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hen Nokia, the world’s leading handset maker, set up a W plant in 2006 near Chen- nai, the capital of the south Indian state of Tamil Nadu, it not only raised many an eye-brow in the electronics , but spawned a new era of manufactur- ing trend in the country. Almost a year down the line, Nokia acknowledged that production of elec- tronic in Chennai was cheaper than in , China, the traditional hub, preferred by well- known original equipment manufactur- ers (OEMs). India has catapulted to the world league in semiconductor manufacturing. The reasons – a maturing ecosystem for the and the policy decisions taken by a proactive govern- ment to attract investments in the elec- tronics industry, particularly semicon- ductor manufacturing. A semiconductor is an essential component in any elec- tronic equipment, be it a set, a cellular phone, a PC or an audio player. India is now seen as the next hub of semiconductor manufacturing. Already, a number of companies set up by Indi- ans with technical support from global giants have unveiled their plans for the country. According to the India Semiconduc- tor Association (ISA), the premier body of semiconductor companies and chip firms in India, the country has al- ready emerged as a preferred destination for chip designing and embedded soft- ware purely because of the talent pool. India can now go a step ahead and take up manufacturing of semiconductors for both the world and domestic markets. “Highly dynamic markets demand- ing new product variants/models from companies have forced OEMs/product

12 A Blue Chip Biz

India is emerging as the next hub for semiconductor manufacturing, and a number of international chipmakers are unveiling plans, taking advantage

of the new government policy,

says Shivkamal COVER STORY

companies to reduce the product de- The case for serving the domestic 11 per cent of the global electronic velopment cycle time by to electronics industry is stronger. Accord- equipment output. companies, especially to India,” points ing to an ISA - Frost & Sullivan report, Another encouraging sign is that the out ISA President Poornima Shenoy. India is developing as one of the largest semiconductor content in the estimat- “Declining margins and research and markets for electronic equipment. In- ed electronic consumption in 2015 is development budgets have forced com- dia’s electronic equipment consumption expected to be $36.3 billion account- panies to look for cost-effective centres was estimated at around $28.2 billion ing for 6.5 per cent of the global semi- without compromising on the quality in 2005. conductor revenues. of .” It is expected to reach $126.7 billion India offers high potential for elec- What makes India an attractive des- by 2010 and $363 billion by 2015 grow- tronic equipment manufacturing com- tination for semiconductor manufactur- ing at a compounded annual growth rate panies. The estimated production of ing? There are two reasons. The first is of 29.8 per cent. $155 billion in 2015 is expected to that companies, particularly MNCs, can India’s electronic equipment con- create an opportunity of $15.52 billion cater to the rapidly growing domestic sumption in 2003 was 1.8 per cent of for semiconductor companies and also electronics market at cheaper costs by the global electronic equipment out- for Electronic Manufacturing Services sourcing semiconductors from India. put in 2005. It is expected to grow to (EMS) companies. Secondly, India can emerge as an alter- 2.9 per cent in 2007, 5.5 per cent in The cost and opportunity benefits native to China and Taiwan in manufac- 2010 and 11 per cent in 2015. The for companies in the semiconductor and turing semiconductors. consumption by 2015 will be equal to embedded design sectors are also high.

Indian Semiconductor Ecosystem (Electronics Industry - Interface)

Electronics Industry Electronic Design Automation Design verification companies Original Equipment Manufacturers (EDA) tool companies MindTree Consulting, Sasken Nokia, Alcatel, Wipro, Videocon Cadence, Synopsys, Mentor Graphics, Quality Testing Electronic Manufacturing Synplicity Stag Software Services companies Flextronics, Solectron, NeST VLSI Design Services Product Testing companies Tessolve Design Houses Wipro, Sasken, MindTree Mistral, NeST, Flextronics Consulting, Fab equipment companies HCL Applied Materials Firms Bang Design, Lemon Design, FT Silicon IP companies Fab companies Design MindTree Consulting, Sasken, GDA (proposed) SemIndia, Software Intellectual Embedded Software Moser Baer, Property firms companies Videocon, Sasken, Emuzed, Encore Software, Sasken, Verismo Networks, Hindustan Semiconductor L&T Software MindTree Consulting Manufacturing Company

System Integrators Wipro, Tata Elxsi

Hardware services & board manufacturing ProcSys, iWave, Peninsula

Semiconductor Industry Chip Vendors, , ST Microelectronics, Intel, Cypress Semiconductors, Freescale, Moschip

14 COVER STORY

The fact that intellectual property protection is strong in India is another contributing factor leading to increased outsourcing of design services to Bangalore.

INNOVATIVE : A silicon wafer with MIS (Metal Insulator Semiconductor)

A direct revenue generation of $43.07 are an integral part of semiconductors. Bangalore, nearly 30 are captive off- billion by 2015 is expected to generate VLSI (Very Large Scale Integration) and shore design centres of MNCs such as employment for 781,780 engineers. The System on Chips (SoC) are at the pin- Intel, Texas Instruments and NXP Semi- indirect and induced revenue generation nacle of chip design. Incidentally, India conductors (formerly ). Irrespec- of $33.59 billion is expected to generate specialises in both categories. tive of where in the world an innovative employment of 2.96 million. For instance, as many as 18 out of chip design firm may be located, more Such a forecast will also have a sig- the top 25 chip companies have set up and more of them are acquiring a Ban- nificant impact on India’s Gross Domes- chip design centres in India, making the galore branch. tic Product (GDP). The direct revenue country an emerging worldwide leader in What is perhaps most significant is a generation of $202.57 billion in 2015 is chip design. new tribe of innovative start-ups headed expected to contribute 12.32 per cent Indian chip designers provide design by entrepreneurs of Indian origin (the to the GDP and generate employment of services or work at the subsidiaries of firms may be registered anywhere in the 3.58 million. The indirect and induced global chip companies, especially US world) whose development work mostly revenue generation of $261.69 billion and European firms. goes on in Bangalore and which own in 2015 is expected to contribute 15.90 Industry leaders believe India is be- the intellectual property they create. It per cent to the GDP and generate em- coming a ‘design store’ with a strong is this tribe that is setting out to close ployment of 5.77 million. presence in Intellectual Property (IP) the gap after the services su- The Indian electronics industry, development, integration and embed- premacy is fully established. which consumes semiconductors, is de- ded software services. The VLSI Society When compared to other chip design veloping in a big way. There are OEMs of India estimates the Integrated Chip clusters of the world, Bangalore has the like Nokia, Alcatel and Videocon, who design population in India to be around fastest growing community of VLSI engi- have already set up plants in India. Com- 11,000, while those working on the em- neers – 15,000, next only to Silicon Val- panies specialising in hardware services bedded software add up to 60,000. ley in the US, which has 55 chip design and board manufacturing, system inte- Four cities are driving the growth of services firms employing around 20,000 grators, software IP firms and industrial VLSI design in India. Bangalore is at the VLSI engineers. The industry in the US is design firms have already established top followed by Hyderabad, Delhi/Noida nearly two decades old whereas Banga- their presence. and Chennai. Bangalore is now home to lore entered this premier club less than How will semiconductor manufac- 70 of the 130 firms (including multina- a decade ago. turers benefit from setting up plants in tionals) engaged in chip design in India. The Cambridge cluster has 12 firms India? The major advantage is that they That makes it not just way ahead of the and employs around 2,000 VLSI engi- can source chip design locally from Indi- rest of the Indian competition but one neers. Its work is focused on an companies. A chip or microprocessor of the top global clusters in chip design, innovation. Taiwan, whose strength lies is the most complex part of an electronic comparable to Silicon Valley, Cambridge in manufacturing, has three firms offer- device and designing chips is at the top (in the UK) and Taiwan. ing chip design services. Last year, two end of the software value chain. Chips Of the 70 firms designing chips in delegations representing the Taiwanese

16 COVER STORY

ÂIT WILL OPEN THE FLOODGATES FOR FOREIGN INVESTMENTSÊ

India Semiconductor Association both pre-operative and post-operative in the country. This in turn (ISA) president Poornima Shenoy, a benefits to the industry, which is im- would play a vital role in generation vocal proponent of semiconductor portant even for the development of of a talent pool in the country which manufacturing, tells India Now that the eco-system. would provide a competitive edge to the nation possesses the right ecosys- our people. Therefore, the chip manu- tem for semiconductor manufacturing. How will India benefit from semicon- facturing facility would provide a plat- Excerpts from an interview: ductor manufacturing? form for higher and specialised learning It will open the floodgates for for- in this fast growing industry which has Will India grab a chunk of the semicon- eign direct investment in the country acquired a high priority status in the ductor manufacturing business? and encourage exports. For a country leading economies of the world. The Indian semiconductor design which imports almost 60 per cent of its industry, comprising VLSI design, electronic goods today, the chip manu- What will be the other benefits? board design and embedded software facturing facility could ensure that a The experience of other countries companies, has design companies substantial portion of this demand is reflects that the operation of a single across Bangalore, the National Capital chip manufacturing facility creates re- Region (NCR), Hyderabad, Chennai, quirements for almost 15 ancillary in- Pune, Ahmedabad and Goa. dustries such as assembly, testing and All the global top-10 ‘fabless’ de- packaging, which are highly labour in- sign companies have India operations. tensive. Chip manufacturing facilities, With its growing middle class popu- therefore, have the potential to gener- lation of nearly 400 million people, ate significant indirect employment in which will only increase over time, the economy, which would be almost India’s electronic equipment consump- ten times the level of employment gen- tion is expected to reach $363 billion erated in the semiconductor industry. by 2015. The major end use segments are communications, information tech- Will India be able to compete with oth- nology and . er semiconductor manufacturing hubs Together, the important product sub- like Taiwan and China? categories that would drive the semi- The key factor for success lies in conductor market in India are mobile market demand which is growing ex- handsets, wireless equipment, espe- ponentially in India. The emergence cially BTS equipment which is gaining of foundries has been the key driver momentum, set top boxes, and smart behind the rise of Asian countries as card terminals. leaders in the semiconductor industry. The findings of a survey by Leach- What advantages will companies gain Poornima Shenoy man and Leachman identify the main by setting up semiconductor manufac- reasons that are rated closely by com- turing facilities in India? satisfied through local manufacturers. panies for Fab site selection: Tax ad- The Indian semiconductor indus- In addition, it would also provide vantages offered by the country; Avail- try received a boost this year with the domestic manufacturers an opportu- ability of and technical announcement by the government of nity to participate in the $1,300 bil- talent; Proximity to existing company the Semiconductor policy. It is the first lion worldwide market for electronic facilities; Environmental regulations step in a scalable and robust goods. The growth of the semiconduc- in the country; Political institutions; semiconductor industry in the coun- tor industry would provide a further Presence of other Fabs in the country; try. The policy has a special incentive impetus to the chip designing indus- Firm’s prior investment experience. package to attract investments for set- try in the country through increased ting up semiconductor fabrication and domestic demand. This in turn would Why are companies coming to India? other micro and nanotechnology man- have a significant multiplier effect on Highly dynamic markets demand- ufacturing industries. the growth of the in ing new product variants/models from This is further to the in-principle the country. companies have forced original equip- approval given by the union cabinet in The chip manufacturing facility ment manufacturers OEMs/product January. A key benefit is the grant of would provide the infrastructure and companies to reduce the product de- special economic zone (SEZ) status. environment for research activities to velopment cycle time by outsourcing This way the government has provided ensure development of cutting edge to companies.

18 COVER STORY

Semiconductor Development Hotspots

Bangalore: Intel, Texas Instruments, ADI, TCS, Wipro, Infineon, Cypress, Sasken, Synopsys, MindTree, Freescale, Broadcom and Qualcomm.

Hyderabad: Motorola, ADI (Chiplogic), Synopsys, Mentor Graphics, Conexant, Portal Player and Hellosoft.

Delhi/Noida: STM, Freescale, Cadence, Transwitch and Conexant.

Chennai: Midas, HCL Tech and Banyan Networks.

BANGALORE BECKONS: About 30 of the 70 designing firms in the city are offshore units of MNCs semiconductor manufacturing compa- gic investments in India) are looking at nies were in Bangalore looking for tie- the growing domestic market by 2015 ups with chip design servicing firms. India is rated the and the consistency of consumption Shenoy of the ISA attributes the best on availability growth in the end-user markets. rise in chip design work to the growing The semiconductor sector encom- semiconductor ecosystem and availabil- and scalability of passes VLSI design, hardware/board ity of talent. “The fact that intellectual design and embedded software develop- property (IP) protection is very strong in talent. However, ment, offered by both captive and non- India is another major contributing fac- captive companies across India. tor. Design work will continue to flow the country is Captive companies have scaled up into Bangalore,” she predicts. Last year to carrying out end-to-end design and alone the apex body of the semiconduc- fourth on the development activities. Another prom- tor industry saw its membership double. ising statistic is that design start-ups in India is seen as a destination for quality of talent India are set to rise from 600 in 2005 to quality and IP work, not just an option and fifth on 3,248 in 2015. for lowered cost. “Design companies are The driving forces behind this keen on India since design automation quality of technical growth is the rapidly growing domestic companies are here,” she adds. “As both market, a strong infrastructure, the design engineers and people who de- education. comparatively lower cost design tal- velop tools are here, that’s seen as a big ent, short product lead times, reduced plus. Practically every chip company has entry barriers, rising government sup- set up a design centre in India.” port, and last, but not the least, improv- Shenoy notes that the VLSI design design centres in India and the increase ing infrastructure. industry in India is anticipating another in outsourced work to the non-captive Electronic Design Automation (EDA) large round of investments in 2007. Ac- companies,” adds Shenoy. Also, the companies (both product and ) cording to the ISA-Frost & Sullivan re- availability of a huge base of engineering are the starting block for the VLSI and port, the total number of design start- workforce coupled with their proficiency hardware / board design market. They ups in the Indian VLSI design market in English has made India an attractive are important links in the semiconductor was estimated at 320 in 2005. destination for design and development. value chain. EDA companies have taken “The increase can be attributed to Captive companies (subsidiaries of the lead in developing engineering hu- the establishment of captive offshore multinational companies, making strate- man resource for the industry in India.

19 COVER STORY

The ISA-Ernst and Young Bench- marking Study: India in the Global Semi- conductor Design Ecosystem, which was released recently, rates India the best among different destinations, in- cluding Silicon Valley, Taiwan, the UK, Israel, Canada and the Czech Republic on availability and scalability of talent. Released at the ISA Vision Summit in Hyderabad, the report emphasises the need for government, industry and academia to put in a concerted and coordinated effort to make the nation a preferred destination for semiconduc- tor design. Sunil Shenoy of Ernst & Young, points out that the peer countries con- sidered for benchmarking included other preferred destinations for semiconductor design. “India is rated the best on avail- ability and scalability of talent. Howev- er, the country is fourth on the quality of talent and fifth on quality of technical education,” he notes. The report recommends increasing the supply of high quality new talent by encouraging more students to opt for relevant engineering streams and to view the semiconductor design sector as an attractive career opportunity. India is rated relatively low among the set of countries on maturity of semi- conductor design sector owing to the ‘services’ approach. Taiwan and Israel, where a fair amount of product design takes place to support manufacturing, are rated higher than India. “However, it is heartening to note that the past cou- ple of years have seen several turnkey jobs being done by MNCs through cap- tive or third party outfits in India,” the report notes. While India’s rating in the Intellectual Property Rights (IPR) protection is in the moderate range, the perception about India is better than that for some oth- er countries in the peer set. The report stresses on increasing the robustness of the IPR regime and effective implemen- tation of IP laws. The report also notes that while India has the best talent cost advantage, Sili- con Valley is perceived to have the least. High talent cost is limiting its growth. However, the maturity of the Indian semiconductor design sector is ‘moder- ate,’ reflecting its ‘primarily services’ ap- FABLESS MODEL: Many firms design, develop and test the chips in India

20 Buoyed by the success of the chip design sector the government recently unveiled a policy to attract investments of $6 billion to $10 billion by luring two to three fab units.

GROWTH OPPORTUNITIES: The government has announced a host of incentives to the sector proach. Indian IT firms like Wipro, Tata mendations to the government. including a $100 million ATMP (Assem- Consultancy Services and MindTree The government has announced a bly, Test, Mark, Pack) facility. Consulting, which are into chip design host of incentives that include bearing The project is located near the new services, are aggressively expanding 20 per cent of the capital expenditure Hyderabad airport, and SemIndia is look- their activities. Wipro alone has a team during the first 10 years if a unit is lo- ing at closing the financial package. It of more than 1,400 VLSI engineers cated in a Special Economic Zone (SEZ) has the added advantage of land al- working on different areas of semicon- and 25 per cent in case of other units. location, and has also progressed on ductors, making it the largest chip de- The countervailing duty (CVD) on capital SEZ clearance. sign services firm in the world. goods too would be exempted in case of The second major announcement Firms in Bangalore are involved pri- units situated outside an SEZ. was made by Hindustan Semiconduc- marily in front-end design work and pro- The policy further entails that for tor Manufacturing Company, a company viding testing and verification-level ser- semiconductor manufacturing (wafer floated by Devendra Verma, managing vices. But a few of them are involved fabs) plants, the investment will be partner of California-based investment in end-to-end design activities, ranging about $620 million, while for manufac- company, Edgewood. Infineon Tech- from specification to tape outs (shipping turing other products the investment nologies is the technology partner for its the complete product). The firms are will be $250 million. In cases where semiconductor manufacturing plant. based on a fabless model where they projects have a 1:1 debt to equity ra- The fab will focus on four products design, develop and test the chips which tio, the government will restrict its eq- — chipsets for mobile phones, direct to are then fabricated or manufactured uity participation to around 26 per cent. home TV set top boxes, automotive and by others. The remaining part will be in the form smart cards. The first line would repre- Buoyed by the success of the chip of interest-free loans, tax subsidies sent an investment of $1 billion. design sector, the Indian government, and concessions. Indian consumer electronics maker which sees tremendous growth oppor- The policy covers LCDs, plasmas, Videocon Ltd intends to invest $250 tunity for the semiconductor sector, storage devices, solar cells, photo-vol- million in a semiconductor facility in recently unveiled a policy to attract in- taics and nanotechnology products, eastern or southern India. The company vestments. With this, the government as well as assembly and testing of said it has found a technology partner expects to attract an investment of $6- these products. and is scouting sites in West Bengal and 10 billion by luring two or three fabri- But much before the Semiconductor Andhra Pradesh. cation units, with an investment worth policy was announced, firms had made Moser Baer, a manufacturer of op- $2-3 billion each, by 2010. Minister for a beeline to invest in manufacturing in tical storage media devices, announced IT and Communications Dayanidhi Ma- India. The first was the SemIndia proj- a solar fab in collaboration with Applied ran notes that an appraisal committee ect, promoted by an NRI consortium and Materials at a cost of $250 million at will receive expressions of interest from headed by Vinod Agarwal, which an- Greater Noida near Delhi. Certainly, India interested parties and submit its recom- nounced a $3 billion ‘Fab City’ project, has begun on a win-win note.

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