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It promises to be the next chapter in the unfolding saga of India's global ascendance. The beginnings are already there and if India can capitalize on the opportunity, then chip designing will see the same run of success that has marked the Indian software sector.

Traditionally a domain of big-players in semiconductors production, the chip design industry changed permanently with the appearance of the "fabless" model. The model marking the separation of the capital-intensive fabrication phase from the people-intensive design phase came into existence with ASIC companies like LSI Logic, NEC, Toshiba and IBM offering physical design and manufacturing services, and the creation of stand-alone foundries by Taiwanese semiconductor companies. Suddenly the doors opened for a number of small companies, which had the talent but not the required capital, and also for countries like India to get into chip design.

The "fabless" trend continues to be on the ascendent as "fabless" companies aggressively pursue growth-targeting new segments, subsegments and niches with their chips. In 2002, fabless production accounted for $16-17 bn, or 11% of the semiconductor industry's estimated $160 bn in output. The US Fabless Semiconductor Association predicts that the market shares of fables companies will jump from just over 10% today to 50% by 2010. A promising opportunity for the design services companies and "design starts".

Emerging Frontiers
The global market for semiconductors is expected to reach over $200 bn by the end of the year, the Gartner Group predicts a compound annual growth rate of 10.6% between the years 2003 and 2008.

While Indian players have a presence in all segments of the design part of the value chain, a majority of them fall in the low-risk, low-investment outsourced design services segment.

A significant opportunity waits India with the emergence of Silicon Intellectual Property (SIP) or "Chipless" firms. The potential for SIP arises from an increasing demand for closing the design gap, which refers to the gap between the potential available for design and the actual capacity available for design. Advances in semiconductor technology have made it possible to pack an increasing number of transistors on a single IC. However, as designer productivity has not increased at the same pace, newer ICs take a larger amount of design effort, increasing both design timelines and design costs. The only viable solution is to reuse design with SIP reusable blocks. This helps in ramping up a project in quick time.

As design complexity grows, so will the need for reusable designs, and Indian firms with the required expertise can make a mark in this space and also command better margins. Development of IP is not a well-accepted business model for information technology companies in the United States as it is not scalable to the volumes needed for business there, but it may well prove to be good business for Indian firms.

Some pioneering Indian design service companies have spotted the potential in this field and have started offering IP components along with their other services and products. Take for instance verification services. One of the main challenges for chip design companies is to not only develop new designs but also validate them. Since validation efforts are almost three times the design effort, much time is lost in bringing the product to market. Verification components can considerably reduce the time-to-market.

The growing consumer electronics market and the presence of all the elements of chip design ecosystem can support the movement of Indian chip design services companies up the value chain in the future.

Currently, all the product definition for a chip is done outside India by chip companies in consultation with their customers. But the presence of necessary chip design infrastructure coupled with the large size of the consumer electronics market may eventually lead to the domestic OEMs working with local design firms. The trend of outsourcing the entire chip development process is gaining widespread acceptance among chip companies. Physical design and verification are easily outsourceable parts of the process, but now, an increasing number of customers are farming out the design piece as well.

In order to tap into this "spec-to-silicon" services market, Indian companies must cultivate the following competencies: "whole product" mindset, tight relationships with foundries and testing and packaging houses, and mixed-signal (analog and digital logic on same chip) expertise. In addition to these competencies, Indian chip services companies must partner with EDA tool vendors to come up with an innovative pricing model that will give them access to expensive design tools to serve their mutual customers.

"Opportunity is missed by most because it is dressed in overalls and looks like work" are the famous words of Thomas Alva Edison. We are at the doorstep of an exciting new era. We must step forward and grasp it with both our hands.

Tapan Joshi is vice president, marketing, eInfochips

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