A Case for Fabless Companies

Notwithstanding that the India semiconductors market is about $7-8 bn as against a whopping world market of about $275 bn, it is an undeniable fact that India has gone beyond its global reputation for IT services and semiconductor design. India has been involved in semiconductor design for a considerable period of time now-Indian semiconductor industry is about 25-years-old-having put up facilities many years ago. Today, there are thousands of Indian scientists, engineers, and experts working for around 120 design houses. However, most of the design is happening for global clients with MNCs creating world-class ‘made in India' products. Even Indian services' companies such as HCL Technologies and Wipro are involved primarily in working for global companies.

HOW WILL THE INDUSTRY FARE?

Considering the capabilities, understandably, there is a potential for fabless companies in India even as the semiconductor market is poised to grow nearly 50% of its present size or to about $10-12 bn in just two more years. This is apparent from the fact that the semiconductor industry mirrors the electronic market.

We see that the electronics industry has witnessed a dramatic metamorphosis in the way we communicate, work, learn, and entertain. This has been fuelled by the proliferation of products, their evolution, including ultra-smartphones, fiber optic and wireless communication networks, and computers that either fit into your palm or your pocket. At the same time, such capabilities are speedily driving innovation at industries such as automotive, aerospace, and energy.

These dramatic changes, increase in productivity and product functionality being upped on a regular basis have put the pressure on engineers like never before, to ensure quality of life, lessen impact on environment, and comply with stricter but relevant government regulations.

They also feel the burden of shrinking design cycles so as to cater to the slim business opportunity in a highly competitive environment where today's design becomes passé when tomorrow dawns.

This has been made possible by semiconductors which, as Frost & Sullivan says,‘being the lifeline of all electronic products, its demand is expected to mirror the growth in the electronics industry'. Also the content of semiconductors in electronic products continues to grow. In addition to this, most product developers are choosing to use systems on a chip (SoCs) to improve performance and reduce costs. A lot of devices, such as mobiles, tablets, and a host of other consumer devices are also demanding a lot of semiconductor chips.

THE INCREASING DEMAND...

This in fact, puts us face-to-face to the question of how we should cater to the ever-growing demand of semiconductors in our lives. Though importing is an easy way out, but there has to be a move towards attaining self-reliance in the electronics and semiconductor industries, thereby ensuring that these industries become significant critical contributors to the country's GDP.

The good news is that the government recently gave its principal approval for two semiconductor fabrication units and now must move quickly forward in awarding these so that we can make India's contribution to this ever-growing global sector more impactful and significant.

Furthermore, it is important to note that technology in this sector moves very fast and hence decision to set up the units should be fast-tracked.

As Chairman of CAREL (Core Advisory Group for Research and Development (R&D) in the Electronics Hardware), we had identified several areas where there are large requirements of semiconductor products in India, and which can be indigenously provided for. Initially, we came up with a list of six electronic device segments-set-top boxes, smart meters, tablets, smartphones, micro ATMs, and smart cards.

If we decide to indigenize design and manufacturing in order to cater to the demands of the six segments, it would hugely reduce our import bill.

At the same time, to increase domestic value addition of designing these devices in the market, we have too looked at creating an SOC for each of them. For this, we need to be aggressive in encouraging the development of fabless companies in India as design is the key value-add for them, thereby help create an entire ecosystem in this space. How? Because, fabless companies rely on external companies for fabrication,assembly and testing.

For example, for nearly half-a-decade now, companies like Aura Semiconductor, Cosmic Circuits, Ineda Systems, Saankhya Labs, and Signalchip have made their mark in hardware, manufacturing high-quality chips using the ‘fabless model'. These companies design, develop, and market chips but actually outsource fabrication to companies to premier hardware manufacturing hubs in China, Singapore, and Taiwan.

Since the government has created a policy for Preferential Market Access for all central government buying, where 30% of it will be done from those who have manufacturing and value-add setups in India, it is absolutely imperative that we create a strategy for more design in the market. For this our committee had recommended the setting up of an ‘Electronic Development Fund' to generate capital for R&D in the country. The suggested fund base also includes a special, separate kitty for the development and furtherance of the fabless model.

The EDF is yet to get a go-ahead from the government. I believe that at a time when a government has already approved setting up of fab units, delaying or not approving the special fund is only going to render the ecosystem incomplete and ineffective.

It is important to highlight here that most of the Indian policies are aimed at addressing services and manufacturing industries. Just as in China, Korea, and Singapore, the government here needs to promulgate policies that focus singularly on the needs of the fabless companies in India. The need of the hour, to ensure a robust fabless ecosystem, is to create a strong IP base where semiconductor companies can fully realize their potential within the market. Already there are proposals to the government from Indian & Global companies interested in setting up funds for this and the government should take a quick decision on these also to move forward.