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‘India A Bed of Opportunities for the Semiconductor Industry’
si Team
Friday, December 15, 2006
Remember the days when mobile phones used to be dull, slow and bulky as bricks. Times have changed and technological advancements have changed the scenario so much that cell phones today come with no less in features than a computer. This transition can be owed to the increasing semiconductor content in the electronic devices. In fact, devices such as set top boxes, digital cameras, DVD players and PC’s have semiconductor content ranging from 25 percent to 35 percent.

The surge in the semiconductor industry is affecting many countries worldwide. Semiconductor Industry Association (SIA) reported that the net worldwide semiconductor sales reached an all-time monthly record of $20.5 billion in August 2006, an increase of 10.5 percent from the $18.6 billion reported in August 2005. The semiconductor driven industry includes various domains such as Electronic Design Automation (EDA), product architecture, embedded software, validation and debugging, VLSI design, process technology and assembly and testing.

Countries in the Asia Pacific region such as Japan, Taiwan, China and India would be impacted most by this semiconductor industry growth in the coming years. Each country has identified its key strengths in this space and is leveraging them to the fullest. Taiwan’s focus in on value added IC design, productization and advanced IC manufacturing, while China banks on its low cost manufacturing and regional distribution. India is also a frontrunner in this race with its expertise in the chip design and software domains.

India has a credible IPR framework and excellent track record in Intellectual Property Protection. The growing middle class consumer base with very high disposable incomes has led to an explosive escalation in many other verticals such as gaming, TVs, telecommunication, retail, automotive and other areas. The ISA–Frost & Sullivan reports predict that the electronic equipment consumption will grow to $363 billion by 2015 growing at a CAGR of 29.8 percent. Recognizing this trend, major electronic manufacturing companies such as Flextronics, Nokia, Motorola and Samsung have started their operations in India.

The next logical step to complete the semiconductor ecosystem in India would be to support the electronic manufacturing, chip design, EDA, testing and other activities with semiconductor manufacturing in the country. But as the chip-manufacturing segment requires heavy investment, industry members are debating its viability in India. Some members feel that India should initiate this process by starting a two-three generations old fab. Others believe that it does not make business sense for the country to start semiconductor manufacturing in India. Many others strongly feel that countries that lead in chip manufacturing have done it with strong Government support and hence one should look at the Government to take part in this process through investments and tax exemptions.

The country has witnessed a boom in its IT industry in the last decade. Irrespective of the debate on semiconductor manufacturing, industry veterans as well as political leaders are aspiring to replicate this success in the semiconductor industry in India. This has brought the country to the threshold of a revolution in the semiconductor industry. While looking at the brighter side, India’s shortcomings may result in investors turning to competitors for their activities. These weaknesses include poor infrastructure, technical educational infrastructure and lack of long-term government policies.

With a clear understanding of the strengths and weaknesses of the Indian semiconductor industry, it should be realized that cost can no longer be a competitive advantage in this domain. To make India the hub for the semiconductor driven industry, the emphasis should evidently be on quality and innovation. Only these can make India move up in the value chain. India’s expertise in EDA, products, VLSI design, validation, debugging, embedded software, system hardware and low cost advantage for assembly and testing manufacturing can make it the preferred destination among investors. If we do not focus on these areas now, the supply demand gap for skilled workers will widen and lead to cost escalation, compelling investors to turn to other low cost geographies.

As mentioned by industry experts, among all the other reasons that demand the semiconductor industry to be taken seriously in India, the most important is its direct contribution by over 6.83 percent to India’s GDP by 2015. This highlights that the growth of the semiconductor industry also reflects the economic growth of the country. With this consideration, the Government of India can play a significant role to promote the industry and make it globally competitive for attracting FDI. It has already initiated over 200 Special Economic Zones (SEZs) and is working on a policy to promote the semiconductor and related industries. What disturbs industry leaders is the fact that already established units are getting little or no support from the authorities. Government can also provide support by allowing access to soft loans, investing in Indian product companies and strengthening the infrastructure required for this ecosystem.

On the other hand, companies working in this field can work towards including semiconductor relevant topics to the college syllabus and tie up with universities to impart practical industry training to the engineering students.
The time has come for India to wake up to this call and work for the future of the semiconductor industry. Now, companies in India should focus on developing products not just for global but specifically for the Indian market. Venture Capitalists too have started recognizing this industry potential and have assured their support for the right business models. The opportunities are immense for the semiconductor players. The Indian semiconductor is growing by leaps and bounds and the promising future supported by the government will surely take India to the position of a global leader within this space.

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