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A-Case-for-Policy-Initiative-for-Indian-Fabless-Company
Ganapathy Subramaniam
Thursday, September 30, 2010
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Abstract

The worldwide semiconductor market is around $275 billion, and the India market is around $8 billion. The world market is expected to grow in double digit CAGR for the next several years, but sadly Indian chip companies have negligible share in this. Worldwide, semiconductor market, which once used to be dominated by IDM (integrated device manufacturers), i.e. companies that had their captive manufacturing units like Intel and Texas Instruments ( fabrication plant) are now losing some of their share to fab-less semiconductor companies like Qualcomm and Broadcom [companies, which rely on external manufacturing plants (fabs) like TSMC, Global Foundry, and SMIC]. Most of the policies in India are towards encouraging IT industry and manufacturing industry, which are service oriented and employ a large number of people. This article outlines the policy changes that need to be done to encourage fab-less semiconductor companies in India, which also would result in intellectual property creation and ownership, both of which are must for a stronger India.

Semiconductor Industry in India

The private semiconductor industry is approximately 25 years old in India, with Texas Instruments starting its office in Bangalore in 1985. SCL (which belongs to the government of India) also designed and fabricated ICs in India. There are an estimated 10,000+ people working in the area of VLSI design in India. Many multinationals create worldclass products from India. Almost all the top US, European, and Japanese SC companies have their subsidiaries in India. Apart from the MNC’s there are semiconductor startups like Redpine systems and Hellosoft, which are headquartered in the US (some in Europe) but with bulk of their engineering in India. There is a handful of Indian semiconductor companies doing products or intellectual property licensing. Cosmic Circuits is one of them, which is focused on intellectual property licensing and has some analog ASICs in production. There is a decent number of Indian companies like KPIT Cummins, Mindtree, Wipro, and HCL that are engaged in semiconductor services.

Clearly, there is talent in India to create a worldclass semiconductor company. When demand in local market happens, it is believed that the local talent and also Indians with semiconductor experience abroad will return to India and create successful semiconductor companies.


Opportunities for Semiconductor Industry in India

The Indian semiconductor companies would possibly take the same route taken by the semiconductor companies in Taiwan or Korea when they started, i.e. when significantly supported by local market or local buying. Semiconductor companies in Taiwan were benefitted by the presence of ODMs (original design manufacturers) initially. Semiconductor companies in Korea are largely benefitted by OEMS (original equipment manufacturers), like Samsung and LG. ODMS and OEMs in India are largely multinationals where a decision on using a particular IC is made in their respective headquarters. We expect this trend to change and some of the decision making will happen in India, fuelling the growth of semiconductor companies.

Indian fab-less companies have got opportunities in the following areas:

a) Energy meters (Owned mostly by Indian OEMs)
b) Inverters
c) Identification (RFID)
d) Lighting
e) Gadgets related to Education
f) Gadgets related to Security
g) Automotive (specifically two wheelers)
h) Defense and aerospace, etc.


Fab-less Semiconductor Industry

Fab-less companies are taking a big portion of the worldwide Semiconductor market and even IDMs are becoming fab-lite (relying on external fabs like TSMC for some of their business). Most of the large Japanese companies, which used to have their own technology till 40nm, will align either with IBM or TSMC for 28nm. We expect this trend to continue and the fab-less segment in worldwide semiconductor market will grow year after year.

Design is the key aspect in fab-less semiconductor companies and is the biggest value add. As the services of fabs, assembly, and test are available to all, the only way to differentiate is in design. Without innovation in design, fab-less companies will find it difficult to survive. Summarizing,

a) Fab-less companies are taking up a major segment of semiconductor market.

b)Majority of startups today are fab-less.

c) Fab-less companies work with external fabs, assembly, and test houses for their products.

d) Since fab and assembly is common to all, the biggest differentiation they can make is in design.

Fabless companies are usually of medium size of, say, 150 to 200 people to create $100M revenue. A significant part of this strength is in design, sales, and marketing since most of the manufacturing is outsourced.

Role of Governments to Boost Semiconductor Fab-less Companies

The Chinese government has been playing an active role in creating fab-less design companies in China.

An article published by EETIMES in May 2010 states that China's planners are cranking up their initiative to seed as many as 30 fab-less semiconductor startups that could grow to $200 million or more in annual revenues.

China is also actively inviting Indian companies like Cosmic Circuits to set up their unit in Suzhou technology park, etc.

He Korean government is also known to seed fab-less semiconductor companies and also to give attractive grants.

The economic development board of Singapore also gives attractive support for companies to start operations in Singapore, specifically if you are engaged in intellectual property creation.

Policy Changes Needed to Encourage Fab-less Companies in India

It is clear that the Indian government needs to follow China, Korea, and Singapore and come up with policy initiatives for fab-less companies in India. Most of our policies are structured towards the services and manufacturing industries. It is important to create a strong intellectual property base to create a stronger India. The semiconductor companies are important, as they can play a highly significant role in this.

a) STPI was formed with the intention of supporting IT companies. The SEZ are ideal for manufacturing plants or large IT Companies. Semiconductor companies were also included under STPI since majority of the companies do services or licensing work and STPI is not expected to extend beyond March 2011.

Fab-less companies sell products, and India has a negligibly small marketshare in worldwide TAM and also not even able to fullfill a fraction of her own demand. The fab-less companies have to be encouraged with a new policy. The fab-less startups are sized at about 150 to 200 people, making it difficult to move into a SEZ, and they also have a limitation for fab-less companies where the products will be manufactured and tested outside India.

b)Broad policy changes that irequired for fab-less companies are:

a) Tax exemption and R&D Grants to encourage the fab-less semiconductor companies for next 10 years.

b) Design is value add in fab-less companies and policies have to be drafted with this in mind since current policies are structured towards local manufacturing and or testing, which will not be the case with fab-less companies where the products could be manufactured and tested outside India. SEZ is also not financially advisable for fab-less startups.

c) Government tenders should include a certain percentage of mandatory local intellectual property content. This will encourage the equipment manufacturers to use the ICs designed by Indian fab-less companies. Government labs should actively encourage the local companies for their needs in Semiconductors.

d) Set up a Reliability and Failure mode analysis lab to assist the fab-less companies as part of government labs or institutes.

e) Set up a seed fund to encourage entrepreneurs in the fab-less semiconductor space and also actively invest in startups to create semiconductors for government projects such as low end laptops, epassport, smartcards, etc.

Summary

The challenges of fab-less companies are unique and are not covered by the SEZ and STPI. Also, India is lagging behind in Semiconductors and Indian companies have negligible share in the worldwide market. A new policy needs to be drafted to encourage fab-less companies from India that also increase the intellectual property content.

The author is the CEO, Cosmic Circuits
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Reader's comments(1)
1:Great analysis of Indian Semiconductor Industry. We do need to move on to Products and at some point even have manufacturing base in India.
Posted by: Aashit Mahendra Patel - 10th Oct 2010
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