Chip of new block needs govt help

Written by Goutam Das | Goutam Das | Updated: Apr 8 2011, 06:42am hrs
The semiconductor design industry in India, which has done reasonably well, now needs the right conduct from the government to continue with its growth story. From its tentative beginnings in the mid-1980s, the industry has grown to $7.5 billion in 2010 and is now expected to touch $10.6 billion in revenues in 2012. But growth rates appear to be dipping and the industry desperately needs policy interventions.

India is a happy host to the sector with the top 10 global fabless companies (which design chips but arent into fabrication) and the top 25 semiconductor companies having their operations here. The industry currently employs 160,000 people and will absorb 70,000 more by next year. A benchmark study from the industry lobby body India Semiconductor Association (ISA) points out that India stacks up well on most parameters against countries such as the US, the UK, Germany, Sweden, China, Taiwan and Israel, which are strong in semiconductor design. In terms of revenues, India is second only to the US. India ranks third among other countries in terms of the relevant engineering talent pool currently available and is second only to China in annual additions of engineers with relevant skills. India remains highly competitive in operating expenses the average salary cost in India is $29,246; only China with an average compensation of $16,900 pays lower remuneration. Even in terms of space, with the average annual rentals of $278 per sq m per annum for grade-A office space, India has one of the lowest rentals among competing countries.

The consumption of semiconductors, which go into all electronic products, can only grow with the burgeoning middle class. Ever more, consumers are demanding smarter phones and cars. The mushrooming of LED screens, 3G and technologies such as Wi-Max is translating into increased demand for semiconductor design.

Nevertheless, the industry or the government can hardly afford to relax. All that has driven the sector thus far the availability of talent pool, cost competitiveness, strong intellectual property rights protection, proximity to Asia-Pacific customers and reverse brain drain can easily turn on its head in the absence of policy interventions from the government. Industry watchers say interventions are required to ensure quality talent supply, venture capital support and the right ecosystem that includes promotion of local manufacturing. There is a lack of semiconductor manufacturing ecosystem as well as local original design manufacturers and original equipment manufacturers that can cater to domestic demands. If the semiconductor design industry were to sustain current growth rates, all the pieces of the jigsaw the government, industry, academia and entrepreneurs have to come together rather quickly. Already, growth rates appear to be dipping. Between 2007 and 2009, the industry grew at a CAGR of 21.7% but in the 2009-12 period, it is likely to grow at a pace that is 4.4% slower.

Ideally, 10 years from now, a large percentage of electronic products and semiconductors used in those products should be both designed and manufactured in India. The value then is both created and captured in the country. The government has to create an enabling environment that encourages domestic manufacturers, IP creation, investment and high-quality talent, says Jaswinder Ahuja, corporate VP and MD of Cadence Design Systems India.

ISA has suggested that the government support domestic testing and packaging companies as well as dedicated foundries that can cater to the needs of the domestic market. Ahuja points out that in the future, there could be a big balance of payments crisis if India were to import all the semiconductor components for electronics.

India, nevertheless, can compete with neither China nor Taiwan on the leading node in chip manufacturing since it requires multi-billion dollar investments, specialised technical know-how and infrastructure. ISA suggests Indias best bet would be to create foundries at second-to-last or third-to last technology nodes, probably at 90 nm or 120 nm, which requires lesser investment and can cater to local demands in select verticals such as industrial automation and consumer segment. Domestic demand and proximity to customers will ensure growth of such foundries and make movement of such units to other geographies less likely, says ISA president Poornima Shenoy.

Availability of high-end programmers has often been cited as a challenge and even those with complex skill sets have IT services, particularly application development and maintenance (ADM) as a career option. One of the recommendations from the industry has been to set up specialised institutes for semiconductor design, on the lines of Interuniversity Microelectronics Centre in Belgium and the VLSI Design and Education Centre in Japan. The government, it seems, will have its hands full.