What the semiconductor industry should do in 2009!

January 18, 2009

What should the global semiconductor companies do to combat the current downturn? Is the lack of exit options in semiconductors really stunting innovation, especially in EDA? Is the Indian semiconductor industry really mature enough to enable product development? Do we have an ecosystem that encourages product development?

These are just some of the questions buzzing in my mind, and within the industry. While there is maybe an answer to the first one, and maybe no ready answer for the second one, I would probably agree with what Dr. H.V. Ananda former managing director of Synplicity said to me in August 2007, that the Indian ecosystem will not enable faster product development cycles!

At least, I haven’t seen any good or great Indian company or startup from India in the recent years to accept that we have learned the art of developing products! I am still waiting and sincerely wish that this situation changes very soon!

I recently got into a discussion with Abhi Talwalkar, the President & CEO, LSI Corp., post the 22nd international conference on Very Large Scale Integration (VLSI) design and the 8th international conference on Embedded Systems in New Delhi, India, and quizzed him about LSI’s thoughts on these and much more.

Three things to do for semicon firms
First up, what should the global semiconductor industry do in 2009? If there are three key things for semiconductor companies to do in this downturn, what would those be?

According to the LSI president, semiconductor companies should carefully manage their expenses and conserve cash. They should also develop conservative financial plans, which in turn will help them stabilize their balance sheets.

“Companies with strong financial capabilities and strong balance sheet will look to become stronger through this downturn. They should try to accelerate their market share through innovative practices.

“This should also be an opportunity for all companies to get closer to the customers, focus on their strategies and collaborate with them to help them come out stronger through this recession. Agility to innovate and meet with the customer requirements will help companies in developing a clearer focus on R &D and stronger executions,” he said.

Does India have a product development ecosystem?
I still don’t quite believe that India boasts a product development ecosystem, and am waiting for this to happen! On being asked this question, Talwalkar said that a product development ecosystem is dependent on the maturity of the end markets.

He added: “The Indian market is growing and will continue to grow both in terms of consumer and enterprise demand. This growth in demand will enhance the product development ecosystem as it will rationalize the cost of development. India still needs to fill in a lot of gaps to have a stronger product development ecosystem within semiconductor marketplace.”

Continuing in the same vein, why haven’t more startups happened in India, especially in semiconductors, especially in the recent years?

Referring to the ecosystem angle, Abhi Talwalkar noted that the success of startups is dependent on the existing ecosystem. “The growth of end markets will continue to encourage local ecosystem, especially in regards to native systems companies in areas of semiconductors. Currently, the system development is in its infancy in India, and with the growth of system MNC in India, it will grow.

The third point I had was: Is the lack of exit options in semiconductors really stunting innovation, especially in EDA? As I said, this is a very tricky one, and well, there has really been no answer to this one, as yet. Maybe, the answers will come in and be clearer as the year goes on!

The global semiconductor industry has had several headlines related to job cuts in the recent months. All of these layoffs have made me wonder whether there is going to be a drop in R&D, globally, due to the recession! If not, then why all of these layoffs? This is a point I’ve raised earlier!

Talwalkar said: “There will be drop in R&D with reduction in the top lines across the industry. There will be reduction in R&D budgets as companies will look to manage their expenses carefully as well as balance sheets.”

Outlook 2009: India and global
Coming down to 2009, what is LSI’s outlook for the Indian and global semiconductor industry?

Abhi Talwarkar said: “In the near term, the MNC India design centers will have to play significant roles. Their role is under appreciated and there are opportunities for them to grow further in the current economic scenario. The captive capability will grow as the cost structure and talent availability remains favorable here.

As for the global semiconductor industry, he added that the near term outlook will be challenging given the downturn and the rapid softening of product demand, especially in PCs, handsets, servers, consumer electronics, etc.

“In the long term, there will be positive growth in the semiconductor industry as the newer technologies get adopted in new product categories, — automotive, healthcare, solar, consumer electronics, telecommunication infrastructure, etc., as well as the continued growth of electronic products, especially in India, China, Eastern European and BRIC countries,” he added.

Several analysts have offered contrasting dates for an industry recovery. Even I am asked this question by several friends. My take is: do try and wait out this year, and consolidate, and try to continue to innovate, and prepare for the next industry upturn!

Perhaps, it is quite in line with what Malcolm Penn, chairman and CEO, Future Horizons, said recently, “Now, more than ever, is the time to work smarter not give up; the market will rebound, better start planning for that now!” Hope the industry is listening!

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