Chip design? India's hot!

In 1987, Pratul Shroff, now president and CEO of the Ahmedabad-based eInfochips, returned to India. He'd worked in the United States for several years after obtaining a master's degree in computer engineering from Cornell university.

The electronics engineer from BITS, Pilani, had worked for Intel and had been one of the designers of the 80186 chip, which helped launch the personal computer era. The Rs 19 crore (Rs 190 million) (2003-2004) eInfochips is now targeting revenues of Rs 138 crore (Rs 1.38 billion) in five years time.

In 1999, K Ramachandra Reddy started MosChip Semiconductor Technology in Hyderabad after having worked for 20 years at Silicon Valley designing semiconductors. No single Indian company then was a fabless company (a fabless semiconductor company designs, develops and tests a chip, but mass production happens in a foundry).

"I wanted MosChip to be the first semiconductor product company from India and become a part of the worldwide suppliers of quality semiconductors," says Reddy, an Indian Institute of Technology, Chennai, alumnus.

The Rs 12.87 crore (Rs 128.7 million) (in 2003-2004) MosChip is now focusing on developing application software to customise a chip for different applications and on creating products and processes for licensing these to others.

Say hello to a small but growing phenomenon that is slowly finding its place in the sun -- chip design. Indian companies are leaders here. Notes MosChip's chairman and CEO: "India will definitely be an important player in the chip design business as the abundance of engineering talent coupled with low costs makes it an attractive destination."

Sasken Communication Technologies (earlier called Silicon Automation Systems which was founded in a garage in Freemont, California in 1989 by, among others, an Indian) too thinks that India is an attractive destination.

Sasken has development centres in Bangalore and Pune and is focusing on "systems on chips" (SoCs), where the software for an entire system is customised on a chip. Sasken also focuses on embedding software which allows itself to be modified in the future, on chips.

eInfochips is setting up a design centre in Pune, employing 60 engineers. Shroff, who also wetted his feet at Daisy Systems designing chips, says eInfochips' revenues will grow by 50 per cent this financial year and by 70 per cent next year.

Such optimism is evident in Bangalore and Hyderabad too, with more than 30 design companies such as Arasan Chip, Bluefont Technologies, Sasken, e4e Labs and Moschip Semiconductor gung ho about grabbing a bigger slice of the $80 billion global semiconductor design services market.

Infosys Technologies, Satyam Computer Services and Tata Consultancy Services have set up engineering-design services practices, employing nearly 5,000 people among them. "We have the potential to become a (engineering) design house for the world," Satyam chairman B Ramalinga Raju declared at a recent press conference.

Of the 125 companies involved in the various aspects of semiconductor design and testing, nearly 70 are based in Bangalore. Many multinationals have come to India to do design work here. Intel, Texas Instruments, IBM, Siemens and Cisco are doing end-to-end design work in India. Intel, for example, is investing around $80 million in a new high-end design and development centre on a 43-acre campus in Bangalore.

Intel CEO Craig Barrett said last November that Intel's new wing "represents further evidence of India's stature as a globally recognised research destination." Intel is designing its first chip, codenamed Whitefield, from scratch in India.

Intel's largest non-manufacturing site outside America will also be used for designing next-generation chipsets based on the Centrino mobile technology platform, which is used in laptops, and the development and verification of laptop motherboards.

Texas Instruments, which started designing chips in India more than two decades ago, has nearly 1,300 engineers working at its global centre in Bangalore on wireless LAN and semiconductors.

If India has become a hot chip design nation, it's because multinational chip producers are unable to cope with the amount of work, shrinking product lead times and rising costs. So they are outsourcing a greater part of chip design to India.

"To get these skills we may not be able to hire and train people quickly in America,' said Intel president and chief operating officer Paul Otellini at a press conference. Billing rates for engineering services employees in India at $25 and hour are a third of the rates in America. For instance, 80 engineers at the Hyderabad-based Pinexe Systems designed and engineered the chip that powers the iPod, Apple Computer's MP3 player. The team delivered the chip in 18 months and at a cost of $2 million --- half the development time and one-fifth the cost in the US.

"If you look at chip design, particularly chip verification, embedded software for chips, and front-end design, India dominates and overshadows its Pacific Rim neighbors," Anand Anandkumar, managing director of US Magma Design Automation India, told "Red Herring."

These are not the only signs that chip design services and chips themselves are coming of age here. Next summer India Semiconductor Manufacturing Combined (ISMC) plans to commission a large-scale chip producing facility in Hyderabad, making older versions of microprocessors (the brains that run computers, mobile phones, DVD players and cars) for a fast growing domestic market.

June Min, a Korean vendor of used semiconductor equipment and promoter of ISMC, selected India for its growing strength in designing chips. Other foreign investors such as Intel too are evaluating the possibility of setting up chip fabricating facilities in India.

Rajendra Kumar Khare, chairman of the recently formed India Semiconductor Association, which represents the interests of semiconductor companies, says that a chip fabricating facility complements India's strength in chip design.

Indian companies are starting to make big bucks from exporting chip design services. "In 2001 the chip designing sector was valued at about $130 million. The National Association of Software and Service Companies estimates that it will grow to $800 million in 2005. That is, about six times in four years," says Shroff. "We believe chip design services will be the fastest growing segment over the next five years," he adds.

He could have a point. The $300 billion global semiconductor industry is dominated by chip manufacturing companies in Taiwan, Singapore and China. But global demand for semiconductors is growing, with the amount of chips in the end product rising from 6 per cent in 1984 to 23 per cent today, according to a Wipro presentation. Smaller and smaller chips are being turned out.

The most significant growth is in the $85 billion ASIC (Application Specific Integrated Circuit -- where several circuits are integrated on a single chip for a specific application) market and the $25 billion embedded systems market segments, according to industry sources. Cisco has around 3,500 engineers working on ASIC.

A few Indian companies are acquiring intellectual property rights in the course of designing chips. With designs becoming complex and dense and the number of transistors multiplying on a chip, companies are coming out with reusable designs, says Shroff.

For example if you are integrating a floppy drive controller, a CD controller and a graphics controller on a single chip, you weld all these blocks so well that you can reuse them in the next chip design instead of redoing the whole design. These building blocks are called IPs and nearly a fifth of Shroff's revenues last year came from sales of IP of predefined validation blocks.

Nonetheless, the chip design industry is plaugued by a shortage of personnel. India needs to produce 5,000 chip designers but its current output is just 400, according to a Tata Consultancy Services report. That's certainly inadequate for an industry growing at 70 per cent a year.

Worse, not enough institutes offer courses in chip design. Only a few universities offer engineering design courses. Experience is yet another constraint. Says Texas Instruments managing director Bobby Mitra: " India is not doing too well in terms of chip design as there is talent but not much experience."

The world over, chip design services coupled with fabrication facilities often lead to the manufacture of electronic products, aimed at both the domestic market and surrounding countries. Chinese companies have designed cheap mobile phones and computers for the local market. But most technology companies in India are either captive design centres of multinationals or third party service providers.

Installing fabrication plants here could change that. And Shroff and Reddy and others of their ilk just might turn their attention to the home market.

Additional reporting by Palakunnathu G. Mathai