Indian semiconductor industry is getting down to business. Overcoming months of lower demand and anxiety on account of the global economic slowdown, the mood is humming along nicely now.
There are signs of revival in the global semiconductor industry and optimism for the semiconductor players?domestic as well as multinational?is brewing on account of the strong domestic sales in recent times. The main sectors driving semiconductor sales in India are telecom, automotive, industrial electronics and consumer electronics. Other sectors like solar, renewable energy, intelligent healthcare too are chipping in with their growing appetite for semiconductor products.
Inventory periods for semiconductor products have reached a 60-day level in the first quarter of 2009, as compared to a 77-day period in the last quarter of 2008. The Indian Semiconductor Association (ISA) estimates the total revenue of the Indian semiconductor market to grow from $5.9 billion in 2008 to $7.9 billion in 2010 at a CAGR of around 13%. At the same time, ISA feels that the current slowdown will impact manufacturing investment prospects in the country.
In spite of this, one of the bright spots, according to Gartner, is that the PC and the laptop markets have bottomed out and things are likely to improve. The utilisation of fabs, which was less than 50% just a few months ago, has picked up. Some of the chip manufacturers have witnessed a growth in their quarterly revenue forecasts. The wireless handset market?one of the biggest consumers of semiconductor chips?continues to grow. At the same time, the automotive sector is witnessing an increasing adoption of chips into the vehicles.
Bolstered by the positive growth sentiments, semiconductor companies are getting ready for new opportunities of growth. For one, the government?s resolve to modernise the three wings of its armed forces?army, navy and air force?by investing vast sums of money in the latest armoury, could be a money-spinner for the semiconductor industry. Other than that, WiMax, 3G, DTH, medical electronics, photovoltaic and nanotechnology are some of the growth areas over the next few years.
Rural opportunities spawned by cheaper handsets, affordable services and enhanced connectivity have resulted in millions of subscribers across India. This price reduction can be attributed to smarter semiconductor components, coupled with efficient manufacturing techniques. No wonder, there is an opportunity for the semiconductor industry as the investment in urbanising India stands at around $500 billion.
Another growth area is bridging the digital divide with more than five billion people around the world who have never had access to or used computers, informs Intel chief sales and marketing officer, Sean Maloney. He believes the best way to solve this problem is to address both cost and connectivity challenges. On a recent visit to India, he disclosed an initiative Intel is working on in the country called ?Project Blue? that combines affordable nettops based on the Intel Atom processor with WiMAX connectivity.
The communications segment is a key semiconductor revenue generator. Buoyed by the growing emphasis and initiatives for broadband penetration, the roll out of 3G services later this year and government initiatives to enable rural connectivity, this segment is expected to become even more attractive. Also, the industrial segment has historically been a high contributor to the semiconductor revenues and this trend is expected to be further strengthened during the forecast period. The entire production for the high volume markets of inverters, offline UPS and energy meters takes place locally thereby ensuring high consumption of the semiconductor components used therein.
Madhusudan Atre, president, Applied Materials (India) feels that the automotive sector is one of the biggest consumers of chips. ?High-end cars require a great amount of automation and require as many as 300 to 400 microcontrollers, which help control everything?from temperature to tyre pressure, navigation etc. Some of these technologies will also penetrate the medium and low-end cars. Hence, there is extraordinary potential for the semiconductor industry,? he adds. In addition, the key driving factor for this segment is expected to be the environmental regulations aimed at reducing emission levels as also the continuous drive to develop safer and sophisticated vehicles.
Without any doubt, the Indian semiconductor industry has been far from immune to the market turmoil. During these tumultuous times, companies have been more cautious and often delayed their semiconductor purchase decisions, a move that has impacted the overall semiconductor and electronics industry. Various research reports have predicted that the global semiconductor industry is likely to see a year-on-year decline of around 20% in revenues.
According to iSuppli?s global semiconductor rankings for 2008, majority of the industry?s leading companies saw significant sales declines. Many of these suppliers are focused on semiconductor segments that performed poorly during the year, including memory, digital signal processors (DSPs), analog integrated circuits (ICs) and standard logic. This caused 80% of the top 10 and 60% of the top 25 semiconductor suppliers to experience declining revenues last year, compared to 2007.
Not surprising, the sentiment echoed by the Indian semiconductor industry is subdued yet optimistic. ?In spite of the global slowdown, things are looking relatively better for the Indian domestic semiconductor market. The industry has got mixed feelings in its growth bag hoping for a faster recovery,? says Poornima Shenoy, president, ISA.
?To build and sustain momentum, we are seeing companies in the semiconductor industry adopt shorter product life cycles, improve operational efficiencies, shared services and consolidation initiatives, sales and marketing effectiveness, partnerships,? says Arsh Maini, director, Deloitte & Touche Consulting India. Confident that the Indian semiconductor industry is poised for a strong recovery, he feels the clear strengths of India lie in product design and technical support services, while new product development is still in its nascent stage.
Tell-tale signs of the slowdown still reverberate in the minds of most of the semiconductor players. Many feel it is too early to take a call whether the worst is over. Pradip K Dutta, corporate vice-president & MD, Synopsys (India) says, ?There are some positive indicators coming from increased manufacturing capacity utilisation, but it could be due to the huge inventory depletion that had happened in the first calendar quarter of the year. The bottom could be here and we might be on a road to recovery, albeit slowly. Our prediction is that it would be well into 2011 before we can say that the industry is healthy again.?
Recalling the fallout of the economic downturn, Anil Gupta, MD, ARM Embedded Technologies (India) says, ?The sales of one of the biggest selling products (by category)?the mobile phone?has dipped globally, an indication that consumers have become cautious in their spending. Although from an Indian perspective, we have seen greater than 10 million phones being sold per month this year. Good news is that sales of smartphones have gone up this year compared to last year.?
However, though there are some indicators of recovery, it is still difficult to predict exactly when consumer demand will improve on a consistent basis. Semiconductor manufacturing has picked up compared with the first quarter due to extremely low inventory levels, but the consumer demand has not picked up in the same manner.
It is obvious to say that innovation will lead the growth. RamKumar Subramanian, vice-president (sales & marketing), AMD India, opines that virtualisation and security features will play an important role in future microprocessor designs. Current processors feature several hardware based virtualisation techniques that improve performance in virtual machines. ?This trend will continue and we will see more innovative hardware-enabled virtualisation features in the future,? he adds.
According to Rahul Arya, marketing director, Cadence Design Systems (India), in a market driven by a growing consumer appetite for more functionalities and sophisticated products, semiconductor companies are moving quickly towards advanced node technologies at 65nm and below.
This leads to new levels of performance goals and integration of complex applications in system-on-chips (SoCs). Besides, semiconductor companies are also seeking new growth opportunities in the netbook market as consumers demand cost effective and high performing solutions, informs Ganesh Guruswamy, vice-president & country manager, Freescale Semiconductor India.
Overall, the demand for chips is no longer contracting as sharply as it was in the final months of 2008, when customers curtailed orders for new chips and focused on burning off existing inventories, informs Pravin Desale, managing director, LSI Corporation, India. Recession is cyclical and provides the industry with an option to innovate to help the customers. Storage needs driven by the continuing growth of internet applications and video rich content will also see sustained demand, he adds.
According to ISA, the semiconductor industry will suffer double-digit contraction in 2009, but lean inventories across the supply chain could jump-start a rapid recovery when the economy finally starts to improve.
For the time being, they are content with the early signs of revival as they eagerly wait for that important paradigm shift.