The Hindu Business Line : `Chip design is moving to Asia'

CHIP design is increasingly moving to Asia, defying the proposition that highly complex activities mandate physical proximity. Following a recent study, Dr Dieter Ernst, senior fellow at the Honolulu-based East-West Centre, has concluded that Asia's share of international chip design has soared over the last few years. The complexity of Asian chip design projects has also scaled a new high.

Dr Ernst conducted interviews during 2002-03 with a sample of 60 companies and 15 research institutions in the US, Taiwan, Korea, China and Malaysia, which include some of the main global and regional carriers of chip design in Asia. The sample contained system companies, integrated device manufacturers (IDMs), providers of electronic manufacturing services and design services, `fabless' chip design houses, `chipless' licensors of `silicon intellectual properties' (SIPs), chip contract manufacturers or `foundries', vendors of electronic design automation (EDA) tools, chip packaging and testing companies, and design implementation service providers.

Dr Ernst speaks to Harsh Kabra, for eWorld, about India's prospects in the chip design arena.

How has Asia's share of chip design increased lately?

The share of non-Japan Asia in the global production of chip designs has increased dramatically: from practically nothing during the mid 1990s to around 30 per cent in 2002. This is still far smaller than North America's share of 60 per cent. But Asia is the fastest growing market for EDA tools, growing 36 per cent in the first quarter of 2004, compared with the 5 per cent growth in North America, 4 per cent in Europe, and -2 per cent in Japan. Taiwan has emerged as a primary new location, followed by Korea. Chip design is rapidly growing in China and India, as well as in Singapore and Malaysia.

Has this relocation of work accompanied specific progress in design complexity?

Substantial progress can be observed in the complexity of Asian chip design projects, in terms of the line-width of process technology measured in nanometers, the use of analogue and mixed-signal design, which are substantially more complex than digital design, the share and type of system-level design, and the number of logic gates used in these designs. A few leading Asian firms from Korea and Taiwan, and also from China and India, are conducting design projects at the technology frontier. The rest of the Asian sample firms are situating themselves at least one generation behind the leading-edge in design complexity as fast, but cheaper followers, which in fact is a big achievement relative to the situation only a few years earlier!

How much of this progress is due to outsourcing of design implementation services?

Outsourcing of design implementation services continues to play an important role. Yet, leading Asian companies have developed a capacity to specify electronics systems and applications, which provides leverage for defining global standards and for innovation rents via premium pricing. Global system companies and IDMs report that their rapidly expanding design centres in Asia perform both design implementation and system specification, mainly for Asian markets.

How much of a human resource advantage does Asia promise?

There's the lower cost of employing a chip design engineer in Asia, which is typically between 10-and-20 per cent of the cost in Silicon Valley. Asia graduates substantially more electronic engineers than the US. Asian designers are trained using the latest tools and methodologies and are less resistant to design automation than designers in Silicon Valley. They are focused on cost innovation rather than breakthrough designs, and hence can adjust more easily to the pervasive cost reduction pressures in the IC industry.

Isn't the volume of the IT services and hardware markets in Asia one of the reasons why chip design is moving here?

While wafer fabrication and chip assembly have migrated largely to Korea, Greater China and Singapore, equally important is the sheer size of Asia's markets for IT hardware and services, with China as the main prize. Global firms emphasise the need to relocate design to be close to the rapidly growing and increasingly sophisticated Asian markets for communications, computing and digital consumer equipment to be able to interact with Asia's lead users of novel or enhanced products or services. And both global and Asian firms emphasise that `policy factors' played a powerful catalytic role in providing incentives, training, infrastructure, and support industries.

How has vertical specialisation helped?

Vertical specialisation has increased the number and variety of GDN (global design networks) participants, business models, and design interfaces, bringing together design teams from companies that drastically differ in size, market power, location and nationality. Take a SoC design network described by one interview respondent: a Chinese system company that defines the system architecture; a Taiwanese EMS that is responsible for contract manufacturing of the electronic equipment; an American IDM that provides a design platform; a European SIP provider; `fabless' design houses from the US and Taiwan (vendors that design and test the chips, but don't have in-house manufacturing facilities); foundries from Taiwan, Singapore and China; chip packaging companies from Taiwan and China; tool vendors for design automation and testing from the US and India; and design support service providers from various Asian countries.

How do you rate India's progress in chip design vis-à-vis countries like Taiwan, Korea, China, Malaysia and Singapore?

India has attracted substantial investments in chip design by global industry leaders such as TI, IBM, Intel, Motorola, Cisco, STM, AMD, QualCore. Some of these projects involve complex products including microprocessors, analogue devices and embedded processors for telecommunications equipment. But we need research on how India's role in these global design networks is evolving, that is, whether product development or system specification is gaining relative to design implementation services. In 2002, a widely quoted report by Cadence estimated that design services account for roughly 75 per cent of India's total IC design revenues, which, at an estimated $150 million, was still very small. We need research to establish whether this has improved.

So what are India's prospects in graduating from IC design services to product development?

On the positive side, India has developed a few industry leaders such as TCS, Wipro, Infosys, and Moschip, which are on par with their East Asian counterparts. The challenge now is to broaden these achievements, building on India's existing strengths in software engineering and project management. There are huge opportunities.In particular, Indian firms should be able to develop strong positions in embedded processors for networking and communications equipment, and in analogue mixed signal design.

So what must India do to capitalise on its strengths?

The East Asian experience indicates that to upgrade from IC design services to IC product development, India must implement far-reaching changes in policies and strategy. IC design projects are characterised by long gestation periods, high risks and uncertainty, and very large capital requirements. Without a robust IC fabrication and assembly base, and without strong electronic system companies, it is difficult to develop a sustainable chip design industry. But most important is the development of a vibrant talent pool. Equally important is the development of sophisticated marketing skills required to gain critical design-ins from Asian and global system companies.

The author is a freelance journalist. He can be reached at harshkabra@vsnl.net

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