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Is India the next China?

Posted: 01 Jun 2007 ?? ?Print Version ?Bookmark and Share

Keywords:semiconductor industry? financial incentives? manufacturing industry?

Can India, like China, become the next silicon success story? This seemingly simple question sparked a debate that roared across the industry since India unveiled in March new financial incentives designed to lure chipmakers to the subcontinent.

Some call India "the last frontier for semiconductor manufacturing," and believe it will be a magnet for companies like TSMC, AMD and Intel.

Other industry watchers disagree, pointing to India's infrastructure shortcomings and late start in the chip-manufacturing sweeps. As the title of a recent JP Morgan report puts it, "India and semiconductors: It's too late; just don't bother."

India's nightmarish infrastructure will never support chipmaking, the argument goes, whereas China's state-managed economy and bottomless pool of experienced, low-cost manufacturing labor is an insurmountable advantage.

As compelling as these arguments may be, however, it turns out there are a number of ongoing semiconductor industry developments involving local companies and Indian investors, which indicates that India's aspirations for developing a domestic chip industry do not all hang on foreign direct investment.

Fitful start
Inside India, many experts acknowledge that the country's semiconductor initiative has gotten off to a fitful start. "We ourselves have complicated this whole issue. Instead of working quietly with the government and getting the plans in place, companies went about beating the drums," said Rajendra Singh, co-founder of India Electronics Manufacturing Corp., one of a handful of local companies planning to construct wafer fabs in India. With all the hype that's been generated, he said, the whole issue of setting up manufacturing has become a bit of a mess.

A number of factors conspire to send out the wrong signals to the global investing community, according to Singh. He points to the way land prices have skyrocketed in the southern city of Hyderabad since the Fab City project there was announced a year ago; the fact that it took the government more than a year to develop its semiconductor policy; and the fact that many companies are talking about setting up plants here without concrete plans to back them up.

When or if India will be able to attract the kind of inward investment that companies like TSMC and Intel are putting into China is yet to be seen. But the prospects of tapping into India's growing domestic electronics market have spurred many local companies to make investments of their own, in both systems and chips.

One of these is NT Silicon India Pvt Ltd, a local company with ambitions to move into the lower reaches of the semiconductor market. NT Silicon is investing $670 million in an 8-inch semiconductor fab planned for Hyderabad. "I believe India is the last frontier for semiconductor manufacturing," said NT Silicon chairman and CEO June Min. "Although there are many hurdles in India, I am still placing my bets here."

Not to be outdone, Nest Technologies, a software company based in the south Indian state of Kerala, recently announced plans to set up a foundry. "We have started a VLSI design center in collaboration with Fujitsu in Trivandrum," said N. Jehangir, managing director for Nest Technologies. "Later, by 2010, we would be extending it to a foundry, where we would be investing upwards of $2 billion." Nest is already "in talks with technology partners and customers," Jehangir said.

If India were to marshal all of its energy in the quest to be a major player in chip manufacturing, it could spell trouble for China, as well as Taiwan and Singapore. All three locales have placed big bets on semiconductor manufacturing, and India's entry means more competition at a time when there is a glut of capacity and costs to develop leading-edge processes are spiraling upward.

But for now, at least, the major foundry players don't see India as a serious threat. "India's strength is that they have a lot of good talent in design," said Lee Chung, a VP at Taiwan foundry United Microelectronics Corp (UMC).

Similar issues
Chung doesn't believe UMC will consider a fab in India anytime in the near future. The subsidies aren't high enough, he said. But the larger issues are overcapacity in the industry and a lack of basic support infrastructure in Indiaa problem that plagued China when it first lobbied for fabs.

Foundry giant Taiwan Semiconductor Manufacturing Co. is also taking it slow. In March, TSMC opened an office in India to support multinationals that have design centers in this region. But a fab isn't in the picture.

"If I look at Silicon Valley, there isn't a fab to speak of now in terms of advanced technologybut that doesn't stop innovation," said Sajiv Dalal, business development director for TSMC North America. "Just because there is a fab doesn't mean we are going to see a multiplication of companies."

But it could happen. That's how things went in Taiwan, after all. And since China is using Taiwan as a blueprint, why can't India do the same?

"Frankly, there are more differences than similarities between India and China," said Larry Tam, a Singapore-based VP at Texas Instruments Inc.

When TI went to India in 1985, the sole purpose was to take advantage of the talent pool. Young, smart Indian engineers helped TI develop DSP algorithms and tools, and embedded software. Only in the late 1990s did TI start to do chip development there, tapping experience that the teams had built up in product definition and product engineering. "Today, just about every division of TI's semiconductor business has some kind of chip development activity in India," Tam said.

India's rapidly expanding GDP will lead to a huge boost in electronics demand.

Collision course
So some think it's more likely that India and China will collide on the IC design battlefield than in the clean room. India's IC design services industry grew 22 percent in 2005 to $623 million. About 125 outfits are doing design work, varying from multinationals like Intel and TI to domestic firms such as Wipro and Sasken, as well as a handful of Taiwanese companies and Silicon Valley startups. About 70 percent of the work is dominated by multinationals, according to a report by JP Morgan.

Nevertheless, despite the fast growth, India is still a small fry compared with its neighbor. China is home to an estimated 500 to 600 IC design houses, plus a handful of IDMs. Revenue in China's fabless industry is expected to top $3.5 billion this year and to more than double by 2011, according to iSuppli Corp.

Despite growth in the local market, however, many of China's foundries rely on overseas customers to fill their fabs. That's a lesson for India. The fabless industry in China is also still in the nascent stages, so nimble Indian design shops do have an opportunityespecially if they find a way to tap local demand while fending off the global competition.

It's a tall order. India has the brainpower to pull it off, but China won't easily concede its lead. Large domestic markets may provide some buffer between the emerging rivals, but probably not for longChinese companies like ZTE Corp. and Huawei Technologies are already vying for sales in India's telecom market.

- Richard Wallace, Mike Clendenin and Sufia Tippu
EE Times

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