India: The Future Looks Promising Research Brief Abstract: India has the potential to become a globally competitive electronics equipment and semiconductor manufacturing location. By Philip Koh Recommendations Equipment manufacturers and semiconductor chipmakers must prepare to overcome major hurdles in the country's lagging infrastructure, high customs duties and interest loans. Companies should set-up research and development (R&D) centers in India to leverage the country's software development strength and collaborate to optimally explore growth opportunities. Local Indian companies must prepare for intense competition from new entrants when the country starts to attract major manufacturers' investments. Publication Date:10 December 2003
2 India: The Future Looks Promising Introduction The Indian semiconductor industry took off about three decades ago, but India remains a small player in the global semiconductor industry. Despite being the world's second-most populous nation, India is not a major consumer of semiconductors, because it has no major manufacturer of electronic goods. In addition, the country is not a major producer of semiconductors. As a result, the domestic market for semiconductors remains small. The absence of a large Indian semiconductor company is not surprising, because India's several chipmakers are unable to invest in new technology. Overall, India has failed to make much of a breakthrough in the modern semiconductor and electronics industry. The integrated circuit (IC) wafer fab facility in India has been a nonstarter. Although the country is well placed in bipolar discretes, further work is required in the area of IC devices. The following wafer fabrication plants are in operation: Semiconductor Complex Limited (SCL) in Chandigarh Teamasia Lakhi Semiconductors in Hyderabad Bharat Electronics Limited (BEL) in Bangalore VLSI facility at Indian Telephone Industries (ITI) in Bangalore Gallium Arsenide Enabling Technology Centre (GAETEC) in Hyderabad, run by SCL. The following four discrete device fabs are in operation: BEL Usha India Ltd (UIL) Continental Devices India Ltd (CDIL) Khandelwal Herrmann Electronics Ltd (KHEL) In terms of process technology, the facility at SCL is probably the most modern in the country, using 6-inch wafers with 0.8-micron complementary metal-oxide semiconductor (CMOS) and is upgradable to 0.6-micron. Compared with international producers, India has yet to make much headway in the semiconductor production industry, particularly in IC fabrication. In the semiconductor test and assembly space, India has yet to achieve the prominence of Southeast Asia countries/markets such as the Philippines, Malaysia, Singapore and Thailand. The few semiconductor assembly operations that do exist in India include the following: Spic Electronics Ltd (SPEL) in Chennai UIL 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 10 December 2003
3 CDIL BEL and Intersil India in Mumbai None of these operations is world class in size and technology. Most produce a wide variety of discrete devices, from small signal diodes to small signal transistors and power transistors. India's outlook for the electronics equipment manufacturing industry appears bleak. Among the reasons for the depressed state of electronic manufacturing are poor basic infrastructure, high customs duties, high interest rates on loans, low production volumes, low technology levels and inadequate investments in R&D. These factors are not conducive to manufacturing. There has been no major investment in the manufacturing sector for some time. Worse, foreign direct investment in electronics and computer hardware manufacturing has gone instead to China, and, to a lesser extent, Malaysia and Singapore. However, the future of the semiconductor industry in India looks promising. Major semiconductor markets, such as Japan and the United States, have matured. Large untapped markets, such as India and China, will be the main drivers of semiconductor industry growth. Market size is a key reason many chip firms are eyeing the two nations for production as well as research outsourcing. India and China each boast populations of well over a billion, giving chip makers a huge potential for rapid growth and market penetration. Within the semiconductor value chain, the Indian semiconductor industry has been more successful in the software and IC design marketplace. Unlike manufacturing, design does not need sophisticated technology but does need a highly skilled workforce, which is readily available in India. Design is also subject to fewer regulations than manufacturing. India possesses a large pool of skilled design engineers, giving it a distinct advantage in available technical talent. This strength enables India to capture a portion of market share of the global IC design market. Attracted by the available technical talent, several large semiconductor vendors, such as Texas Instruments, ST Microelectronics, Motorola, Intel, Temic and Samsung, have set up IC design centers in India. The presence of these design centers, coupled with the growing trend toward design outsourcing, has spurred the creation of Indian design companies. India, Singapore Seek New Era Indian service professionals, such as engineers and high-tech specialists, are poised to emerge as immediate gainers as Singapore and India begin to work on a free trade agreement. Singapore has a strongly developed telecom and IT infrastructure, while India has a highly respected pool of IT engineers and software companies. When the two countries join hands, the government, as well as private industry, will emerge as a force to reckon with in the Asia/Pacific region. The joint development will also enable India to gain access to Singapore's position as a regional IT hub, which will enable India to access markets in Southeast and East Asia. In addition, China will be a huge potential market where Indian software expertise 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 10 December 2003
4 India: The Future Looks Promising could make a mark with the help of Singapore, where people have strong Chinese links, language and culture. Singapore could serve as a bridge between the two Asia/Pacific giants, India and China, which have the potential to be among the world's largest economies. The Singapore-India relationship is a two-way partnership in which India provides a new growth area for Singapore, and Singapore provides much-needed expertise in the business and social areas. Gartner Dataquest Perspective What Does the Future Hold? Indian manufacturers must invest heavily in R&D to remain competitive in the global markets. Among explanations for India's lack of significant investment in technology are the low level of expected return and competition from China. In addition, low domestic demand and lack of a wide customer base are other vital reasons. Semiconductor manufacturing has, thus far, not been successful in India. Neither market conditions nor the economic policies of the government have been conducive to semiconductor manufacturing growth. The only hope for jump-starting Indian market growth would be for a major foundry or integrated device manufacturer to establish a new fab in the country. This would have a multiplier effect on the economy, because downstream hardware-based industries would also be established. A fast turnaround time is crucial in the semiconductor industry. As such, a significant investment in transportation and logistics infrastructure must be realized before global companies will wholeheartedly move their manufacturing operations to India. When there are sustained investments in technology and a clear focus and direction by the government, India will be ready to move forward. For a long-term strategy, building wafer fabs may be a good option. However, in the near or medium term, India must focus on creating a market for emerging applications, such as digital consumer electronics, wirelessrelated products, smart cards, set-top boxes and so on. These will not only help India realize its potential but will also create a more attractive environment for new investment opportunity. In the electronics manufacturing industry, India must consider creating special economic zones to jump-start production. Similarly, the Indian government must do away with cumbersome laws and needs a national plan to revive its small manufacturing sector. Leveraging its successful software industry could also create market opportunity for hardware manufacturers. Fast-growing demand for electronics equipment, such as computers, telecommunications and consumer electronics sectors, will motivate original equipment manufacturers and multinational corporations to invest more in the country. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 10 December 2003
India bears particular watching in the Asia/Pacific region. It has a significant pool of skilled and talented people. In addition, the country provides a huge potential market and a population with a good command of English, the international language of commerce. The telecommunications and consumer electronics sectors could be the engines for growth and are expected to drive healthy expansion of India's semiconductor market during the next several years. The Indian market presents sizeable and attractive opportunities for semiconductor vendors and electronics equipment manufacturers. India is expected to be among the fastest-growing markets for semiconductors. 5 Key Issue Which countries in Asia/Pacific are rapidly emerging in the semiconductor industry? 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 10 December 2003
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