By Fakir Balaji, IANS,
Bangalore : It is the turn of Indian semiconductor industry to feel the heat of US recession and dollar depreciation after its big brother – the software industry – was jolted by the tightening of IT spending by US-based firms.
A recent study by the global market intelligence firm IDC (International Data Corporation) indicates the Indian semicon and embedded design service industry would face challenges due to looming recession in the US and a depreciating dollar putting pressure on margins.
“Impending recession in the US and sheer volume of work from the US will put pressure on man-month rates due to dollar depreciation. The rates will increase only marginally,” IDC (India) country manager Kapil Dev Singh told IANS here.
The US dollar depreciated by 11-12 percent over the last 12 months against the Indian rupee, putting pressure on export margins by the Indian IT industry and hard bargain to sustain billing rates.
The study, commissioned by Indian Semiconductor Association (ISA) to assess the growth prospects of the Indian semicon and design service industry over the next three years, reveals chip design and service firms will face difficulty in managing demand and workforce churn.
“The industry players have to move up the value chain to create IP (intellectual property). They will also have to evolve, upgrade and innovate to remain cost competitive in a global market,” Singh pointed out.
Though India has emerged as a preferred destination for embedded design and development, competition from product firms and newer entrants poses a challenge to existing players for lower design and production costs, faster time-to-market and multiple product models with rapid innovation.
“Localisation of product design and manufacturing from India will drive significant investments by product and design service firms. Proximity between third-party service providers and OEMs (original equipment manufacturers) for end-to-end product design will be a competitive edge in future,” the study says.
The multi-billion dollar semicon market consists of integrated device manufacturers (IDMs), OEMs and product development firms in the captive segment. In the non-captive segment, third party independent firms provide VLSI design, hardware/board design and embedded software services, electronic manufacturing services (EMSs) and organised design manufacturers (ODMs) form the ecosystem.
Increase in consumer, portable wireless industry will contribute to the VLSI design service industry growth. VLSI (very large scale integration) refers to the technology by which it is possible to design and implement large circuits on silicon (chip), involving over a million transistors.
Hardware/board design involves reference boards designed by semicon marketers and boards designed by OEMs as a part of their new product development. Embedded software, developed for performing specific function, has very low memory footprint.
“Embedded electronics is becoming pervasive. It is present in the form of consumer devices, handheld and multimedia devices and automotive or medical devices. The convergence of ICE (information, communication and entertainment) has brought about a paradigm shift in these devices from fixed function to multi-function with more features at incremental costs,” Singh noted.
According to the IDC report, based on the market, technology and ecosystem analysis, embedded software services dominates the Indian semicon industry in terms of revenue generated and workforce employed.
The total design market grew by 30 percent year-on-year (YoY) in calendar year (CY) 2007 to $6 billion (Rs.240 billion) from $4.6 billion (Rs.184 billion) in CY 2006. Embedded software contributed $4.9 billion (Rs.196 billion) and employed 106,000 engineers, accounting for 81 percent of the total revenue and 82 percent of total workforce
In contrast, VLSI design services, which contributed $766 million (Rs.30.6 billion) and employed 13,900 engineers, accounted for 13 percent of the total revenue and 11 percent of total workforce. Hardware/board design services, however, contributed a mere $386 million (Rs.15.44 billion) and employed 9,400 engineers, accounting for six percent of overall revenue and seven percent of total workforce.
The study indicates digital VLSI design projects are moving towards 60 nanometre (one-billionth of a metre) and 45 nanometre from 90 nanometre and above.