The Hindu Business Line : Designs that sell

WE now understand what helps Dayakar Reddy keep fit, and why he needs to look it. By the time we were done climbing a set of stairs up and down to visit the test centre and then to discover an occupied conference room, we realised that the company, Moschip Semiconductor Technology, of which Reddy is the managing director, is filled with young engineers who don't look a day older than 25 and even a general manager who looks sub-30!

The engineers' enthusiasm showed when they explained their work to us. A small device, shorter than the length of an average index finger, when connected to a PC, is able to remotely transfer data from an infrared-enabled mobile phone to the PC. Moschip had designed the chip, inside the PC, that enabled such data transfer.

Moschip is also working on chips that will enable data encryption on a network. It is working on two versions of the product: an external device and one that would be integrated in the computer, as system-on-a-chip (SOC).

Once the demonstration was done, Reddy settled down to chat with us in his office on the business aspects of his company. Snapshots from the conversation:

Since your IPO in 2001, have you had to change your business plan? Did you contemplate setting up a fabricating facility model, moving away from a model where you outsourced fabrication of chips you designed to others?

No. We have never had to do that. We started off outsourcing fabrication of our chips and we continue to do that. It is not easy to set up a fabrication facility. It will cost a minimum of $4 billion and it cannot be set up to cater to just one technology.

What is the business model now? How does the flow of work happen?

We design our chip, send that over to our US subsidiary, which outsources fabrication to our partners in Taiwan. Once the chip is made, it is sent back to our US arm that then ships it through distributors. The India arm just designs the chips.

The issue we have been trying to bring to the attention of the Government is that outsourcing fabrication, and then getting those products into our country before distribution, is not like routine import-export trade. Also, we realised that when chips come in packaged from Taiwan into India, if the Customs department actually opens the packed products for inspection, there is a high chance that the chips could get damaged.

Since the Indian arm contributes significantly to the intellectual property of the product, we have begun to apportion 75 per cent of the profits to the Indian arm, but only after the US arm has covered its expenses.

In what industries do you see the most demand for your kind of service?

We cater primarily to two verticals: the PC and the Internet security industry. The latter is only now taking off. We entered production only this year.

How did the US meltdown impact you?

I believe that the meltdown actually helped us. It made it easy for us to rope in very good people who had lost jobs there and wanted to come back.

Since your rights offer last fiscal, you have closed down your Noida facility and consolidated those functions in Hyderabad. What is the reason behind the move?

When we started it, we wanted a bright person to head it. Since the chosen person did not want to move out of Noida, we were happy to set it up there. Later, we faced issues; such as the North-South divide, the physical distance adding to problems. When we visited the centre, everything would be gung-ho and then things would begin to slacken. That's why we had to rebuild the centre and its functions in Hyderabad. We did move some employees here. But some did not want to move from Noida.

In 2003, you began a relationship with ESS Tech to jointly develop intellectual property. They also had an option to take stake in the rights offer. How does the relationship work?

Both of us work jointly on certain designs. Both of us are free to use those designs in our respective products. They fund the process of design. That's how we benefit. Their take-away is that they don't have an Indian presence and get to access skills here at local costs.

You have been releasing products periodically. Any new ones being planned?

There are three in the pipeline for this fiscal: one in the area of Internet security, another in the area of infrared applications using higher baud rates, and in the area of SOC. Low-end system-on-chip designs will be used in embedded applications such as those used in photo printers, video and camera devices and other hand-held devices.

When do you hope to turn the corner and start making profits?

We will be cash-positive next quarter. We should start seeing net profits by the end of this financial year.

You have, from time to time, made acquisitions such as NetMos and Verasity. Any gaps in your business you see now, that you want to fill up with acquisitions?

We are not actively looking for acquisitions. We are satisfied with product lines we have from our past acquisitions.

bharatk@thehindu.co.in

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