Exciting times for Indian semiconductor manufacturers

This is an exciting time for India; especially for the semiconductor industry. Since the release of the government’s “Semicon Policy Notification in March, there has been a flurry of new foundry announcements. While the continual growth of the semiconductor industry is a given, but exactly how successful the local foundries can be and how they will impact the design industry are less certain.

Taking on the global heavy weights
When it comes to challenges for semiconductor manufacturing or foundries in India, opinion holders usually belong to two camps. One group maintains that infrastructure challenges such as a stable power grid for foundries, is absolutely critical. Cost of power cut is literally millions per minute and delay to get to the market will mean doom for foundries in India. The other group often points to the small size of the domestic market and quote the slow growth in the overall economy and domestic demand; to be the foremost challenge for setting up foundries in India. Who is right?

Both are, in fact.
The pessimist’s view merely states the challenges ahead, while the optimist’s argument points to the key market driver. Manufacturing capacities today are under utilized. Compounded by the swelling cost of new process technology developments, competition is intense and margins are shrinking. So competing against global heavy weights directly will not be easy.

Foundries in India will have distinct advantage for the domestic market, but it is not possible to survive on local companies only; as China has shown. Spearheaded by the Chinese government, China has invested aggressively to bridge the gap between domestic semiconductor consumption and production. However, even though the demand and supply differential is still huge, the bulk of the revenue for Chinese foundries still come from customers abroad.

From MNCs to India Design Inc.
India is already a key player in global semiconductor design. All of the global top 10 and 19 out of the top 25 fabless companies already have operations in India. The industry already reached some US$623 million in 2005, and is still growing with a compounded annual growth rate of 25~30%, according to research company ISA. MNCs have played an important role in the development of the design industry in the last decade or two. MNCs bought with them knowledge and experience in design, as well as best practice methodology for product definition and development. Today, roughly 70% of the IC designers in India are employed by MNCs. While MNCs will continue to expand their operation in India, the next growth engine will be the local design companies.

Today, most fabless companies in India offer design services to the Silicon Valley and elsewhere. One fast growing segment is the embedded system sector. Another sector that is of high potential in India is the RF and microwave IC segment. Compared to digital and analog, the high frequency space is less crowded and offers more opportunities. What many people don’t realize is India’s strong defense electronics industry has built up a strong talent pool in this knowledge and experience intensive industry.

Local foundries, local services
For designers, tape-out is the most critical (and daunting) moment in the design cycle. Costs of chip fabrications are in the millions (USD) for advanced processes, so re-spin (re-manufacturing) is extremely costly for the company, and can mean life or death for smaller companies. This pressure is directly passed onto the designer, so he/she must minimize design re-spin, and work closely with foundries to understand the manufacturing process and tune their own design. An interesting data point which illustrates this was highlighted in a recent survey by a renowned publication*. The survey showed that 81%, 71% and 96% of the design house in China, Korea and Taiwan respectively, use local foundries. This is despite the allure of lower cost alternatives in China and better quality and services from Taiwan. So the value of co-location is still very big.

It’s more than just design
Once the foundries become established, Indian design houses will not only benefit from proximity of local support, but also the growing presence of process and device modeling engineers. Process and device modeling engineers and IC designers received different upbringing and live in different worlds. A designer’s job is to design an IC that performs the specified task using a combination of simulation tools, prototyping and experience. For simulation results to be accurate, it must match what the foundry actually produces. So it is the process engineer’s job to ensure processes are consistent (yield), and it is the device modeling engineer’s job to ensure simulations are done on accurate models based on actual process.

For lower end application they can happily live apart, but for advanced processes, it is critical for designers to understand process variation and limitation, and design around physical issues. Currently this is a weakness for India. An interesting example is how RFIC design houses in Taiwan have evolved. Around the boom that happened in year 2000, many new design house popped by, often headed by a few expert designers. As the industry consolidated in the past 3 years, design houses began recruiting not only designers, but also device modeling experts. Device modeling engineers understand the real performance of transistors when manufactured, so they can help bridge the gap between designers and foundries, and ensure what is designed become manufactured as intended.

The future is bright
As the economy grows, so too will the availability of capital and the number of start up companies. India will no doubt have more and more innovative entrepreneurs in the semiconductor space. Some may be expatriates with vast experience in the Silicon Valley; others could be seasoned engineers and managers who have worked for the MNCs. These two factors coupled with the establishment of foundries could become a potent mix for growth. India today is already a powerhouse for semiconductor design. Foundries may just well hold the key to the next big growth wave for India.

* EE Times’ 2007 IC Design House Survey



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