Outlook for Indian semiconductor industry in 2008

November 24, 2007

S. Janakiraman, president and CEO –- R&D Services, Mindtree Consulting, and chairman, India Semiconductor Association (ISA), is quite bullish on the advantages of India and the opportunities provided in the Indian semiconductor industry. Here are some notes on the outlook for the Indian semiconductor industry in 2008.

Indian semiconductor industry to grow 25-35 percent in 2008
There has been an increasing trend of an increasing brand value for semiconductors within India. MNCs, especially are looking at semiconductor related outsourcing from India. We are also seeing lot of traction, from third-party service providers, like us — Mindtree, Wipro, Sasken, etc., as well as captive centers of MNCs like STMicroelectronics, NXP, etc.

In terms of growth plans, all leading MNCs, like NXP, Freescale, STMicroelectronics, etc., are planning to grow significantly from their India centers. They are strongly building partnerships with Indian designers.

From the design side, India is also seeing an increase in various activities, such as more complex analog designs and more complex digital designs. We are seeing more of physical designs happening, and even taking those designs up to the foundries are increasing as well. “We foresee 25-35 percent likely growth in the Indian semiconductor industry during 2008,” said Janakiraman.

Software is very critical to succeed. Various Indian providers, including Mindtree, are developing software for semiconductor-related products that are being designed by the overseas semiconductor companies.

Fab policy — More of ATMP
The fab policy announced by the government of India is really attractive and mostly on par with other countries. A semiconductor fab requires very high capital-intensive investment. In 2008, we will be probably seeing more of the assembly, testing, marking and assembly (ATMP) happening in India.

The fundamental fabs are still a little far away. Most companies are likely to start off by initially testing waters by making some level of investments in ATMP before moving on to fabs. One cannot also rule out the prospect of some leading Indian company investing in fabs.

Lot of the big MNCs have been moving to Fab-Lite, having already announced Fab-Lite strategies. They are moving to manufacturing to with people like TSMC, Chartered, etc. If manufacturing happens in the fabs, it would not be from any of the integrated device manufacturers (IDMs). It may also happen from Indian companies who are into manufacturing.

Electronics manufacturing has already moved on to the electronics manufacturing services (EMS) vendors. Similarly, chip vendors are also moving on to third-party providers. MNCs like TI, LSI Logic, etc., are moving away from manufacturing and moving that to Charter, TSMC, etc.

Fab companies will also look at India as the fab policy will look attractive to them. “Those questioning India’s need for fabs would feel terribly missing out on the opportunities currently being provided by India, by 2015,” said Janakiraman.

Product companies in India
Over the next one to two years, we are likely to see more product companies emerging from India. Companies like Tejas are already present in India. Down the line, this will percolate into semiconductors. Opportunities are bound to emerge. It means, first, there will be companies manufacturing electronics products, which will later move on to the emergence of semiconductor product companies.

As for Indian companies into manufacturing electronics products, the ISA chairman feels that there would be more of high-complexity, medium volume products. These would probably be manufacturing networking, automotive, navigation products, etc., which are more rich in software, but are medium volume in production.

Impact of semiconductor policy
According to Janakiraman, the interest in India has only increased since the announcement of the semiconductor policy. As per the announcement, the government of India will bear 20 percent of the capital expenditure during the first 10 years for units located inside SEZs and 25 percent for those located outside.

For semiconductor manufacturing (wafer fabs) plants, the policy proposes a minimum investment of US $625 million. The minimum investment for for ancillary plants is US $250 million. The government’s participation in the projects would be limited to 26 percent of the equity portion. The key benefit is the grant of the SEZ status.

The Indian semiconductor policy is applicable for manufacturers of all semiconductors, displays – including LCDs, organic light emitting diodes (OLEDs), plasma display panels (PDPs), and any other emerging displays, storage devices, solar cells; photovoltaics; other advanced micro- and nanotechnology products; assembly and test.

Advantage India
India is now presenting a great opportunity to the world, in fact, offering triple advantages. India has a very rapidly growing domestic market, growing at a CAGR of 30+ percent. India has achieved global recognition for back-end services -– having become a proven case for IP, embedded systems and IC designs.

India is also an attractive destination for manufacturing investments. It further boasts of a highly skilled employee base, and a fast and upcoming modern infrastructure –- SEZs. India also enjoys proximity to the EU and the MEA markets. It also boasts of freight cost, said to be 20 percent cheaper than China, leading to faster delivery and lesser pipeline inventory.

Indian ecosystem maturing
India is aligning itself with the global semiconductor market by creating high value work in VLSI, and board design and embedded software. Companies with domain expertise are driving Indian businesses. India has become the world’s destination for semiconductor design and embedded software, and is increasingly becoming the source as well.

In terms of consumption, the India semiconductor total available market (TAM) revenues are likely to grow by 2.5 times, while the total market (TM) is estimated to double in revenues by 2009. India’s semiconductor market share is likely to be 1.6 percent of the global market by 2009 in comparison to 1.1 percent in 2006.

Regarding the growth drivers for electronics manufacturing in India, telecom and IT & OA (office automation) segments will account for almost two-thirds of the semiconductor TAM by 2009. Telecom’s share has been estimated to grow from 21.2 percent in 2006 to 41.1pc by 2009.

According to ISA estimates, TAM revenues are likely to grow by 2.5 times and TM revenues are likely to double their revenues by 2009 as against 2006. Growth of TAM revenues is 35.8 percent compared with just 26.7 percent for TM revenues, thereby signifying an increasing manufacturing index for different electronics products in India.

The decline in ASP (average selling price) of semiconductors and hence, of electronic products, is largely offset by the higher unit sales of different electronics end use products.

Indian electronics industry — 2010 scenario
India will have a very strong electronics scenario by 2010. The installed base of mobile phones will go up to 500 million. The installed base of PCs will move up to 65 million. The IT enabled services (ITeS) and software exports has been estimated at US $60 billion.

There will likely be about 40 million new Internet connections, with at least 50 percent of those being broadband connections. The nationwide TV broadcast is likely to become digital by 2015, beginning 2010. In that scenario, there would be significant opportunity for set-top boxes (STBs) consumption and manufacturing. There will also be an estimated over US $10 billion investment in e-governance initiatives and the national ID card.

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