Today, semiconductors touch every aspect of our lives. The water purifiers we commonly use at home, to automobiles to modern agricultural methods – everything around us one way or the other involve semiconductors. Modern daily life is virtually unimaginable without them. It is a key driver for the future of advanced technologies. This industry fuels rapid economic and productivity gains contributing significant 10% to the Global GDP. The declining prices have benefited the nations across the globe. Revenues in the overall microelectronics industry have a multiplier effect on other downstream sectors that depend on electronics (Fig 1).
Technology leadership in semiconductors is unlikely without a leading edge manufacturing capability. Lab to fab interactions and collaborative research become important and the proximity of the two are generally beneficial, though not essential. Proximity brings in nice additional benefits.
Uniqueness of the Semiconductor Industry
The semiconductor industry features a number of distinctive characteristics and thereby becoming uniquely positioned in the global competitive arena. We can summarize these features as:
· High growth, cyclical market with high volatility
· Very high, continuous R&D intensity due to rapidly changing technology and market
· Strong creation and diffusion of innovation and intellectual capital
· Very high capital intensity
· Key enabling function for other industries
· Truly global from product creation to commerce
· Vital role of government support
· More than proportional need for highly skilled personnel
· The framework and policies will have to address this uniqueness in-order to make the semiconductor industry thriving in a region.
Global Trends
In the recent times, a visible trend is emerging across the globe in the semiconductor industry. Some of these are:
· Consolidation and mergers – semiconductor companies vying to become larger players than before
· Spin-offs and privatizations – to effectively capture markets and to channelize R&D funds
· IDMs becoming fabless and fab-lite - increasingly migrating to an outsourced manufacturing model
· Semiconductor industry base rapidly shifting towards Asia Pacific – close to 60% contribution from the Greater China region
These trends provide both opportunities and risks. Countries like India can potentially tap the opportunities. On the other hand, the overdependence and concentration of high tech manufacturing facilities in one region pose a bigger risk. Localized vulnerability, conflicts and unrest can derail the whole global economy.
Emerging Elephant
The ‘dragons’ and ‘lions’ rule the semiconductor manufacturing sector as of today, whereas India’s contribution is almost none. We as a country have become a design power – no doubt. Our chip design and associated software development capabilities are not questioned by anyone in the globe. Most of the large semiconductor companies have established their larger R&D centers in India, working on state of the art technologies and products. The technology gap that existed a decade back is no longer an issue. However our manufacturing experiments had not been scalable and very successful.
Government support is very essential for the success of a fab. The semiconductor industry is seen by the central government as an enabling sector for a vibrant economy and is according a higher priority to this sector. The government recently announced the semiconductor policy that should enable more direct investments into this sector.
Will we succeed in this game is a question that we need to seriously look at. We need to critically consider several factors.
India offers a huge local market with a large and growing middle class population. Today we are a net importer of semiconductors. Local manufacture will certainly help bring down costs.
The talent and skill are plenty.
Increasing number of development centers setup by large semiconductor companies probably makes India an attractive manufacturing base – easing lab to fab transfers.
Geographically, India is well located to serve the semiconductor needs of South East Asia, Middle East and Africa. India’s Opacity index (developed by Price Waterhouse Coopers) is 48, indicating lower risk amongst developing economies for major global investments.
We seem to be reasonably well positioned for success.
Several groups - notably, Semindia, Hindustan Semiconductor Manufacturing Co (HSMC), India Electronics Manufacturing Corp (IEMC), NeST Group and a few others have plans to setup fabs in India. Most are likely to start with smaller 8 inch fabs, targeting 180/130 nm nodes. All of them will operate as foundries providing third party manufacturing services. Most operations will begin as test and packaging services before migrating to full fledged manufacturing.
The elephant has begun its journey.
Impact on Indian Design Industry
Indian semiconductor design services industry is a matured one. New players continue to enter this space all the time. An established player like MindTree provides design services in all areas relating to the semiconductor industry. We constantly aspire to provide value additions through partnerships and alliances with major players in the semiconductor ecosystem.
Emerging local fabs may not directly impact the way the design services industry operates. However these firms can have access to the local fabs to build prototypes of their designs and eventually go to production. This enables enhancing themselves to become a Fabless ODM. The fabs on the other hand can benefit from being closely associated with design services firms for various needs. Mutual cooperation possibilities are plenty.
We at MindTree strongly feel that the proximity to fabs will make the design services offerings more vibrant and hassle free. We will look forward to having strategic partnerships with the emerging local fabs apart form the existing relationships. Other established players most likely will have a similar view.
Challenges
As discussed earlier, semiconductor industry is characterized by unavoidable high capital expenditures. A fab takes over two and a half years to build, rampup and attain profitability. In this context it is important to note that technology transitions happen every 18 months and the semiconductor sales peaks (or troughs) every 30 to 36 months. This implies that the setup cost of a fab increases substantially over time.
There is the question of adequate water and electricity supply. Fabs cannot tolerate any interruptions in electricity beyond 100 ms!
India’s R&D investments in basic/applied sciences and semiconductor areas are nowhere close to the existing economies and China. Advanced process technology depends primarily on science. Finally the tax and trade policies also play a major role in shaping this industry in India.
Concluding Thought
Semiconductors touch every aspect of our life. India with a large local market aspires to get a fair share of this pie. Several groups have shown interest in setting up fabs soon after the Semiconductor Policy was announced. A new era is in the offing.
Click here for Illustrations:Figure 1
