Monday, May 19, 2003		Guest Speak

In need of a chip shot
Pradeep Kumar

THE development of semiconductors has transformed the microelectronics industry across the world. We usually associate semiconductors with computers and related devices. However, semiconductors are more common in our lives today than most of us even notice. Semiconductors, in various forms, are commonly used in devices like video games, televisions, audio/ video players, home-theatre systems, microwaves, cellular phones, PDAs, printers and telephones amongst others.

In India, the early days of the semiconductor industry were lacklustre. This was primarily due to factors like unfavourable market conditions and government policies. If we compare the same period in India to similar periods in the USA or Europe, we would find that the latter had favourable market conditions. Healthy demand for electronic products and related equipment helped sustain a viable semiconductor industry. Coupled with that the availability of technically skilled human resources also helped as the industry successfully churned out new products and patented various technologies. The governments in these countries also undertook steps to promote the industry – intellectual talent was promoted and protected by issuing patents to innovators, and creating an environment conducive to competition. On the other hand, countries like Japan and Korea focussed more on cost and quality of their products thus promoting manufacturing. Interestingly, the governments here limited the entry of a few major players to specific sectors, thereby promoting efficient competition between them. With a supply of low-cost capital, these countries successfully competed in global markets, especially on the price factor.

However, since the economic reforms that began in the early nineties, things have begun to look up. Post-liberalisation, the semiconductor industry in India has been more focussed at the design part of the value chain. This was due to several factors – first, designing did not require advanced technology and second, the technically skilled workforce that it needed was already available across the country’s educational and engineering institutions.

Now, what does the future hold for the Indian semiconductor market?

Well, with respect to manufacturing, though the future is bright and holds potential, much needs to be done in order to make things look brighter. For one, present Indian manufacturers need to invest heavily in R & D in order to remain competitive in the global markets. One of the reasons that can explain the lack of high investment in technology is the low level of expected returns and competition from China. Also, low domestic demand and lack of a wider customer base is another vital reason. So the industry has to figure out how to come out of this ‘vicious cycle’.

On the other hand, IC designing, IP and EDA services today constitutes a big chunk of the Indian semiconductor industry. This sector would continue to be a major driver for the semiconductor industry in the coming years. Vendors need to continue exploring outsourcing opportunities in this area in order to sustain current growth levels.

However, the industry also needs to address several issues like trained manpower in areas of VLSI, and embedded software. If the industry has to grow at a healthy rate in the future, steps must be taken to increase the number of these trained engineers that graduate out of engineering colleges and other educational institutions.

Second, most Indian design firms have developed skills in the digital domain. Companies with skills in analog and mixed signal domains are comparatively less in number. The future may see the advent of analog effects in digital designs as semiconductor process technology begins to shrink. Thus, companies would require skills in these areas too in order to face the design challenges in future.

Third, if design industry has to witness significant growth, companies must formulate strategies to move up the value chain – namely to the SIP and fabless models. They must find the resources and develop capabilities to move in this direction.

We in India are ready to leapfrog, if there is sustained investment in technology and a clear focus and direction by the government. Building wafer fabs may be a good option as a long-term strategy but as a medium term strategy, we need to focus on creating a market for new applications in areas of digital consumer, smart card, set-top box etc. This will not only help India realize its potential but will also create avenues and a congenial environment for increased investment.