* Lanco Infratech Ltd decides to go slow on its solar modules manufacturing plans. Planned with an investment of $1 billion, the solar module manufacturing and power generation plant was to be housed at three sites

* Trans-India Acquisition calls off acquisition of 80% stake in Hyderabad-based Solar Semiconductor for $375 million as it could not get permission from its investors

IT is not easy to dismiss these as one-off cases. Several high-profile multi million semiconductor projects seem to be shifting to slow gear. The India story of growth in the semiconductor industry appears to be heading below past projections. Reasons for these are not hard to comprehend. The semiconductor industry is increasingly being driven by the consumer electronics sector. Due to recent slowdown in the overall economy and recession in developed economies around the world, the demand is definitely down. Hence, it?s cascading effect on the semiconductor industry.

The current slowdown is bound to impact manufacturing investment prospects in the country as well. Industry analysts say that a low manufacturing index for electronic products leads to higher imports and thus lowers the local potential for semiconductors? their key component.

Notwithstanding the gloomy scenario, growth prospects for the Indian semiconductor market are emerging from a relatively healthy domestic demand for consumer electronics. At the same time, the growth for semiconductor companies is expected to come from energy-related and low-power technologies that are able to drive market share shifts.

Interestingly, there will not only be a potential reduction in the number of systems sold, but also a move to lower-cost systems with less semiconductor content, says a Gartner analyst. Agreeing, Jaswinder Ahuja, managing director, Cadence Design Systems (I), says that there will be an increased demand for mid-range product technology. ?Consumers will focus on critical electronic items, rather than the ?good to have? or faddish gizmos. Greater emphasis will be on best functionality at a lower price point?.

Cadence?s customers will try to move inventory and restock their shelves to meet consumer demand, which will be for mid-range product technology. The exception may be for items that show a clear environmental or ?green? benefit, in which case the market may withstand a slightly more elastic price range.

Fabs in Asia which normally hum, are believed to be running below 50% capacity. As some of the integrated device manufacturers (IDMs) begin to go asset-light, existing fabs will be available in the market for a quick start if any business house wants to get in that business. ?In such a scenario, I do not foresee a real fab coming up in India anytime soon. Moreover, memory business is down almost 40%. Analog, DSP and logic will stay flat and fab and related tools business will be down about 20%. So yes, there is a fall. At the same time, the Indian market will still show a positive growth, albeit from a much smaller base,? says Synopsys India managing director, Pradip K Dutta.

On the industry trends in electronic design automation (EDA), the power efficient design will become increasingly critical to semiconductor companies. Moreover, EDA companies will have to sharpen their focus to deliver ?green? technologies. The ability to design maximum power savings into not just mobile consumer products, but every electronic product we use?from cellphones to hardwired data centres and more?will challenge designers to develop new technologies that could greatly expand the role of the EDA industry, enhancing system and application design and playing a key role in green electronic design.

Despite the initial hiccups, the forecast for the Indian semiconductor industry market looks promising. Domestic industry is expected to grow at a CAGR of 13.4% to $7.59 billion by 2010, as against the earlier forecasted CAGR of 26.7%. An industry report by the India Semiconductor Association (ISA) and Frost & Sullivan states that the decline in CAGR, from 26.7% in 2007, to 13.4% in the current report, is on account of revised investment and manufacturing scenario seen in the second half of 2008.

There has also been a decline in the average selling price (ASP) for various semiconductor components ranging from 3% to 10%, depending on the final product and the semiconductor content. According to the ISA-Frost & Sullivan report, the total available market (TAM) revenues in the Indian semiconductor industry are expected to climb from $2.53 billion in 2008 to $3.24 billion in 2010 with a CAGR of 13.1%.

Bob Kondamoori, managing director, Sandalwood Partners highlights that due to the lack of credit, orders are being turned down by many original equipment manufacturers (OEMs). As such, semiconductor chip demand is crashing. In the Silicon Valley, companies are reporting that orders are expected to reduce by as much as 50% in 2009. ?Globally, fabs are running at sub-50% capacity. So why build fabs when the companies themselves can be purchased at a fraction of the cost,? he questions.

A typical cycle in the semiconductor industry used to come down every four to five years and the correction is usually 15% to 20%. Analysts point out that the recent developments will put a major dent on many semiconductor companies. A lot of them will go out of business. And with companies getting wiped out and along with the related mass attrition, the industry should recover in about four to five years.

?Semiconductor industry is basically cyclical in nature, but this current slowdown will bring out some additional factors that will be directly connected to the woes we are seeing in the overall economy. More than the financial crisis, it is the economic recession that is having a greater impact this time around,? says Dutta. The downturn in the semiconductor industry in 2001 was by far the worst?having dropped 46% from the peak. ?The situation is not that bad yet. Inventory levels are being managed prudently,? he informs.

According to preliminary estimates by Gartner, the economic crisis has caused a significant impact on the semiconductor industry. In the third quarter of 2008, worldwide semiconductor revenue for 2009 was forecast to be $307.7 billion, a 7.8% increase from 2008 revenue.

Gartner analysts now expect worldwide semiconductor revenue in 2009 to total approximately $282 billion, a 1% increase from 2008 revenue. Although semiconductor companies mostly met expectations for the third quarter of 2008 (the semiconductor industry grew by approximately 5% quarter over quarter) guidance for the fourth quarter of 2008 continues to drop.

Mounting evidence suggests that the semiconductor industry will see negative growth starting in the fourth quarter of 2008, and that this will continue throughout most of 2009 given the weak economic environment. However, Huzefa Cutlerywala, director (marketing and business development), Open-Silicon, feels that while on the semiconductor product side the impact of the slowdown is bigger since people have had low inventories and slowing orders, the services side of the business, especially the turnkey business, is not as badly affected. ?On one hand, companies which use semiconductors have resorted to layoffs. On the other hand, the need to churn out new products is still there. Hence turnkey solutions in semiconductors will be affected less and may even see a rise,? says Cutlerywala.

At the same time, India continues to be a promising market for the semiconductor industry. However, the industry may not grow at 30% although there were reports mentioning the same. Penetration of electronics in Indian households and products will only increase with time, coupled with the focus on healthcare electronics, distance education and renewable energy. Such initiatives will only put the semiconductor industry on a much better wicket.