Bigger Companies Need To Invest To Create Semiconductor Ecosystem In India

Date:   Sunday , May 04, 2014

Gartner, Inc. (NYSE: IT) is an information technology research and advisory company. Founded in 1979, the firm currently has a market cap of around Rs.35,921.49 crore.

The global semiconductor industry is around $320 billion where all sizes of players can be found. But when it comes to India, it has a bit different perception. The Indian semiconductor industry is around $10 billion which is completely driven by consumption of electronic equipment, the largest share of which is taken by mobile phones followed by PCs, Laptops, Monitors, set top box and so on. There is rather zero production of semiconductor that really happens in India. This titanic difference between India and global semiconductor industry is due to the consumption backend here.

In India, it\'s only recently that we have seen the production of electronic equipment for automobile industry. Things like dash board, clusters, and switches have just started to be produced in India. The semiconductor used in mobile phones, laptops or PCs are very low in cost which is why the market in India for semiconductor is pretty low. But interestingly, the Indian semiconductor has powered the entire global industries and the major players like Texas Instruments, Intel, STMicroelectronics, Freescale, Samsung and others have their design centers in India. This is an achievement which many other countries are striving to realize. They are trying to create this design ecosystem for their country. Gartner predicts that by 2015, 70 percent of all chip designs initiated across the globe will have some sort of participation by an Indian engineer or by an India based engineer in those projects. We are already close to this number and will probably cross this mark very soon, given the nature of work that is being done in India by these companies.

Though India is high on consumption pattern of electronic devices, it rarely manufactures any electronic devices like switches, routers, play stations, printers, industrial electronic, medical electronic or electronic equipment for security, energy and so on. This is the major reason why we are so low in numbers and the lack of good ecosystem is one of the major causes for this sluggish enlargement. To develop an electronic equipment facility, we need a strong ecosystem of supply chain partners. When you develop various electronic equipments, these equipments need different raw materials and components, like semiconductor and non-semiconductor, which India lacks as none of them are manufactured here. In case of non-semiconductor components manufacturing, companies have real problem. They are scared as they believe technology will become obsolete and therefore they will not be able to serve their clients. With technologies changing at jet pace, they will have to keep producing new products and their investments in their manufacturing facility will go up and appropriate returns may probably not rare for these companies. This is why they forbid themselves from venturing into establishing a semiconductor component facility. But only if this happens, the semiconductor and electronics market in India will start peaking.

The local companies in India have to come forward and make investment in electronic equipment facility, supply chain, brand development and so on as required for brand building. But the question arises, how many of them are prepared to make such investments. Though there are several policies that talks about inviting investment in electronics systems, designs and manufacturing; but the focus cannot be the foreign companies alone. India has been a center for design development, testing and providing world class services to the semiconductor industry. But with the increasing consumption of electronic devices, we should barely rely on the foreign companies and join hands to feed and raise the Indian semiconductor industry. Our engineers have brilliant technical, design and manufacturing ideas. What they lack is the marketing & sales techniques and heavy investments. This is where the local companies, especially the giants, should come forward to encourage the industry, make investments and mentor them. On the other hand, the government should share the investment, provide ready facilities and help them grow & serve the market just similar to what the Chinese government did to grow the semiconductor industry in their country.

To leverage this emerging ecosystem, there are major industry groups that need to be identified and considered. However, it is important to make certain investment in equipment manufacturing in various different locations, not necessarily in one specific location within India which will also give rise to job opportunities. The idea of setting up these facilities is essentially for those facilities to act as a hub to create the supply chain or the components of supply chain facility around them.

Conversely, for boosting the semiconductor industry, it is essential for the bigger companies to invest in these facilities to make even more bigger. They could intimate them or create their own facilities and make it even bigger. We need to turn the table in favor of the Indian companies and drive them to start selling up these facilities. However, the main purpose of these facilities should be to cater to the domestic market. Only when the domestic market\'s requirements are met will these economic facilities be able to attain a scale of operations which will allow them to expand their operation and go out into the world and compete with Chinese or Taiwan manufacturers. Much of these trends largely depend on the governments, but the state at which our governments are running flip-flops in the politics, change at the government level, change of focus, uncertain industrial policies and so on is affecting the growth of the industry at large. This creates trouble and uncertainty in the minds of people and given that kind of scenario, it is going to be difficult to grow an industry from scratch and that is probably one of the biggest reasons which contribute for the lack of investment in the electronic equipment industry in India. We need to break out this margin mode and create, take risk and earn reward. (As told to Anamika Sahu)