Chipping In



Adilemma has arisen in the global semiconductor industry–more so from the
inevitability of Moore’s Law, for it became possible to increase the number of
transistors in a single IC while chip-designing capacity did not improve in
tandem. This resulted in a significant increase in chip design costs. Chipmakers
are now realizing that speed and performance are not the only USPs–for the
most compelling driver is cost. They are now scouting for low-cost design
opportunities, and as the cost of chip design is increasing in the more mature
markets, design firms in low-cost advantage countries are booming.

Potential
Application Areas for Embedded Systems in India
Consumer Electronics Automotive Industrial Electronics
TV   Engine Management systems
Factory Automation
Audio and Video Power Steering UPS
Refrigerators Power Windows Energy Meters
Washing machines Central Locking System Motors

Microwave Ovens
Switchgears
(Source:
Frost & Sullivan)
Access Control Systems

Chip design is a crucial component in the embedded systems production chain.
Embedded systems are computers (microprocessors) ‘embedded’ in customized
hardware or chips. Examples are cellular phones, robotic equipments, security
and surveillance, and devices monitoring assembly lines. This industry in India
comprises of IC or chip manufacturers, embedded software developers and solution
providers. India has a huge opportunity coming in for chip design as well, with
an already proven record for software development.

Embedded systems arose from the need for devices with multiple functions,
enabled by integrating hardware and software components. These systems run on
integrated circuits (ICs) which maybe standard or application-specific
integrated circuits (ASIC). According to Frost and Sullivan, the revenues
generated by the total embedded systems industry from automotive, consumer and
industrial electronics during the year 2001 were $462 million. Of which,
hardware contributed $65 million and software $379 million. The revenues here
include chip design, IP core design in hardware, reference board and application
software development. Most Indian companies were early entrants into the
communications domain. As opportunities are springing up in other areas like
wireless, handheld, gaming and automobiles, capabilities can be extended as the
core design IP used is generally the same in all industry segments.

IC manufacturers supply the hardware component for embedded systems,. Global
players like Texas Instruments and Analog Devices have dominated the Indian IC
development segment. These firms are called fabless firms, which develop the
entire chip product but outsource the fabrication to a third party. Most major
hardware IC manufacturers or consumer electronics manufacturers often outsource
chip and reference board design to companies like Wipro and Sasken. But by and
large, more and more manufacturers that require customized IC and software
embedded in devices like handhelds, washing machines and access control systems
are outsourcing their software, and even hardware requirements to other
companies, and are concentrating on their core business.

Dr Biswadip Mitra
managing director, Texas Instruments

“India’s strength in embedded SW will soon help in the critical domain of chip design”

India: The powerhouse for global chip design
Chip design will continue to remain India’s strength and infact there is
room for more. Chip design in India began with Texas Instruments, which started
off way back in 1985, and became a forerunner for chip designing. It started off
in the area of digital signal processing and put Bangalore onto the world map of
chip design. After which global companies like Analog Devices and National
Semiconductor followed, and soon Bangalore became home to around 50 of the 60
chip design facilities in India. Some of these 50 companies that set up their
design bases, were mostly MNCs like Motorola, Cisco and Cypress. There are
several differently sized firms in chip design in India from small start-ups to
large ones. Chip designing eventually necessitated supplying EDA tools that went
into designing chips. So suppliers like Cadence and Synopsis made their entrée
into India by setting up centers for developing EDA tools, and leveraging on low
cost development. Infact Cadence is one of the first companies that started a
design development center in India.

Avendus Advisors estimates the market for chip design in India to be about
$100-125 million, which includes design services, silicon IP and EDA firms.
"India’s strength in embedded software will help in the critical domain
of chip design, where it is emerging as a powerhouse," claims Dr Biswadip
(Bobby) Mitra, managing director, Texas Instruments.

The key lies in IP creation
In India, the market is seeing a proliferation of IP suppliers. Most silicon
IP (SIP) companies in India have created intellectual property in the form of
propriety designs. But there are no pure IP firms in India–they are either
into offering design services or developing components for EDA majors. There are
two things that are generally done after developing an IP–sell them directly
or receive royalty payments. IP designs are commonly sold to fabrication
facilities in Taiwan and to fabless firms to be used in chip making. Thus IP
firms earn either by receiving royalty payments, licensing their design or by
selling them off directly.

Ramesh Emani
CEO, Wipro Technologies

“India needs to leverage by moving into embedded SW design and development”

Mistral Software has created several IPs in audio, one in SDRAM (synchronous
dynamic random access memory) controller and one in a microprocessor. Having
these IPs has helped attain royalty payments and some revenue also comes in from
directly selling them. Last year, IP licensing alone brought them payments of
$150,000, while this year the company expects $500,000. "Chip manufacturing
is not India’s forte, IP creation is still India’s stronghold. Embedded
technology is growing but the environment in India is not conducive for volume
manufacturing," says Anees Ahmed, president, Mistral Software. Mistral was
set-up in 1997, with a focus on embedded solutions and delved into IP creation
only in the year 2001.

Wipro and HCL Technologies are major Indian players in the area of embedded
systems- they have developed core IP designs, and also develop embedded
software. Most of these companies tend to specialize and develop systems in a
particular vertical. Sasken Communications is focussed on the communications
industry and has developed IP for a few VLSI designs. Another company, NeoMagic
is developing system-on-chip solutions (SoC) for multimedia-rich handheld
appliances.

From the Indian development center alone, Texas Instruments (TI) has about
200 US patents. The revenue streams from the products that embed the IPs run
into millions of dollars for TI. The chip designs are mainly for end-user
equipment manufacturers. According to Bobby Mitra, "Firms that are focussed
exclusively on IP are driven by the fact that most semiconductor firms and OEMs
reduce time-to-market by integrating a suite of IPs from multiple sources."
Texas Instruments is both into silicon design and embedded software.

Though Wipro was long into embedded systems, only recently did they make it a
strategic focus, with change in market dynamics. It is not only into IP creation
but also into providing solutions in embedded systems. Wipro designs
systems-on-chip, reference boards used in the embedded device, and designing and
developing software for these embedded devices. "India has already proven
itself in software development but now needs to leverage on it by moving into
embedded software and designs. There is a need for 100-plus designs every year,
a figure over and above the demand from the consumer and automotive
industry," says Ramesh Emani, chief executive (embedded and access
solutions), Wipro Technologies. Wipro has design patents for five core-IPs
needed across verticals. It is in partnership with two Taiwanese based firms
through which it gets chip fabrication done.

EDA major, Cadence, is catering to companies that are into hardware design,
manufacturing and those delivering and developing complete embedded systems.
Cadence develops design tools that also go into the making of reference boards
used in embedded systems. Most global EDA players have a development center in
India, leaving very less opportunity for Indian firms. Business in this area is
extremely risky. Therefore Indian EDA players co-operate with these major
vendors by offering EDA components, which are incorporated into EDA tools. They
sell the component or license their tool design to the EDA majors. The tool
market is already mature, but there is opportunity in EDA services and
components, which, according to Avendus Advisors, is estimated to be at $200-400
million.

Anees Ahmed
president, Mistral Software

“Manufacturing chips is not India’s forte. It is IP creation that remains our stronghold”

From chip design to embedded solutions
The good news on the embedded systems front is that the enabling
technologies for various applications have become very cost-effective and are
within the reach of small-to-medium business houses. Since they are not
capital-intensive, individual entrepreneurs can get up and running with very
little money. Indian companies initially took to chip designing, and later
graduated to creating IPs and licensing them. Now the advantage in the embedded
systems will lie in being able to provide the entire solution from product
conceptualization (backend and front-end design) IP verification outsourcing
chip manufacturing reference board design software development systems
integration. The lesser a firm is dependent on another, the less risky the
business would become. By encompassing all the activities in the embedded value
chain, Indian firms can add value to their customers by providing total embedded
solutions, Frost & Sullivan reports. Infact, Wipro is an example of a
complete embedded solution provider.

"This scenario is ideally suited for businesses to address the embedded
systems market. The Indian market itself has a huge potential with global
markets within its reach. But, with the availability of raw intellect, strong
software expertise, low start-up costs, all that the Indian businesses need is
that ‘million dollar idea’ which will be the true leverage," says
Sanjay Mittal, MD, Interra Systems.

HW manufacturing: The only missing link
In order to boost the embedded systems market a few challenges must be met,
especially pertaining to hardware manufacturing. While chip designing is gaining
new heights, chip manufacturing is in the doldrums. In addition the anticipated
WTO regulations by 2003 will hamper chip manufacturing further. Infact, there
are only three Indian chip manufacturing companies- Team Asia, Bharat
Electronics and Semiconductor Complex, which together constitute less than one
percent of the overall domestic chip market.

Jargon Buster

Silicon IP firms: Firms that create and sell silicon IP (intellectually property) for IC design

Design services: Design service providers that sell their IC designs to fabs and fabless firms 

EDA firms: They develop tools to help IC designs and convert them into physical silicon chip 

Fabless firms: They develop the entire chip product but outsource the fabrication to a third party

IP core: It is a chip design that can be used as a core in almost all product development

Massive initial investments in chip fabrication units and high taxes thwarted
private investments. India will never be seen in this segment, for countries
like China and Taiwan are already way ahead. The domestic demand for chips is
very low, for India is neither a producer nor a consumer of chips. On the
average, the domestic chip manufacturers produce 6-inch 20,000 wafers annually
while elsewhere fabs produce 500,000 wafers of 8-inches each.

So the safely the best bet apparently is chip designing, which still is a low
cost and high return opportunity. Because of high design costs, the different
segments of the IC/chip industry are getting outsourced. Sub-contractors are
springing up aplenty, and can be seen in all segments of the design value chain,
including, design services, silicon intellectual property (IP), and EDA tools
and services.

Currently the most glaring hindrances lie in low spending by Indian companies
on R&D, delay in adopting latest technology, and non-governmental support in
terms of policies.

"Investment in R&D by Indian firms is low, amounting to below 2% of
IT budgets. Compare this with global majors, whose R&D spend is 7%, on an
average," says MAIT director Vinnie Mehta. In addition to R&D, royalty
payments from technology exports are not exempt from corporate taxation.

Market drivers
The market is driven by:

n Global
companies and OEM manufacturers outsourcing requirements to Indian firms
including start-ups in the area of chip design
n Increase in demand
for low cost embedded systems in mobile devices, multimedia, networking and
broadband appliances

According to the Frost & Sullivan report new application areas would fuel
growth in the embedded systems market. These would include motor control
functions, electronic based features in automobiles and growth of the UPS market
among others.

Indeed convergence in consumer electronics, telecom and entertainment
(portable handhelds, Internet enabled TV) are driving the need for low cost
chips, as more and more chips are being embedded into them. Some of the devices
using embedded technology are the palm top, the set-top box, web pad, IP phones,
and the digital camera among others. India has an advantage–low cost manpower
for chip design, which is 20-25% cheaper than elsewhere.

Venture funding
However, there aren’t many VCs funding design companies today, though a
few are entering this segment. Vinod Dham, who once headed Intel’s Pentium
processor project, launched a venture fund recently, NewPath Ventures, to nurse
start-ups and aimed at making India a key center for the wholesale design of
chips. The fund would take care of conceptualization, complete design,
development and testing, outsource fabrication and sale of the end products. The
fund would initially invest $50 million in three to five companies that would be
incorporated in the US, but will have 90 % of their staff in India.

Future
The future should see a synergy between software developers, semiconductor
suppliers, and manufacturing companies across verticals. And since most global
manufacturing companies are considering concentrating on their core competency
and outsourcing their requirements, there is hence a growing opportunity for the
Indian Industry. India must increase the number of chip engineers, as the demand
for them is increasing. According to the report by Avendus Advisors, India would
need around 8,000 chip designers up from the current 3,000. Companies like
Philips Software, National Semiconductors, and Cadence often look for engineers
with skills in ASIC, mixed-signal design, frequency board design, and
programming in assembly language, ‘C’, and knowledge of real-time operating
systems.

Frost & Sullivan recommends that Indian designers venture into domains
like multimedia, broadband, wireless and networking appliances after which they
can graduate to offering embedded-systems-solutions.

Radhika Bhuyan in New Delhi

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