How semiconductor sector has all ingredients necessary to create vibrant fabless industry

The semiconductor sector has all the ingredients necessary to create a vibrant fabless industry in the country with a little push from pro-active government policies

semiconductor sector, fabless industry, semiconductor industry, business models
The semiconductor industry has seen a lot of changes in business models.

The hardware story of India’s information technology (IT) industry has not really matched the strides made by the software services segment but there are a few bright spots which the country can capitalise to emerge as the leading destination globally. The hardware industry in India has been largely associated with PC manufacturing but there is an equally important factor which forms a very crucial element —the semiconductor sector which is turn is closely associated with the electronics industry.

According to the ministry of electronics and information technology, the demand for electronics hardware in the country is projected to increase from $45 billion in 2009 to $400 billion by 2020. Production is estimated to reach $104 billion by the year 2020, creating a gap of $296 billion. This creates a unique opportunity for companies in the ESDM (Electronic System Design & Manufacturing) sector to look at India as their next destination to cater to domestic Indian demand as well as act as an exports hub, the ministry noted.

The India Electronics and Semiconductor Association (IESA) in collaboration with MarketsAndMarkets recently launched an industry report on Indian semiconductor fabless startup ecosystem. The report noted that India is strongly focusing on semiconductor manufacturing, but it is equally important for the country to encourage the development of fabless players. It is expected that the increasing demand for modern chip designs and electronics devices would drive the need of semiconductor IP designing. The Indian semiconductor component market is expected to be worth $32.35 billion by 2025, growing at a CAGR of 10.1% between 2018 and 2025.

Ashwini K Aggarwal, chairman, IESA said: “With digital as the growth hack and aggressive engagement from the government’s “Make in India” campaign, the ESDM industry will benefit and is projected to see investment proposals of over $1.5 billion over next two years. We believe that now is the time to build the future of design led manufacturing. The fabless report clearly highlights the opportunities for the Indian fabless ecosystem.”

This focus on fabless industry in India is also in line with the global changes in the semiconductor industry.

The semiconductor industry has seen a lot of changes in business models. Prior to the 1980s, the industry was fully integrated, with manufacturers owning every step of the process, from design to final product. Semiconductor companies owned and operated their silicon wafer fabrication facilities and developed their own process technologies for manufacturing chips. These companies (also known as IDMs) also carried out the assembly and testing of their chips. The late 80s and the early 90s saw the emergence of the concept of fabless and foundry business models; however, this gained prominence in the last 15 years as the capital cost of investing in new processes grew multifold. Today, setting up a wafer fab for the leading edge (14 nm and below) costs $150–200 million for every 1,000 wafer starts per month (wspm). For example, a breakeven of >50 kwspm for leading-edge manufacturing implies an investment of $7–10 billion.

According to IESA, the Indian semiconductor design ecosystem is quite robust, with most of the major global semiconductor players having their R&D centres in India. In addition to global R&D centres, the past decade has seen quite a few Indian entrepreneurs starting their own fabless IP or SoC design houses. India is a highly attractive destination for global R&D centres owing to the availability of talent, as well as lower cost (compared with the US and Western Europe).

The ingredients are available in the country to build a robust fabless semiconductor ecosystem and this requires connecting with talent pool, accelerating investment promotions, getting into international alliances and lastly policy implementations. The three key areas where the semiconductor industry can find the maximum traction in the current scenario would be smart industrial automation, defence and rural broadband.

According to IESA, to shift the market momentum in semiconductor industry from a service based model to a high value creation product-based model, the nascent fabless ecosystem needs support from the government which can come in the form of R&D funding, formation of fabless incubation centres and subsidies for prototyping of ICs that can be effectively used by the government to promote domestic fabless companies.

Jitendra Chaddah, chair, Fabless CIG, IESA, and senior director, strategic relations and operations, Intel India said, “Given the availability of abundant talent and chip design expertise in India, I am very excited about the tremendous opportunity we have to accelerate the semiconductor fabless ecosystem in the country.”

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 02-04-2018 at 03:22 IST