Industry Dimensions
Unlike the IT and ITeS sector, the Indian semicon industry is still young, with just over 200 firms, majority of them multinationals, operating in VLSI design, embedded systems, and manufacturing.

Over the years, India has made significant technological developments, particularly in two areas of the semiconductor industry—chip designing and software development. Thanks to the large base of software engineers and experts, Indians seem to excel in electronic design automation.

The semicon players are broadly classified into two basic categories—captive and non-captive. The category 'captive' includes integrated device manufacturing (IDMs), fabless companies, and OEMs, which would be carrying out chip design for in-house use. The category 'non-captive' includes service companies that would provide services to clients, which may be OEMs or IDMs. Large non-captive companies in India typically have over 500 engineers. Start-ups would typically tend to have 50 to 100 or a maximum of 200 engineers.

Types of captive companies, such as IDMs and fabless companies, may carry out design of chip to reference board for in-house consumption. However, some of the non-captive companies have built capabilities in terms of carrying out chip design, reference board design, product development, and the embedded software for that.

From the activity level, the value chain is defined as system architecture, logic design and verification, physical design, and testing; followed by silicon manufacturing services—packaging, assembly, and testing. As of today, companies in India are in logic design, verification, and physical design.

Catching Up Fast
India already has a strong network of companies doing semiconductor design, including systems integration, VLSI, hardware and board design, and embedded software. Looking at the landscape, there are design companies across Bangalore, NCR Delhi, Hyderabad, Chennai, Pune, Ahmedabad, and Goa. All of the global top ten fabless design companies also have India operations and nineteen of the top twenty-five semiconductor companies are already present here as of early May 2005.

Among them, Bangalore boasts of over forty-seven VLSI chip design firms, including biggies such as Motorola, Cypress Semiconductor, IBM, Cisco, Ishoni Networks, Lucent, and Sun. And inspired by their entry, a number of Indian firms too have joined the chip design race—Accel, C-DAC, Ittiam Systems, Wipro Infotech, GPS Usha, Silicon Automation Systems, Tata Elexsi, and Tejas Networks to name a few.

Almost every major international firm from Texas Instruments to Intel, Ericsson to IBM to NXP has its R&D or design lab for microprocessors and applications. At least four groups have confirmed their intentions of setting up fabrication foundaries or ‘Fabs’ across India.

SemIndia has decided on setting up a plant near Hyderabad in Andhra Pradesh with microprocessor and logic technology from AMD. The ambitious project, to be executed in two phases, will have an ATMP (assembly, testing, mark, and packaging) unit and a fab facility to manufacture chips (wafers) for domestic and global players, including fabless and integrated device manufacturers.

The Hindustan Semiconductor Manufacturing (HSMC) plans to set up two semiconductor manufacturing facilities in India that will manufacture chips on 8-inch wafers and more advanced 12-inch wafers. Infineon Technologies, a global semiconductor supplier for communications, automobile, security, and industry applications has signed an MoU with HSMC to license its leading-edge 130 nm CMOS process technology.

NT Silicon India, a local company with ambitions to move into the lower reaches of the semiconductor market, is investing $670 mn in an 8-inch semiconductor fab planned for Hyderabad. Not to be outdone, Nest Technologies, a software company based in Kerala, recently announced plans to set up a foundry. Videocon has also thrown its hat in the ring announcing a $250 mn semiconductor facility in eastern or southern India.

Vast Opportunities
What’s really driving the market are the major end-use segments—communications, information technology, and consumer electronics. As an increasing number of Indians buy PCs or laptops, mobile phones, TVs and set top boxes, music and entertainment systems, the demand for semiconductor rises.

In a typical telecom product, the average semiconductor content is very high as compared to consumer electronics or any other category. That is the reason why a thrust in telecom manufacturing would actually help the semiconductor market in India to grow to a large extent.

In the communications segment, mobile handset is a large market, which also offers high volume growth potential. Within the wireless equipment sub-segment of communications, BTS equipment is gaining momentum. In the consumer electronics segment, there is a large market for set top boxes in India. Another high growth potential market is the smart card terminal. Captive MNCs in India are already carrying out cutting-edge technology work. Companies are designing ICs with 0.13, 0.09, and 0.065 micron technology.

The industry is focusing on power management for mobile devices, smaller form factors, and enhancing user experience for voice, data, and video convergence. Cadence Design Systems has developed common power format (CPF) as part of its power forward initiative for low-power standardization effort.

Several companies are prominently working on new areas related to mobile applications, such as interactive games, B2C transactions over the mobile, and wireless products for OEMs and ODMs, especially for emerging 3G and WiMax standards.

Manpower Crunch
Indian firms would have to build domain know-how in the semiconductor sector, and scale up their resources—human as well as capital. The semiconductor industry has the potential to create more jobs than the software industry in the long run. However, at its current growth level, the industry will need ten to twelve times the current manpower level of 65,000 engineers. There is also a shortage of high caliber faculty in India's technical education system.

The ISA-F&S study has revealed that the industry has 60,000 engineers in embedded systems, 11,000 in VLSI design, and 5,000 in hardware segment. In terms of market estimates for the next decade, the industry is projected to grow ten-fold.

The challenge could reduce in the coming few years through government initiatives, better collaboration between industry and academia, higher participation of experienced professionals in training activities, and greater flexibility in recruitment policies of companies.

Linking Up Telecom Growth
Telecom is a key end-use segment in India; firstly, due to the high demand for telecom services owing to its strategic importance to the country, and secondly, it has high semiconductor content.

The global chip design market currently caters mainly to consumer electronics and some IT areas, but future growth areas will include telecom, wireless, broadband, automobile, medical equipment, aviation, and Internet appliances including embedded chips. With the Indian telecom sector growing at an enviable pace, gear manufacturers, handset makers, and component production companies are making a beeline to get a share of the market.

In India's telecommunications segment, the manufacturing index was only about 0.07 in 2005. The manufacturing index reflects the extent of manufacturing that takes place in a particular segment, in a country. The closer the manufacturing index is to 1, the better is the capacity to meet demand through local manufacturing. A low telecom-manufacturing index shows that it is a long way before a major proportion of the demand is met through local manufacturing. By 2015, the ratio is expected to be almost 0.3.

By 2010, communications is anticipated to be the major contributor to semiconductor consumption. India is poised to have its very own elite semiconductor ‘eco-system’ moving up the global value chain.

Malovika Rao
malovikar@cybermedia.co.in