Cute Brilliant Things...

Semiconductors are cute and smart–and have changed the microelectronics
industry world wide. 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
other gadgets.

"It doesn’t seem that the war will compound any of the agony... And if SARS can be contained soon, there won’t be much of an impact on SW industry profits"

In India, the early days of the semiconductor industry were quite lackluster.
This was primarily due to factors like low investment in technology, low demand
and no government focus. If we compare the same period in India to similar
periods in the US or Europe, we find that the US and Europe had favorable market
conditions. Healthy demand for electronic products helped sustain a viable
semiconductor industry. Coupled with that, the availability of skilled people
also helped–and the industry churned out new products and patented
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 economic reforms took hold in India, things have looked up.
Post-liberalization, the semiconductor industry has focussed on the design part
of the value chain. This was due to several factors–one, designing does not
require huge investments; and two, the technically skilled workforce needed was
available across the country’s educational and engineering institutions. 

So, what does the future hold?

With respect to manufacturing, though the future holds potential, much needs
to be done in order to make things look brighter. For one, Indian manufacturers
need to invest in R&D to remain competitive. One of the reasons for the lack
of high investment in technology is the low level of expected returns, and
competition from China.

On the other hand, IC designing, IP and EDA services today constitute a big
chunk of the Indian industry. This sector will continue to be a major driver in
coming years. Vendors need to continue to explore outsourcing opportunities in
this area in order to sustain current growth levels. The industry also
needs to address issues like trained manpower in areas of VLSI and embedded
software. To grow at a healthy rate, steps must be taken to increase the number
of engineers who graduate out of engineering colleges and other educational
institutions.

Second, most design firms have developed skills in the digital domain.
Companies with skills in analog and mixed signal domains are comparatively fewer
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 of the future.

Pradeep Kumar

The author is country director, STMicroelectronics India