Zooming Ahead

The telecom industry being the leading growth driver, a good time has arrived
for the Indian semiconductor industry. The government announced a semiconductor
policy last year, attracted seven investment proposals worth Rs 65,000 crore.
India has an enormous appeal for different parts of the semiconductor value
chain from board, chip, and systems design to finished electronic products.

Growing Steady

In a joint study conducted by the Indian Semiconductor Association (ISA) and
IDC, it was found that the total design market in India for 2007 was estimated
at $6 bn and the industry is estimated to grow at a CAGR of about 21.7% between
2007-2010. The $6 bn mark has belied the low forecast figures estimated last
year. About 80% of the revenue came from embedded software followed by VLSI
design, and hardware and board design.

The total workforce employed in the design services industry in India was
estimated at 130,000 in 2007. The semiconductor and embedded design services
market is expected to cross $7.37 bn in 2008. India is one the largest
end-markets for semiconductor devices in the world.

The growth curve of the Indian semiconductor industry is an exciting one.
Outsourcing of chip design work to India has been on the rise, as companies set
up captive centers in India or outsource projects to design services firms.
Electronics consumption and production has driven India as a major market for
semiconductors. It is expected that local design services companies are likely
to explore the acquisition route to gain complimentary skill sets or build IP
competency in order to provide value added and differentiated services.

One of the biggies in semiconductor space in India, Cadence Design Systems
India, clocked $1.62 bn revenue globally in FY 2006-07, an increase of 9% over
total revenues of $1.48 bn in 2006. Another giant, Freescale Semiconductor,
registered global revenue of $5.7 bn in FY 2006-07. Yet another important player
in the space is Wipro that had total revenue of close to $150 mn in the year
2007-08, and it expects to maintain the growth rate of 25-30% in FY 2009 too.
Wipro grew 34% in FY 2008.

Major Trends

As semiconductor manufacturers move to smaller process geometries such as 90
nm, 65 nm and lower, the need for power-aware design infrastructure and a
systematic, integrated approach to low-power design becomes important.

The market is increasingly seeing a convergence in device usage with
communication, computing, and consumer domains coming together based on features
and form factor.

The industry is in transition from high technology to commodity, globally.
India has not yet begun to prepare for the next wave. What will it be? Carbon
nanotubes? Or MEMS? It could be anything, but risks have to be taken.

Over the years, most global chip companies have set up their development
centers in India to take advantage of market proximity and talent pool. India's
position as a design center is so strong that it will soon drive some of the
major global developments in the semiconductor industry.

Challenges

The negative spending coupled with the US recession has impacted
semiconductor sales negatively. However, the scene in the Indian semiconductor
industry is different.

Also, there is an upsurge in manufacturing activities in India over the last
few years, especially in the telecom, consumer and industrial segments boosted
by sub-contract manufacturing activities.

One possible threat faced by the industry is scarcity of talent. It is vital
for the industry to come up with comprehensive programs that impart the needed
skill sets for the growth of the industry.

The semiconductor industry in India does not appear to have an attractive
value proposition going forward, owing to government positioning on transfer
pricing. However, some industry stalwarts believe that the strengthening rupee
value can be leveraged for serious cost advantage since semiconductor
manufacturing has a significant import component.

From a semiconductor product company perspective, there are missing links in
the overall ecosystem-systems engineering, venture capital, IP protection, etc.

Worldwide complexity in chip design is increasing as we progress toward
smaller process geometries resulting in challenges related to verification,
analog integration, power optimization, manufacturability, and reliability. The
issues are exacerbated at 90 nm and below process nodes.

Globally, the industry is also learning to cope with flat or negative growth
as markets mature. India, an emerging market, is an exception, where the
industry is expected to grow significantly over the next few years.

Growth Drivers

India, with its huge middle-class population, is one of the largest spenders
in consumer electronics in the world, thus, driving the growth of the
semiconductor industry.

India is a prime country as far as talent availability is concerned. The
availability of a large engineering talent pool and cost advantage as compared
to other countries has been one of the key growth drivers for the Indian
semiconductor industry so far. Other influencing factors include a strong
technical education system, reduced entry barriers, government support in the
form of STPI and EOU schemes, and a strong IPR framework. Technologically,
India's growing expertise in analog and mixed-signal design as well as MEMS
(Micro Electro Mechanical Systems) in the future will be another important
driving factor. Moreover, India has an impeccable track record of successfully
completing projects on time. Naturally India is now increasingly seen as a
design outsource hub.

Future Potential

An ISA-Frost & Sullivan report projects the total market of semiconductors
in India to be $36 bn by 2015 at a CAGR of 29.8%. The advantages in terms of
cost, required skill sets in hardware and software design, language, etc will
help in manufacturing locally, and export. With the Indian telecom industry
having enthusiastically adopted the 'rural chalo' mantra, there will be an
increased demand for semiconductor manufacturing and designing in India.

To facilitate a bright semiconductor industry in India, it has to leverage
fully its chip-designing prowess and maintain this edge, and we have to rapidly
bridge the industry-academia gap. The semiconductor industry, by and large, is
euphoric about the government's encouraging semiconductor policy and its support
in building the semiconductor industry in India.

Kannan K

kannan@cybermedia.co.in