Indian Semiconductor Industry to Defy Recession

by Manu Sharma    Jul 22, 2009

The semiconductor market in India was estimated at $5.9 billion in 2008 and growing at about 25% in the recent years. Now with global recession on, industry growth rates are estimated to drop by half this year and next year, but India is still forecasted to post positive growth although at a much lower rate, said Vivek Sharma, director, India Design Center and VP, Emerging Market Regions, ST Microelectronics India.

Talking to Manu Sharma of CXOtoday, Vivek Sharma reveals some key technology and market trends for the semiconductor industry in 2009.

How important is India in the Electronics Design service/solution sector?
As per recent ISA-IDC report, in the year 2008, the total semiconductor market in India was estimated at $5.9 billion out of which $2.53 billion of semiconductors is consumed by the local electronics manufacturing industry and the rest comes as a part of imported electronics goods. Previous reports projected the Indian chip design industry as being above $7 billion in 2008 with a huge chunk of revenues coming from embedded software, followed by VLSI design and hardware/board design. Gartner, states that the market for third-party chip design services in India is estimated at about $400 million.

All these markets have been growing at a rate of more than 25% in the recent past years and are projected to still keep growing albeit at a lower rate due to prevailing market situation. For example, the total semiconductor market is projected to grow at an average rate of around 13% in coming couple of years as per the same report.

What are the competitive advantages of India for design players/solution providers?
A couple of decades back, to begin with, India offered great advantages in terms of availability of highly educated and talented pool of engineers at high cost competitiveness. This coupled with good communication skills attracted most of the global electronics/semiconductors design players to set up centers here. As these centers kept growing, third party design service companies also started to flourish either to provide services abroad or to serve the local captive centers. Also in due course, the high brain drain trend, where experienced engineers were lost to other countries like USA subsided, thereby increasing the level of expertise in India. Meanwhile, embedded s/w started to become an important and critical part of the electronics/semiconductor design solution and India became the natural destination after great success in computer software.

Therefore, there are four clear competitive advantages India offers in the electronics/semiconductors design space: (a) Availability of not only raw talent but also the experienced engineers which helps in scalability of operations (b) Capabilities in both H/W and S/W which makes it an ideal place for developing full system solutions (c) Though cost competitiveness is eroded to some extent to higher wage bills now, nevertheless it still compares favorably with many developed economies (d) The potential of fast-growing local market with high appetite for existing and new applications offering great opportunities for electronics design. Also to add, certain level of IP protection helps keep the trust of companies to invest locally.

Has there been any impact of recession on the Indian electronic design industry? What to expect in 2009?
Today the world is more and more connected; hence it wouldn t be appropriate to assume that India can stay immune to strong global situations, though different economies and industries may react differently. As is known already, the strong Indian GDP growth rates which were in the range of 9% will come down by a couple or more of percentage points. As already mentioned, the semiconductor related growth rates are also estimated to drop by half this year and next year. Most of the design companies in India are not hiring these days. On the other side, some of the local demands are still running strong e.g. mobile phones in the telecom sector. Therefore, what can be said that if globally the semiconductor industry is showing negative growth, India is still forecasted to post positive growth though at a much lower rate. This can be understood from the fact that Indian electronics and semiconductor market is still very small compared to global market (2-3%) and is mainly driven by first use rather than replacement of gadgets.

What are the major areas of use for electronic design service? What are the areas with high growth prospects?
Electronics is not only a large industry, it is also among the fast-growing industries. As per industry estimates it is around $1300billion globally and growing close to 7%. One key reason for its growth and size is the penetration levels. Today, we find electronics in almost all spheres of life and are becoming more and more prominent. As an example, in the automotive sector, vehicles are more and more getting laden with electronics to provide safety, entertainment, comfort, navigation etc. Driven by innovation, electronics industry can provide almost unlimited applications in all the sectors. This gives tremendous opportunity for electronics design.

Electronic design services are used in chip design, IP development, embedded S/W, Electronics Design Automation (EDA), Reference Solutions Design and Board Design. Although all the areas are forecasted to see good growth, embedded S/W is particularly growing strongly. This can be attributed to the fact that as modern chips are becoming complex and also expensive to develop; embedded S/W provides the much needed flexibility and cost advantage to develop new applications.

What are the major technological trends in the semiconductor industry?
As mentioned earlier, Electronics Applications are penetrating almost all fields of life. Entertainment, communication & healthcare are particularly the segments which are poised to see rapid growth. Applications Set-Top-Boxes, both low and high end mobile phones etc. are already growing. New applications like integrated TV, lab-on-chip for healthcare etc. are poised to grow in coming times. With their high applicability, smart cards are the other application area for high growth.

In terms of technology, convergence is one of the basic trends manifesting other trends. With the semiconductor technology continuously scaling to lower geometries, single chip is able to house more and more devices hence functionalities. This is merging number of previous chips into one single chip now. For example, soon we will have a chip able to do both the functions of TV as well as Set-Top-Box. Mobile phone is another great point of convergence example, where numerous applications are coming together.

With increasing complexity and ever shortening time-to-market, the abstraction level of managing numerous components (H/W as well as S/W) going into the electronics devices needs to be pushed higher as well. Platform solutions, which provide a highly-integrated solution, many times encompassing the associated services as well, are increasingly becoming a trend.