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R. Savitha

Companies in the chip design space are playing the game despite the many constraints holding them back.

THE year 2000 was the best year for the global semiconductor industry with revenues touching $204 billion. In 2001, demand fell by a sharp 32 per cent to $139 billion. It was still worse in 2002 for semiconductors, with an expected decrease in demand of four per cent bringing revenues down to $132 billion.

This might sound like ominous news but companies in the chip design space in India are playing the game with grit.

In the semiconductor design value chain, the key players are fabless firms — these firms design the chips and market them but outsource the fabrication to foundries — design service firms, silicon intellectual property (SIP) firms and EDA (Electronic design automation) tool vendors. The first two are involved in designing the chips, while the latter two provide inputs for this process.

The key consuming segments are computing (51 per cent in 1999), communication (19 per cent of demand), consumer appliances (15 per cent of demand) and industrial (nine per cent of demand). All sectors, particularly communication, witnessed steep decline in revenues. But this has not discouraged companies in the EDA sector with core technology from working on new ideas, though they face several constraints, especially by way of development costs.

In India, three companies — Cadence, Synopsis and Mentor — have captured about 75 per cent of the market share, and more than 100 companies make up for the remaining 25 per cent. These companies work more as offshore development centres and give value addition to research and development centres based mostly in the US. According to a Nasscom study in 2002, historically the industry has been vertically integrated with a few large players performing all the steps in-house for two reasons: one, chip design is a complex and laborious exercise which needs a large skilled team. Two, huge investments, about $1 billion, are required to fabricate the chip, raising the entry barrier. SIP firms are also called chipless firms; they do not create chips but create intellectual property (IP), for example, designs which are used by fabless firms or integrated players to manufacture chips. All large semiconductor players invest in IP but retain it in-house while SIP firms create merchant or third-party IP which is available to all. EDA players create tools that automate to a large extent the task of IC (integrated chip) design and it is impossible to consider developing ICs containing millions of transistors without the aid of EDA tools, say experts.

STMicroelectronics, a semiconductor player in the global market, with presence in Noida near Delhi, caters to three types of design activities — system application design, IP/IC design, and management information system design. The Taiwan Semiconductor Manufacturing Company, set up in 1987, altered the industry dynamics to a great extent. It created a standalone fabrication entity offering chip fabrication services. This separated the people-intensive design phase from the capital-intensive fabrication phase. As a result, the fabless semiconductor model also became popular. Today, the industry is fragmented and has hundreds of players mainly focussing on one segment of the overall value chain. But why has the Indian industry, which boasts of high-class software professionals, not been able to make a mark in this field? Pradip Dutta, Managing Director, Synopsys India Pvt Ltd, says focussed training needs to be done with academic institutions pooling in. Chips are becoming smaller and more compact, but human resources are falling short to carry out such challenging work, he says. "If the students are able to have some basic experience with analog and digital simulation, this can be easily tackled," he says. He says the research facility established in India for Synopsys was earlier used for verification and validation processes, and has now become an integral part of the global network.

Rohit Bidappa, of Cadence, however, feels the skill set of the personnel in this field has been upgraded and since the Indian industry also works with cutting-edge technologies, they are as capable as their global peers.

However, the main drawback is that the fabless model is not suitable for Indian companies. As it requires larger gestation periods, higher capital requirements as well as business risks, attracting venture capital becomes difficult. Other issues that affect the industry are the lack of understanding of customer needs, as chips have to be sold directly to the end-consumer; and the lack of a domestic market, which hinders development of market expertise.

Creating a complete chip requires a combination of domain expertise, project management, system design and architecture expertise, and it is difficult for any new company to acquire this combination. The two opportunity areas for Indian start-ups are design services and silicon intellectual property. Lack of professionals, huge investment costs and hesitancy to enter the product area are factors that affect the growth of the EDA sector in the country.

rsavitha@hotmail.com

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