Most major analysts and industry gurus have speculated not so good years for the semiconductor industry across the globe. Huge jump in oil prices, rising mortgage rates and other economic factors are deterring people from picking up consumer electronic goods from the shelves of the retailers, especially in the Western markets. This has led to a speculation of an impending weakness in the consumer electronics chip volumes which account for 40% of the total chip sales. Fortunately, the Asian market has remained healthy with a growing demand for a variety of consumer electronic durables triggered primarily by a surge in the affordable income groups in India and China. India has been steadily attracting various investments in the electronics sector thanks to the ever expanding demand for cell phones, digital televisions, MP3 players, digital cameras and the like. Is this the right time for local semiconductor manufacture to begin? Is the environment and ecosystem conducive enough to sustain the viability of fabs in India?
The Market
India’s estimated population as of July 2008 is around 1.15 billion with a growth rate of 1.6%. India’s GDP in terms of Purchasing Power Parity is estimated to be US$ 3 Trillion with a phenomenal growth rate of 9.2%, according to CIA World Fact Book! There are 255 Mi cell phone subscribers and this number is rapidly growing. India already enjoys a great leadership position in the IT sector and has a very vibrant IT industry servicing the global markets. Today, the chip design and associated industry is becoming dominant and India is steadily gaining leadership in this segment too. All the global semiconductor majors have their large design centers in India apart from the local design companies. According to India Semiconductor Association (ISA) – IDC study, Indian IC Design and associated Embedded Software Services Industry revenue was US$6.08 Bi as of 2007 and will reach US$10.96 Bi by 2010. In addition, an ISA – Frost & Sullivan study estimates that the domestic IC market will be US$43 Bi by 2015 and the electronics consumption by the same year will reach US$363 Bi. These figures point to a rapidly growing local market. From an economic perspective, it clearly makes sense to carryout local manufacture, primarily to bring down the costs and to address similar markets across the globe.
Innovation
India is contributing to increasing number of design innovations. It has been happening both in terms of product creation as well as innovations in design methodology. The quality of designs and predictability of success of product designs have increased multifold for designs done out of India. In order to stay competitive, companies will have to optimize their designs on multiple dimensions. For example, chip designers at MindTree have created designs that are optimized, using innovative design methodologies, to beat the area, power and schedule constraints, for critical customers. Innovative designs, that came out of India range from complex low cost mobile phone processors, low cost set-top box devices, signal processing device for hearing aid/medical applications and many more. With companies adopting geometries below 65 nm nodes increasingly, such innovations become difficult to sustain without a local prototype and manufacturing facility. Many indigenous design houses are already engaged in creating a variety of IPs that are needed for the semiconductor industry. But many of them have not been able to prove their IPs on silicon on their own, because of the absence of any fab that can offer such a facility in the country. They have to solely depend on the customers who license such IPs to get them proven in silicon. This clearly brings down the value of such IPs. This becomes important because, India has well established and enforceable legal systems for Intellectual Property Protection and has the potential to become the IP hub for the world.
Emerging Ecosystem
If one goes around the world and look for success stories in the field of semiconductors, several influencing factors will emerge (Fig 1) that make this segment thriving.
It is evident that all the dimensions play an important role and the value that the ecosystem can bring goes without any questions! In the days of ever shrinking geometries and associated challenges, no one company can do it all alone. Collaboration amongst various players becomes essential for the growth and survival of the chip industry within a specific geography. In the presence of a large local market that is growing – as in India – product designs are heavily influenced by local cultural aspects and this becomes an important consideration. It is evident that the absence of meaningful semiconductor fabs in India is a negative factor. Today, India is weak in any type of manufacturing, productizing and packaging unlike China/Taiwan. This knowledge is essential to attain leadership and sustain economy of scale.
Current Snapshot
There are signs that India is emerging as a significant electronics manufacturing location, given the trend that Nokia, Motorola, Dell and other majors have setup manufacturing plants near Chennai in the southern state of Tamil Nadu. As seen earlier, if indeed the estimates are going in the right direction of reaching US$363 Bi by 2015, growth of local manufacturing becomes inevitable. Though this is specific to product manufacturing, the semiconductor manufacturing is sure to follow a similar trend. The Federal Government of India announced a Semiconductor Policy last year in order to attract investments for setting up fabs and associated ecosystem in India. The policy supposedly offers attractive incentives and open to manufacturing ranging from ICs to solar photovoltaic cells to LCD flat panels. Though some of the consortiums have announced their plans to setup fabs and associated Assembly, Test, Marking and Packaging (ATMP) houses, in our opinion, it is yet to pick up steam. It is not just the incentives that will attract significant players to setup semiconductor fabs, but equally important are the dimensions that are indicated in Fig 1. There has to be a unique differentiator for justifying huge investments involved. India has uniquely positioned itself in most of those dimensions. One of the clear differentiators with respect to China is the strong chip design industry and leadership in associated embedded software development which is more than 100 strong as of today. The general expectation is that the somewhat lukewarm response will soon turn positive!
Impact on the Design Ecosystem
From the point of view of a Chip Design Services or a Fabless company, it is clear that the proximity of fab and ATMP facility will add tremendous value. The country as a whole will benefit a lot on several aspects. Some of the thoughts are outlined below:
· Significant reduction of time delays in interaction with foundries across various time zones. Language and cultural barriers become less of a burden and nightmare for the designers.
· Design and IP houses will have cost effective means of proving their IPs in silicon, thereby enhancing the usability and value of such IPs.
· Chip Design Services companies can expand the range of services that they can offer to their customers. Most of them are providing only RTL and verification services and a few have the capability to go till GDSII. The local fab ecosystem will allow such companies to expand their services and enable them to take ownership of the entire development cycle.
· Access to a fab will enable a wider range of Universities, Colleges and Research Institutes to generate a well trained manpower in the IC Design space. Only the premium institutes like the IITs have this ability now.
· Proximity of a fab will spur local research in the semiconductor field.
· It gives an opportunity to a large Fab-lite or Fabless MNC to shift fabrication of their most popular devices – the ones consumed in volumes in India - locally, thereby saving significantly on cost.
· Local fabs will encourage India based electronic companies to launch products that appeal to the ethnic groups and specific cultural needs. Today such companies are forced to go to Taiwan or Korea and are getting sub optimal results since the design is specific to India!
This is certainly not an exhaustive list and there are much more obvious and indirect advantages of the fab ecosystem for the industry and academic institutions here.
Future Perspective – Some Thoughts
While there are obvious advantages of a semiconductor manufacturing ecosystem in the country, it is yet to pickup momentum, despite the announcement of the Semiconductor Policy. Though the industry is abuzz with the talks of solar photovoltaic plants, there is relative silence with respect to chip manufacturing. The few such fabs announced earlier have more or less not progressed and seem to have adopted a wait and watch approach – may be due to the glut that is being seen in the global semiconductor scenario. Another possibility for the deceleration could be the fact that many fabs – especially the Chinese ones are yet to make a profit. There is also an analysis by iSuppli that fab ownership is not required for achieving success!
Keeping these aside, in our opinion, India should not aim for the likes of TSMC to be setup here. It is practically not possible to reach such levels in the near term. On the other hand India should focus on smaller to medium scale manufacturing focusing on stable nodes and wafer sizes. This will make the investments more viable and also ensure short term success. It would be sufficient to focus on the local market consumption initially, rather than emulating the success of exports in the software sector. It would be wiser to build credibility first before aiming for global leadership. This would be the most probable direction that Indian semiconductor companies may likely to adopt. There are also arguments on why we should not adopt the latest technology and nodes right in the beginning. Though this approach looks good on paper, it will be expensive and risky, since even advanced fabs are yet to achieve economy of scale for nodes 65 nm and below. We strongly recommend the approach of taking baby steps and building credibility in this risky and cyclic business. Quick adoption of smaller nodes can easily follow.
In conclusion, the time is ripe for India to enter semiconductor manufacturing. It will offer tremendous benefits to the local chip design industry and enhance the scope and breadth of their offerings. The local fab ecosystem is sure to change the landscape! After all, according to a Gartner study, the foundry business is outgrowing the rest of the chip industry and there probably is still room for additional players! Why not India becomes that dominant player!!
Caption
Fig 1. Influencing Factors for a thriving Semiconductor Industry
