“The decision to choose India was a
natural one,” says Dr. Bobby Mitra,
managing director, TI India. Beginning
as a small development center at
Bangalore in 1985, TI India has become
a critical business generator for its
parent company in Texas.This, perhaps,
is a classic example of “captive” remote
design services out of India.

Following Texas was Analog Devices.
In the 1980s,Analog was selling chips to
defense labs and R&D institutions in
India. To get an Integrated Chip (IC)
into India was a herculean task. Import
duties were a whopping 168 percent
then.

But Analog was quick to spot the
potential India held in terms of chip
designing. They also had on their side a
rich talent pool. In the early 1990s, the
company pioneered the concept of
‘third-party design development.’

The 1991 liberalization saw a slew
of multinational companies—Analog
Devices, National Semiconductor,
Philips Semiconductors, Motorola,
Intel, ST Microelectronics, Cypress
Semiconductor—setting up design
houses in India.

The global semiconductor industry
is estimated to be worth about $220
billion, of which chip design accounts
for nearly 10 percent. “Currently, what
comes to India as outsourced revenue is
a small number, but not insignificant,”
say industry executives.

Although the industry might never
grow to be as large as India’s software
industry, the area still holds promise. In
fact, there are nearly 100 design
companies that have opened centers in
Bangalore, Hyderabad, Chennai and
Noida.

Drivers

The growth of design outsourcing can
be attributed to the same factors that
led to the growth of IT outsourcing—
talent availability, cost, flexibility, and
time-to-market considerations.

Design outsourcing is particularly
tough for some of the larger companies.
Managing third-party developers is a
major issue. “We work with a limited
number of partners. One of the lessons
we have learned is not to freely engage
with third-party developers. Some of the
companies to which we were outsourcing
closed without our knowledge. There
must be a rigorous selection process,” says
Mitra.

While multinationals themselves are
facing stiff competition in India, the
future for Indian design startups cannot
be too rosy.

Although barriers to enter the
market are low, it is tough for companies
to grow.Many would have not more than

fifteen engineers working.

Design services companies depend
largely on the state of the semiconductor
industry. However, some Indian design
services companies seem to have found
ways around this dependence. Spike
Technologies in Milpitas, CA, has a
development center in Bangalore. The
company is looking to reduce its
dependence on the semiconductor
industry by developing skills in other key
areas in this space. “As design outsourcing
continues to grow, adjusting to the
market dynamics of the semiconductor
industry becomes key,” says Pradeep
Vajram, a co-founder of the company.

Another way is to share skills. K.
Neelakantan of C2C Solutions
collaborated with two other design
service companies to leverage core
strengths. “We bid for projects as a
consortium.This model works well,” he
explains.

Talent

While the software talent pool is vast
and rarely questioned on its quality,
hardware design talent in India differs.
But, optimists have something different
to offer. “Given the opportunity and the
current gap between demand and
supply for human resource in the area of
VLSI design, the time is appropriate for
taking major initiative in this area,” says
Professor S.S.S.P. Rao of VLSI Design
Centre, IIT Mumbai.

Cashing in on IP

As chips grow increasingly complex, the
onus of piecing together diverse
intellectual properties (IPs) falls on
semiconductor companies. This, in
industry parlance, is called “system on a
chip” (SoC).

Today, there are only a handful of
companies involved in IP and SoC
design in India. “Growth in the design
industry will be possible only if design
service companies migrate to an IP or a
fabless business model. While most
companies aim at doing so, only a few
have the ability and resources to make
the transition,” says Dayakar Reddy,
CEO of MosChip.

What attracts companies to build
IPs? “A high return on capital employed
is almost assured. At the same time, it
has a slower start,” says Srini Rajam,
who quit TI India as the managing
director to create Ittiam Systems, a
company built on the IP business
model.

Analysts often point out companies’
preference for acquiring IPs over building
them, as it reduces time to market. In
fact, several semiconductor companies do
exactly that: acquire IPs developed by
third-party companies and integrate
them into their chip. According to
investment bank, Avendus Advisors, the
current semiconductor IP market is in
the range of $16 to 21 billion, most of
which is captive.

According to Rajam, most Indian
design companies will first build a
steady revenue stream from design
services and then earmark a part of that
for R&D in order to create IPs. “No
revenue will flow in initially. It can take
up to a year for IP development and
another six months before the first
licensing revenue accrue,” says Rajam.

Rajam is conscious of the risks
involved in this space. When he started
Ittiam last year, he had projected that in
the first two quarters there would be
good demand for IP. But soon he was
forced to change the focus area.
“Software-defined radio and 3G
reference designs for mobile wireless
were the two IPs on the card. But we
had to drop them till we saw the pull
from customers.”

An international marketing presence
is essential for success in the IP-licensing
business. This is where companies like
Wipro, HCL Technologies, Hughes
Software Systems, Sasken and Mindtree—
who have an established international
presence—score over others.

Road Ahead

“Right now, the investor community is
not excited about design services. They
have to see a company grow beyond $50
million in order to take notice. Most
companies belong to the $5-10 million
range, which is why investors are
skeptical of their growth potential,” says
Edward Wan, chief executive officer of
Spike Technologies.

Concurring with Wan is Vinod Dham,
a microchip expert who once headed
Intel’s Pentium processor project. Dham
has taken a proactive step in launching a
venture fund firm, NewPath Ventures, to
nurse design startups in India

Indian companies today are
claiming to do substantial project work
in the area of design, and sometimes,
the better part of product development
in chip design as well. But will all this
help India become the design
powerhouse of the world?