India Semiconductor Industry: The Big Picture
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Starting out in the 1990s, the India semiconductor industry started registering its presence on the semiconductor arena. From this point on, the industry steadily and consistently went on to increase its significance in the global semiconductor ecosystem. With vision and perseverance, the India semiconductor industry has graduated from providing just services to developing solutions. Today, the large telecommunications, automotive, energy, healthcare, consumer electronics and electrical equipment and device manufacturers rely on their Indian partners for several critical activities throughout the semicon value chain.
The India semiconductor design and embedded software market offers solutions in a number of categories. Broadly, these can be categorized as:
– VLSI design
– Hardware / Board design
– Embedded software development
Besides this, EDA tools form a significant part of the development cycle. India semiconductor players also offer some advanced solutions like verification, testing and IP development for the global semiconductor industry. Although a limited number of companies offer such solutions, representing a small fraction of the total global opportunity, it is still a positive sign indicating holistic development. The entire value chain is growing and each critical element of the entire system is present. There are obviously some shortcomings; which, had they not been there, India would have a semiconductor industry at par with the best in the world.
CyberMedia Research estimates the total India market for VLSI design, hardware / board design and embedded software development at US$ 7.4 Billion in 2010. 79.2% of these revenues comprise embedded software, followed by VLSI and Hardware / Board design with 14.6% and 6.2% shares, respectively. Close to 150,000 people are employed in the India semiconductor industry with three quarters of this performing engineering and R&D activities. The remaining staff is engaged in Sales, Marketing and Customer Support.
An estimated 150 companies / organizations constitute the India semiconductor industry, which includes design centres, embedded software development companies, hardware / board design firms and other value added solution providers such as testing and verification. Bangalore, Hyderabad, Delhi NCR and Pune are the geographic hubs of the industry in India. The industry is represented by India Semiconductor Association, the premier body founded in 2005.
Any hardware is a ‘dumb’ device unless coupled with a set of instructions that makes it behave / operate in a certain way. India has been the hub of the global software and BPO-ITeS industry and this is now proving to be a USP in the semiconductor space as well. With the fabless business model, it has been proved that manufacturing is an essential activity but can be entrusted to a third-party partner. This not only helps small players develop a chip without investing billions of dollars in building a fabrication facility, but also lets them concentrate on design and software aspects, which can bring real differentiation in a chip product. This is where India can play a crucial role – the vast experience of its technical manpower in the domain of software development, primarily at the application level can be capitalized to lay a foundation for strong industry fundamentals that could be the next growth engine of the economy.
With a population of 1.2 billion people and 192 million households as per Census 2011, India represents a very substantial opportunity as an end-user market including consumer electronics. With the steady increase in per capita income and propensity to consume, India in itself is a huge opportunity that is attracting large multinationals. The semiconductor industry can be a major beneficiary of this market opportunity, as this would help to develop and produce what can be consumed here, resulting in huge savings on foreign exchange spending.
Scope for improvement
The semiconductor industry is capital intensive. But at the same time, most companies that constitute it are categorized as Small and Medium enterprises as per Government of India guidelines. The government expects large ‘dividends’ from the semiconductor industry but when it comes to giving them sops and institutional support, semicon firms are labeled as small and medium enterprises. Any semiconductor company in India is eligible for similar incentives and concessions that other small and medium enterprises from other industries get. This is not fair for a number of reasons. Semiconductor manufacturing is a complex process comprising of various activities and industrial procedures that add up to the investment and the final cost of finished product, in this case a chip or IC. Lack of adequate quantum of institutional finance acts as a major bottleneck that hinders growth of semiconductor units in India.
There is a disconnect between what India can produce and what the local market consumes. Although we have an enormous consumption market in India, our manufacturing policy has unfortunately not been able to tap this opportunity. India needs to have a comprehensive manufacturing policy that couples its software and services capabilities to produce competitive products at the global level. Manufacturing a product of global quality standards is equally important for local consumption as it is for exports. Perhaps, we have been missing this point in our outlook, which is why our manufacturing is in a shambles at present.
On the talent and skill development side, India has been unfortunately a product of extremes. We either have Tier I engineering institutions like the IITs or a mushroom growth of Tier III engineering institutions. India needs to devise a strategy wherein we have availability of talent at all levels in the engineering stream so that the semiconductor industry does not face a talent crunch. Moreover, our curriculum needs to be closely linked with the industry and the practical skill sets in demand. Our engineers must be capable of engineering and not just be theoretically well tutored.
In recent months, the Government of India has initiated the process of setting up two fabrication facilities in the country. This is beyond doubt an important step towards strengthening the industry foundations in the country, but it needs to be planned with caution. We should be able to visualize how to channelize the output of these fabs and take all necessary steps to ensure that our fabs reach economies of scale in no time and do not run the risk of turning sick.
The India semiconductor industry is headed in the right direction but needs to scale up to reach a significant size and stature. India is inherently positioned to play a critical role in the global economy and this would be incomplete without growth in the domain of semiconductors. The India semiconductor industry is currently like a jigsaw with abundant resources that need to be arranged properly to result in a meaningful picture.
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Faisal drives new initiates at CMR. Having over 13 years of research and consulting expertise in technology domain, he specifically covers Telecom, IP Technologies, Devices, Electronics, Applications and other emerging technologies.
Faisal completed his Master’s degree in Business Administration, specializing in Marketing and Finance. He also holds a Bachelor’s degree in Business Administration.