Carrier Equipment: Semiconductor: New Chip on the Block

The Indian success story of the software and services sector is well known.
But there is another in the making�India�s hardware sector consisting of
semiconductor (chips), VLSI design, and electronics manufacturing is fast
catching up, thanks to the sound ecosystem built over the last two decades.

Emerging Industry

This is the first time VOICE&DATA has included the semiconductor
industry in V&D100 issue in recognition of its bolstering contribution to the
telecom market. The emerging semicon industry on Indian soil bodes well for the
telecom industry as well. The Indian telecom story has become the stuff legends
are made of with the Indian mobile market being counted as one of the fastest
growing in the world at over 4 mn mobiles bought every month.

With the right ecosystem and major telecom manufacturing companies setting
shops here like Elcoteq, Nokia, and Ericsson to name a few, the semicon industry
in India has a vast greenfield right at its doorstep.

The semicon industry is at an inflection point in India. The semiconductor
market in the country, which was pegged at $1.6 bn in 2006, is expected to reach
about $2.2 bn in 2007 and $5.5 bn by 2010. The semiconductor policy announced
early in March this year has also given an impetus to the industry�s growth.
Despite the dilution of incentive (from 25-30% to 20%) the policy has brought
cheer by according it SEZ (special economic zone) status, and exempting
countervailing duty (CVD) for non-SEZ entities.

A survey by the Indian Semiconductor Association (ISA) and Frost and Sullivan
(F&S) done last year suggested that India's chip industry could generate a
turnover of $202 bn by 2015, compared with $14.3 bn in 2005, with the potential
to employ some 3.6 mn workers by 2015, against 520,000 workers in 2005. By 2015,
the ISA study indicates, the industry will account for around 12% of the
national GDP.

Industry Dimensions

Unlike the IT and ITeS sector, the Indian semicon industry is still
young, with just over 200 firms, majority of them multinationals, operating in
VLSI design, embedded systems, and manufacturing.

Over the years, India has made significant technological developments,
particularly in two areas of the semiconductor industry—chip designing and
software development. Thanks to the large base of software engineers and
experts, Indians seem to excel in electronic design automation.

The semicon players are broadly classified into two basic categories—captive
and non-captive. The category 'captive' includes integrated device manufacturing
(IDMs), fabless companies, and OEMs, which would be carrying out chip design for
in-house use. The category 'non-captive' includes service companies that would
provide services to clients, which may be OEMs or IDMs. Large non-captive
companies in India typically have over 500 engineers. Start-ups would typically
tend to have 50 to 100 or a maximum of 200 engineers.

Types of captive companies, such as IDMs and fabless companies, may carry out
design of chip to reference board for in-house consumption. However, some of the
non-captive companies have built capabilities in terms of carrying out chip
design, reference board design, product development, and the embedded software
for that.

From the activity level, the value chain is defined as system architecture,
logic design and verification, physical design, and testing; followed by silicon
manufacturing services—packaging, assembly, and testing. As of today, companies
in India are in logic design, verification, and physical design.

Catching Up Fast

India already has a strong network of companies doing semiconductor
design, including systems integration, VLSI, hardware and board design, and
embedded software. Looking at the landscape, there are design companies across
Bangalore, NCR Delhi, Hyderabad, Chennai, Pune, Ahmedabad, and Goa. All of the
global top ten fabless design companies also have India operations and nineteen
of the top twenty-five semiconductor companies are already present here as of
early May 2005.

Among them, Bangalore boasts of over forty-seven VLSI chip design firms,
including biggies such as Motorola, Cypress Semiconductor, IBM, Cisco, Ishoni
Networks, Lucent, and Sun. And inspired by their entry, a number of Indian firms
too have joined the chip design race—Accel, C-DAC, Ittiam Systems, Wipro
Infotech, GPS Usha, Silicon Automation Systems, Tata Elexsi, and Tejas Networks
to name a few.

Almost every major international firm from Texas Instruments to Intel,
Ericsson to IBM to NXP has its R&D or design lab for microprocessors and
applications. At least four groups have confirmed their intentions of setting up
fabrication foundaries or ‘Fabs’ across India.

SemIndia has decided on setting up a plant near Hyderabad in Andhra Pradesh
with microprocessor and logic technology from AMD. The ambitious project, to be
executed in two phases, will have an ATMP (assembly, testing, mark, and
packaging) unit and a fab facility to manufacture chips (wafers) for domestic
and global players, including fabless and integrated device manufacturers.

The Hindustan Semiconductor Manufacturing (HSMC) plans to set up two
semiconductor manufacturing facilities in India that will manufacture chips on
8-inch wafers and more advanced 12-inch wafers. Infineon Technologies, a global
semiconductor supplier for communications, automobile, security, and industry
applications has signed an MoU with HSMC to license its leading-edge 130 nm CMOS
process technology.

NT Silicon India, a local company with ambitions to move into the lower
reaches of the semiconductor market, is investing $670 mn in an 8-inch
semiconductor fab planned for Hyderabad. Not to be outdone, Nest Technologies, a
software company based in Kerala, recently announced plans to set up a foundry.
Videocon has also thrown its hat in the ring announcing a $250 mn semiconductor
facility in eastern or southern India.

Vast Opportunities

What’s really driving the market are the major end-use
segments—communications, information technology, and consumer electronics. As an
increasing number of Indians buy PCs or laptops, mobile phones, TVs and set top
boxes, music and entertainment systems, the demand for semiconductor rises.

In a typical telecom product, the average semiconductor content is very high
as compared to consumer electronics or any other category. That is the reason
why a thrust in telecom manufacturing would actually help the semiconductor
market in India to grow to a large extent.

In the communications segment, mobile handset is a large market, which also
offers high volume growth potential. Within the wireless equipment sub-segment
of communications, BTS equipment is gaining momentum. In the consumer
electronics segment, there is a large market for set top boxes in India. Another
high growth potential market is the smart card terminal. Captive MNCs in India
are already carrying out cutting-edge technology work. Companies are designing
ICs with 0.13, 0.09, and 0.065 micron technology.

The industry is focusing on power management for mobile devices, smaller form
factors, and enhancing user experience for voice, data, and video convergence.
Cadence Design Systems has developed common power format (CPF) as part of its
power forward initiative for low-power standardization effort.

Several companies are prominently working on new areas related to mobile
applications, such as interactive games, B2C transactions over the mobile, and
wireless products for OEMs and ODMs, especially for emerging 3G and WiMax
standards.

Manpower Crunch

Indian firms would have to build domain know-how in the semiconductor
sector, and scale up their resources—human as well as capital. The semiconductor
industry has the potential to create more jobs than the software industry in the
long run. However, at its current growth level, the industry will need ten to
twelve times the current manpower level of 65,000 engineers. There is also a
shortage of high caliber faculty in India's technical education system.

The ISA-F&S study has revealed that the industry has 60,000 engineers in
embedded systems, 11,000 in VLSI design, and 5,000 in hardware segment. In terms
of market estimates for the next decade, the industry is projected to grow
ten-fold.

The challenge could reduce in the coming few years through government
initiatives, better collaboration between industry and academia, higher
participation of experienced professionals in training activities, and greater
flexibility in recruitment policies of companies.

Linking Up Telecom Growth

Telecom is a key end-use segment in India; firstly, due to the high
demand for telecom services owing to its strategic importance to the country,
and secondly, it has high semiconductor content.

The global chip design market currently caters mainly to consumer electronics
and some IT areas, but future growth areas will include telecom, wireless,
broadband, automobile, medical equipment, aviation, and Internet appliances
including embedded chips. With the Indian telecom sector growing at an enviable
pace, gear manufacturers, handset makers, and component production companies are
making a beeline to get a share of the market.

In India's telecommunications segment, the manufacturing index was only about
0.07 in 2005. The manufacturing index reflects the extent of manufacturing that
takes place in a particular segment, in a country. The closer the manufacturing
index is to 1, the better is the capacity to meet demand through local
manufacturing. A low telecom-manufacturing index shows that it is a long way
before a major proportion of the demand is met through local manufacturing. By
2015, the ratio is expected to be almost 0.3.

By 2010, communications is anticipated to be the major contributor to
semiconductor consumption. India is poised to have its very own elite
semiconductor ‘eco-system’ moving up the global value chain.

Malovika Rao

malovikar@cybermedia.co.in