Chipping In

It promises to be the next chapter in the unfolding saga of India's global
ascendance. The beginnings are already there and if India can capitalize on the
opportunity, then chip designing will see the same run of success that has
marked the Indian software sector.

Traditionally a domain of big-players in semiconductors production, the chip
design industry changed permanently with the appearance of the "fabless"
model. The model marking the separation of the capital-intensive fabrication
phase from the people-intensive design phase came into existence with ASIC
companies like LSI Logic, NEC, Toshiba and IBM offering physical design and
manufacturing services, and the creation of stand-alone foundries by Taiwanese
semiconductor companies. Suddenly the doors opened for a number of small
companies, which had the talent but not the required capital, and also for
countries like India to get into chip design.

The "fabless" trend continues to be on the ascendent as "fabless"
companies aggressively pursue growth-targeting new segments, subsegments and
niches with their chips. In 2002, fabless production accounted for $16-17 bn, or
11% of the semiconductor industry's estimated $160 bn in output. The US
Fabless Semiconductor Association predicts that the market shares of fables
companies will jump from just over 10% today to 50% by 2010. A promising
opportunity for the design services companies and "design starts".

Emerging Frontiers

The global market for semiconductors is expected to reach over $200 bn by
the end of the year, the Gartner Group predicts a compound annual growth rate of
10.6% between the years 2003 and 2008.

While Indian players have a presence in all segments of the design part of
the value chain, a majority of them fall in the low-risk, low-investment
outsourced design services segment.

A significant opportunity waits India with the emergence of Silicon
Intellectual Property (SIP) or "Chipless" firms. The potential for SIP
arises from an increasing demand for closing the design gap, which refers to the
gap between the potential available for design and the actual capacity available
for design. Advances in semiconductor technology have made it possible to pack
an increasing number of transistors on a single IC. However, as designer
productivity has not increased at the same pace, newer ICs take a larger amount
of design effort, increasing both design timelines and design costs. The only
viable solution is to reuse design with SIP reusable blocks. This helps in
ramping up a project in quick time.

As design complexity grows, so will the need for reusable designs, and Indian
firms with the required expertise can make a mark in this space and also command
better margins. Development of IP is not a well-accepted business model for
information technology companies in the United States as it is not scalable to
the volumes needed for business there, but it may well prove to be good business
for Indian firms.

Some pioneering Indian design service companies have spotted the potential in
this field and have started offering IP components along with their other
services and products. Take for instance verification services. One of the main
challenges for chip design companies is to not only develop new designs but also
validate them. Since validation efforts are almost three times the design
effort, much time is lost in bringing the product to market. Verification
components can considerably reduce the time-to-market.

The growing consumer electronics market and the presence of all the elements
of chip design ecosystem can support the movement of Indian chip design services
companies up the value chain in the future.

Currently, all the product definition for a chip is done outside India by
chip companies in consultation with their customers. But the presence of
necessary chip design infrastructure coupled with the large size of the consumer
electronics market may eventually lead to the domestic OEMs working with local
design firms. The trend of outsourcing the entire chip development process is
gaining widespread acceptance among chip companies. Physical design and
verification are easily outsourceable parts of the process, but now, an
increasing number of customers are farming out the design piece as well.

In order to tap into this "spec-to-silicon" services market, Indian
companies must cultivate the following competencies: "whole product"
mindset, tight relationships with foundries and testing and packaging houses,
and mixed-signal (analog and digital logic on same chip) expertise. In addition
to these competencies, Indian chip services companies must partner with EDA tool
vendors to come up with an innovative pricing model that will give them access
to expensive design tools to serve their mutual customers.

"Opportunity is missed by most because it is dressed in overalls and
looks like work" are the famous words of Thomas Alva Edison. We are at the
doorstep of an exciting new era. We must step forward and grasp it with both our
hands.

Tapan Joshi is vice president, marketing, eInfochips