Silicon power

Today, semiconductors are used in virtually every piece of modern electronics, from mobile phones (the SIM card is a semiconductor) and telecom equipment to consumer electronics, infrastructural equipment and automotive systems. Though semiconductor demand is slackening at present, the proliferation of semiconductor-enabled products and the expected increase in uptake of hardware and handsets once the next-generation network regime (3G) is in place will ensure a strong demand for the product.

According to a report by the Indian Semiconductor Association (ISA) and consultancy firm Frost & Sullivan, the Indian market for semiconductors touched $5.9 billion (Rs 28,910 crore) last year, of which $2.53 billion (Rs 12,397 crore) was for end-products made in the country. The report predicts that by 2010 these will grow to $7.59 billion (Rs 37,191 crore) and $3.24 billion (Rs 15,876 crore), respectively.

Yet, semiconductor manufacturing is still in its infancy in India, even though the country continues to be a global leader in semiconductor design—Noida and Bangalore have emerged as major design hubs. Also, while design of India-specific products that use semiconductors is decent, it could be better.

These were the key opinions that were expressed at a Business Today-ISA roundtable on the future of the Indian semiconductor industry. Representing the sector were Jaswinder Ahuja, Vice President, Cadence Design Systems; Ganesh Guruswamy, Country Manager, Freescale Semiconductor; Ashu Pande, Managing Director, SiRF Technology India; Vivek Sharma, Vice President, ST Microelectronics and Poornima Shetty, President, ISA who joined in conversation with BT editors.

“Most people mistake semiconductors as being all there is to semiconductors,” said Guruswamy, adding, “The truth is that semiconductors are everywhere. Look at solar power—solar cells and thinfilm solutions are semiconductors.” The ISA survey bore this fact out: While microprocessors were the single-largest component of revenues (given their high price) at 22 per cent, semiconductor products were going into a whole host of products.

Wither silicon? What India does in the Semiconductor Space Design India is a global leader in semiconductor design since the last decade. Every major semiconductor company has a design shop in India and most of India’s top IT companies such as Infosys, Wipro and TCS also do design work. GRADE A+ Manufacturing India has no commercial semiconductor fabrication units (‘Fabs’). Several initiatives have been announced by state governments, but the bulk of semiconductors are still made in China, Taiwan, Korea and Japan, with scattered Intel plants across the world. GRADE: F Products A semiconductor is only as good as the product it is in, and on this front India has had several hits and misses. Unique products such as inverters have been developed but arbitrary excise structures have meant that in certain cases products are often imported whole rather than being made in India. GRADE: C

Ever newer uses for semiconductors are being constantly created. Over the past two years, demand for the global positioning system (GPS) modules that SiRF makes has exploded. “You will see location services being offered in more and more wireless handsets and companies will use such services to locate employees and assets. There is a significant demand from logistics firms for such services and, strangely, there are people who offer anti-theft services using GPS devices,” explained Pande.

The ISA contends that government should either enhance support or just stay clear. “The tax structure in certain cases is crazy,” complained Shetty. “Take the case of (television) set-top boxes. There is no reason why such products cannot be made in India. But the tax structure is so punitive for components that it is cheaper to import the entire box rather than just components,” she says.

GPS receivers, too, face similar issues. While the government has cut excise duty on GPS handsets down to the mobile standard of four per cent, standalone GPS navigation devices without a International Mobile Equipment Identification (IMEI) number and no screen do not qualify for the excise cut and duties stand at 24 per cent, with the result that sales of car-based systems, hugely popular in the US, Europe and Japan, have been moribund in India.

Government inaction has been particularly pronounced in the case of Smart Cards. A 1999 plan to make all driving licences and car registration documents on smart cards has been stuck due to interagency wrangles and different norms followed by different states. These licences would have blown open a massive market for smart cards.

But the biggest issue facing the industry is the lack of Indiandesigned products that take advantage of the technology. “India has some really unique needs,” argues Ahuja. “In fact, the success of such products is evident in inverters, a product unique to India. It is not as if no work is happening, but a lot more work can happen.” As the bulk of semiconductor design happens in India, a spurt in India-specific products would also mean that Indian design firms will get more business. However, there are new opportunities for Indian firms and semiconductor companies working out of India. “The rise of low-cost manufactured products can spur demand significantly. Look at the Tata Nano, once Tata Motors proved that such a product could be built, it led to other manufacturers of automotive systems starting to develop lowcost products, and that can spur demand,” said Guruswamy. He claimed that companies that make automotive systems, such as airbags, have already started to develop low-cost solutions. And how would the semiconductor industry benefit? Well, the fact is that today, the average car is a moving computer with tens of semiconductor control units controlling everything from the engine to the air-conditioner.

Our panel gave India an “A+” on design and a “C” on products but an ‘F’ in manufacture of semiconductor wafers. “The question is: Do we really need to manufacture?” Shetty argued. In fact, many of the semiconductors used for defence purposes are made by government institutions, but even here, the fact is that the immense processing power of products like the “Cell” processor used in the Sony Playstation 3 or standard offthe-shelf Intel processors can easily be repurposed for military purposes (in countries like Iran and North Korea, which have strained ties with the United States, this is done on a regular basis to develop nuclear technology).

So, where is the Indian semiconductor industry headed? The ISA report highlights great numbers, and our discussion brought out the fact that despite a few missteps here and there, on the whole India was doing well even on the product front. “The spread of semiconductors on devices has caught the government unawares. Electronics, navigation devices, cameras and phones all use semiconductors and all of these are intermingling with each other but have different excise rates. What would the ISA like? “If government cannot encourage the industry, then they should just step back and not interfere. That way, everybody would gain. In certain areas, like transportation, for example, the government has to look through petty regional differences and be proactive. The use of semiconductors can improve the quality of life,” argued Guruswamy. Maybe, the industry does have a point.