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June - 2001 - issue > Cover Feature
Hyderabad Chips Set To Take Off
Monday, November 17, 2008

It was a difficult decision to move back to India from Silicon Valley in 1999 when the software industry was at its peak. But Dayakar Reddy, Ramchandra Reddy nevertheless sold their respective startups in the US to tap into the emerging semiconductor market in Hyderabad, India.
Reddy sold Future Networks to US-based National Semiconductors. Likewise, Ram Reddy sold StarTech Semiconductors to Exar, and Vinay Kumar, who was working for Exar, joined the other two in the move back to India. The trio formed MosChip Semiconductors Technology, now a leading chipmaker in Hyderabad. Launched with a skeleton staff of five engineers, MosChip now has more than 50 on board.

“Sensing a huge opportunity in the semiconductor market in India, we wanted to become the pioneers as there was hardly anyone who was into this field,” says Reddy. “We did not want to do the same thing again in the Bay Area, but if we were to stay back in the US, this is what we would have done. As we three were born and brought up in Hyderabad, we wanted to do something here.” He adds, “Andhra Pradesh Chief Executive Chandrababu Naidu was going all out to help the Indians who wanted to come back to set up software units here.”

Promising Market
Srinivas Kilambi, managing director of Chip Engine, which began operations last year, says he expects the global semiconductor market to reach $17 billion by 2005.

“We do not want to guess on what our market share would be,” he says. “I am still not in the phase of generating revenues for the company. I am in the investment phase. Now I have good access to a large number of talented people who were either laid off or retrenched. Secondly, certain capital items that I want to procure have become cheaper. So, now I am minimizing my cash burn. Eight months back it was extremely difficult to get talented people. I need senior guys with five to six years experience and have gone through the entire product cycle — design, implementation and verification.”

One reason there has not been an overabundance of semiconductor companies in India, says MosChip Managing Director Reddy, is the lack of good designers, marketing people and system-experienced people. Lately, many small chipmakers in India have been swept away because they tended to focus on the local market, which was hardly in existence in 1999-2000. “When we set up the development center in Hyderabad, we adopted a ‘think locally and act globally’ attitude. Today, that would not justify our existence, considering the market size in India which is very small. But it will surely pick up in three to five years.”

Chip companies estimate the Indian market will reach $100 million by 2006. MosChip is slated to acquire NetMos Technology, a US-based chipmaker, next month for $8 million in a stock deal. “NetMos’ huge client base would help MosChip cater to Southeast Asian and European markets, besides the US. We would sign the memorandum of understanding (MoU) next month and the new products would be rolled out after that,” says Reddy.

Chip Engine, which is a Silicon Valley-based firm with a design and development center in Hyderabad, is ready to provide a chip for Internet protocol over fiber technology. The company is partnering with Taiwanese vendors who will manufacture the product and market it to leading users like Cisco, Nortel, Lucent, Alcatel and Avici. Its product, Canary, predominately goes into the system boxes that sit at the edge of network space. Currently, the team is developing chips for audio codex, communication devices, optical networking, and so on. “We do not want to jump into optical networking as this space is crowded,” says Reddy.

Only a few companies are product-oriented semiconductor makers. Any other companies associated with the space are service-oriented. These have been badly hit by the US downturn, as billing rates have come down from $120 per hour to $50-$60 per hour. With India seen as a cost effective solution for American enterprises, there exist opportunities for companies looking at chip development centers in India.

“We focus quite heavily on consumer oriented products, enhancing the parallel ports to connect Zip drives, et cetera, and communications. We have opened development centers in Bangalore, Noida and Chennai,” Reddy says.

MosChip raised $2.28 million from an IPO last year. Pre-IPO investment was in the neighborhood of $1.74 million. “We have just finished one product and a couple of products would go into next year. The development process is generally a year and the breakeven for every product is from 18 to 24 months,” he says.

Missing Element
The missing element in the Indian chipmaking workforce is experienced engineers who have been exposed to the entire development process. In fact, the semiconductor engineers themselves are unhappy about not getting to know the entire product cycle.

MosChip’s Reddy says, “These engineers work practically on a minute part of the chip. We want people who can work on both analog and digital, which is very difficult to get in India. That is the talent India needs to produce. We are in negotiations with people who are coming back from the US to India and experienced in writing Verilog HDL code for logic chips.”

“Compared to a US company, there would be no difference in terms of professional career, quality of life and job satisfaction,” says Kilambi. “But the salary may not be that high.”

Business Strategy
The semiconductor market is highly complex. Nevertheless, Chip Engine has major plans for the Indian operations. “Entrepreneurs have realized that it is hard to make money through software,” says Kilambi. “There is big money in network infrastructure, and semiconductors form a critical part of it.” Given the recent market woes of networking giants like Cisco and Lucent, the Indian communications chip startups may be in for a reality check. The Internet-fueled industry boom is over, and companies providing only marginal improvements in network performance will not be able to survive. Furthermore, with the stock market carnage, the large networking giants are not making any acquisitions, dashing the hopes of Indian semiconductor entrepreneurs.

Given this situation, the feasible business strategy for these companies may be to provide high-end development services to the world market and to tap the Indian market, which is clearly ready for major expansion in the coming years, for their products and solutions.

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