapidly. The other key growth areas in India are wireless and entertainment solutions.

”India: a favored destination

There are several reasons as to why companies have started operations in India. These include the availability of talent, good IP protection laws, and SEZ status.

According to the ISA-EYI Benchmarking Study 2007, India’s advantage lies in its talent factor. Talent is a key differentiator and a focus area to facilitate sustainable growth. Some of the principal findings that clearly position India as an attractive design hub are availability and scalability of talent, quality of talent, quality of technical education and the talent cost advantage.

“India’s new patent legislation introduced in 2005 demonstrates the country’s move towards a more patent-friendly environment and is under review for TRIPs compliance. IP protection is an incentive for firms to invest in generating new technology in sectors where the returns to technological investment are long term, involve high risks and are easy to copy, such as pharmaceuticals and IT,” Ahuja stated. Lastly, a key benefit is the grant of SEZ status. The government has provided both pre-operative and post-operative benefits to the industry, which is important for the development of an ecosystem.

Coupled with the increased electronic manufacturing activities taking root in India, the semiconductor space will be a growth industry. Sharma added, “There are some challenges that confront companies seeking to expand their semiconductor activities in India. With demand increasing substantially, India will need to have the support infrastructure in terms of cycle time for import/export, and tax structures.”

Pratul Shroff, Founder and CEO, eInfochips Inc. is a believer. He said, “In future there will be more startups and consolidation. There are currently around 200 chip design and 300 embedded system players in the ecosystem and more companies are eying this potential market. There will be more chip startups focused on developing and marketing their own products for embedded applications for global and Indian markets. In terms of product development, Indian engineers have developed the required skill-sets over the last few years. The Indian market for system level products is growing rapidly and will require customized, low-cost chip products. So, the market opportunity is emerging as well.”

Recently, IBM and its Common Platform technology partners Chartered Semiconductor Manufacturing and Samsung Electronics, along with joint-development alliance partners Infineon Technologies AG and Freescale Semiconductor, have signed a series of semiconductor process development and manufacturing agreements.

This market segment is rapidly advancing in India, “The advancements could lead to dramatic improvements in imaging and x-ray processing, making for quicker, more accurate diagnoses of injuries and heart disease. Or they might help to provide a three-dimensional Internet. Embedded devices in next-generation cars and trucks may improve safety, fuel efficiency, emissions and the overall driving experience,” said Dr. Daniel Dias, Director, and IBM India Research Laboratory.

The joint venture of five companies will deliver industry-leading technology for high-performance and low-standby power products through a focused approach on low cost and minimum complexity while retaining performance leadership. However, this joint venture will implement new materials such as high-k/metal gate, advanced stress engineering, and extreme low-k films in the back-end-of-line (BEOL).

The government’s thrust

The Indian government has taken cognizance of the importance of the semiconductor industry and has decided to allow two or three companies to set up fabrication units in India with incentives specified under the semiconductor policy. Freescale’s Guruswamy added, “The policy also permits companies to take benefit of the fiscal measures for manufacturing devices that include Liquid Crystal Displays (LCD), solar cells and storage devices, which is an integral part of the ecosystem.”

However, while the 9% discount rate on the NPV encourages investments, a higher discount would benefit the semiconductor companies considering the tax rebates and discounts given by governments of countries like China and Taiwan.

He emphasized, “India needs to improve upon the physical infrastructure (roads, ports, power) to seize the opportunity of growing manufacturing needs in the country.”

Dasaradha Gude, Managing Director, AMD – ATI Technologies India shared his expectations from the government mechanism and said, “I would expect the Government of India to see this as a competitive scenario where India is pitched against various other, perhaps more lucrative, Fab destinations. It’s all about the value proposition and the differentiation that we can offer as a destination for semiconductor manufacturing, and which may include proximity to growing markets, logistics, infrastructure availability, availability of skilled manpower and ancillary industries.”

Moreover, the Indian semiconductor industry received a boost this year with the announcement of a Semiconductor Policy by the Government of India. India is emerging as one of the largest electronics markets in the world, with an estimated 11.5% global market share by 2015. While commenting on this development Ahuja said, “To take advantage in this huge economic opportunity and compete with other countries, India has to build capabilities to make itself self-reliant in this sector. The government and industry are taking steps in the right direction.”

Enter global investors

Gartner’s Ramamoorthy feels that India’s physical infrastructure is one of the key concerns for investors, especially when evaluating opportunities for setting up electronics or semiconductor manufacturing facilities. He believes that formulating a Semiconductor policy is undoubtedly a great first step.

Ahuja stated, “The semiconductor industry has received due recognition as an important sector. The semiconductor policy of India is also the first policy in the IT industry in over a decade. It is a positive step towards attracting investments from global investors as India has a potentially huge domestic market for electronic equipment.”

While highlighting another aspect that attracts foreign investors to the Indian Semiconductor market, Guruswamy said, “The availability of a skilled workforce and low-cost benefits has made India a great destination for chip design.” As the semiconductor ecosystem evolves, electronic manufacturing services firms and handset vendors are establishing manufacturing units here. Experts believe that a fabrication plant in India will be at an advantage to serve emerging local demand.

He quoted some examples, “Several proactive government initiatives in the recent past favor semiconductor manufacturing in India. The recent announcement to set up an ATMP plant in Andhra Pradesh and Hindustan Semiconductor Manufacturing Corporation (HSMC) is a positive step.”

However, manufacturing is at a nascent stage; fabrication plants require state-of-the-art infrastructure—unlimited power and water supply in addition to efficient waste management processes. Initiatives for infrastructure improvement are important in speeding up the process of setting up fabrication plants in India.

The Indian IT market is on an unparalleled growth trajectory and offers a tremendous market opportunity to semiconductor vendors across a variety of applications. Gude said, “India is considered one of the four high growth markets for AMD across the world and has been posting consistent growth across all the segments that we address. The fact that large MNCs are setting up manufacturing here is a testament to the fact that the domestic opportunity in India is at its peak and more manufacturing and consumption in India will help semiconductor players cater to the Indian market in a better way.”

India on the global semiconductor stage

The 1980s saw a few companies in India starting up with small block design and libraries. Multinational companies were apprehensive about investing in Indian design center (IDCs) at this point. Cadence was one of the first companies to invest in an offshore development center when it set up its India Engineering Center in 1987. “It was only in the mid-1990s that multinationals started realizing India’s advantages as an ideal destination for R&D, initially from a financial perspective and more recently to leverage the highly qualified local talent pool,” said Ahuja while giving a brief background of Indian role in the global market for semiconductors.

Design services firms, fabless companies and IP providers have also emerged, resulting in a gradual yet steady development of India’s semiconductor ecosystem. Today companies are realizing true returns on investments made in R&D in India as their Indian teams drive mission-critical projects.

Further elaborating the nature of work which usually been done from India, Shroff said, “The semiconductor industry has two distinct models—Fab and Fabless. Irrespective of the place the actual chip/SoCs are designed, they can be manufactured at any location that has an adequate fabrication facility. As compared to fabrication, which is a capital intensive process, chip design is people and skill intensive. The ecosystem for chip fabrication in India is non-existent; our strength has been chip design. India has more than 225 chip design companies. A recent report conducted on the Indian Semiconductor Industry forecasts a 20% CAGR. The absence of a manufacturing facility all these years has not had any impact on the growth of the semiconductor design sector in India.”

The chip industry tends to be cyclical in nature and suffers from periodic downturns where chip development activity ramps down significantly. This creates business visibility issues for small companies. Shroff pointed out some challenges, “The third challenge is the availability of skilled manpower. There is a limited resource pool in India that is effective in designing chips. This needs to change. eInfochips has a well diversified portfolio of service offerings including embedded system design services that can offset to a large extent the downturn in chip design activity.”

Meanwhile, although talent is our key differentiator the challenge is also in the supply and demand gap for competent professionals in the country. Ahuja suggested, “Currently there is a shortage of ‘design aware’ manpower, ire., VLSI-trained engineers. However, this is something that is recognized by the industry and several companies, including Cadence, have taken proactive steps to increase the number of VLSI-trained engineers in the industry.”

faiz.askari@expressindia.com