Report of a Committee under the Chairmanship of Ajay Chaudhry to Government of India in 2010.
Semiconductor design: VLSI design, embedded software and reference board design
Overview
The semiconductor design industry primarily comprises three segments — embedded software, Very Large Scale Integration (VLSI) design and reference board design. Embedded software development contributes more than 80% of the segment’s revenues and has an equivalent proportion of employees. VLSI design contributes approximately 13% to overall revenues and 11% to the overall workforce. Hardware board design constitutes the remaining 7% of total revenue.
The present and the future
The potential of the Indian design market is expected to increase to USD 20 billion by FY14 and USD 58.2 billion by FY20.
The total engineering headcount for VLSI, board design and embedded software is expected to increase to 219,000 by 2010. India is expected to continue as the preferred destination for embedded design and development. The focus on intellectual property (IP) development will increase as third-party design services companies look to move up the value chain. The localization of product design and manufacturing from India will drive significant investments. The industry is likely to continue facing significant challenges to manage demand and workforce churn. The industry will have to
constantly evolve, upgrade and innovate while keeping the costs down to remain competitive in the global market.
The proximity between third-party service providers and original equipment manufacturers (OEMs) for end-to-end product design is also likely to increase.
Trends
Business models for design services are expected to shift from Time & Material and linear with people strength to risk-reward and non linear.
The demand for local content in products sold in India is on a rise.
India is being recognized as an design hub by foreign companies with operations in India
Increasing business from mid-size and smaller companies are driving hardware designs to India.
Consolidation demand will continue to evolve the dynamics of the semiconductor industry ecosystem.
Impetus is being given to fabless product design and development initiatives in India The government’s role as a catalyst is important, as has been experienced in countries such as Japan, the US, Taiwan, South Korea
and China.
Challenges
Challenge 1: Competition from other Asian countries
China has expanded its scope in recent times and has begun manufacturing as well as designing semiconductors. As such, China’s semiconductor industry has grown significantly in the past few years. The country is presently home to more than 400 fabless companies. Vietnam is also emerging as a competitor.
Challenge 2: Incomplete ecosystem
Most companies in India are either into integrated design, embedded software or VLSI design. This has led to an incomplete ecosystem from the perspective of a semiconductor products company. Several key links, such as systems engineering, venture capital and IP protection, are currently missing from the ecosystem.
Challenge 3: Shortage of design-aware manpower
Another issue affecting the growth of the Indian semiconductor industry is the shortage of skilled manpower at all levels of engineering projects, especially in design services. The absence of institutions imparting technical training relevant to this segment has further aggravated the situation.
Recommendations
Recommendation 1: Initiatives need to be undertaken to promote innovation in R&D and product design. Creation of local IP should be encouraged.
Recommendation 2: National projects (national knowledge network, rural broadband and so forth) should be executed using Indian products.
Recommendation 3: The government should encourage incubating Indian start-ups. The government may set up a focused venture fund of around USD 50 million to provide seed and start-up capital for new ventures to undertake R&D and product development.
Recommendation 4: The government can subsidize acquisition of EDA tools by start-ups and other SMEs in this sector. Prototype development centres with adequate fabrication facilities can be set up. Include the entire revenue earned by fabless companies for benefits under STP and SEZ policies, as long as 90% of the design is done in India.
Recommendation 5: Provide special tax incentive to entrepreneurs from within and outside India setting up design and development centres in India.
Recommendation 6: Extension of EHTP/STP scheme till the year 2015.
Recommendation 7: Creation of a fund to provide fiscal support to SMEs and MSMEs on a continual basis.
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