From being seen as the passion of a few technology cubs, chip design in India has now moved into the big league, catching the attention of biggies like TCS and Wipro. Srikanth R P looks at the latest sunrise sector which has the potential to change India’s brand image as a low-cost service provider

TIME and again, analysts have questioned India’s ‘supposed strengths’ in software, saying that Indian players have been concentrating on the low-end services segment. Even when the boom and potential of the IT- enabled services space was pointed out, the sceptics were unconvinced: this space too could be replicated by countries like China or the Philippines. But one segment which has both critics and industry organisations impressed is chip design.

Ramesh Emani says that Wipro’s competitive edge lies in its ability to provide comprehensive hardware and software solutions

In recent years, several multinational companies have set up base in India to exploit our vast reservoir of engineering talent. A growing number of Indian firms from small start-ups to TCS and Wipro have also entered this space. Further evidence of India’s rising potential as a chip design player came when the CEO of Texas Instruments, Tom Engibous, described India as an emerging ‘silicon design powerhouse’. An additional boost came when Intel CEO Craig Barrett said that the world’s largest computer chip maker will invest $130 million to expand its chip design centre in India in a period of three to five years. Need more evidence? Vinod Dham, known as the father of the Pentium chip, was in India recently to scout for companies specialising in chip design. In his current avatar as co-founder of NewPath Ventures, Dham hopes to provide capital—the critical element that many Indian technology firms lack—to make India a key player in chip design. This optimism is endorsed by Nasscom, which says that semiconductor design is at the same stage where IT services was a decade ago.

Looking back
Chip design is today a promising industry with hundreds of Indian companies specialising in designing. But it is one company’s efforts that got India on the world map in chip designing. Texas Instruments (TI) became the first semiconductor major to establish an R&D centre in India in 1985. What seemed like an ambitious decision then has turned out to be a masterstroke. In addition to the huge cost advantage that enabled TI to design its chips at a fraction of the normal cost, the Indian arm has also contributed significantly to the intellectual property of the global parent.

The faith shown by TI rubbed off on other giants. Soon MNCs like Analog Devices and National Semiconductor entered to take advantage of Indian skills in this field. Today, an illustrative list of companies that have set up shop in India include Motorola, IBM, Cisco, Ishoni Networks, Cypress Semiconductor and Sun. Following suit are a host of Indian companies like Arasan Chip, Bluefont Technologies, Cradle Technologies, Sasken, Moschip and MindTree Consulting. Software service players like Wipro, HCL Technologies and TCS have also jumped into what is being touted as the next sunrise sector for Indian IT companies.

The Taiwan factor
Producing semiconductors is a highly complex task that can be broadly divided into three phases: design, fabrication and assembly. The design phase involves detailing the physical circuit that can implement a particular functionality on a piece of silicon. Fabrication involves creating the physical circuit on silicon, and is akin to manufacturing. Assembly involves wrapping the microscopic silicon piece in a package so that it can be used in an electronic circuit.

Traditionally, the chip design industry was the domain of big players who did everything on their own, from chip design to fabrication. The reasoning was simple. First, designing a chip was a skills-intensive industry, and needed a large team. Second, massive investments were needed to create the infrastructure to fabricate the chip, which is why many firms could not activate plans even if they had the expertise to design a chip.

Then a couple of Taiwanese companies came along and challenged this structure and turned it on its head. Taiwan Semic-onductor created standalone fou-ndries that allowed chip design companies to outsource their fabrication functions. This separated the capital-intensive fabrication phase from the people-intensive design phase. Small companies which had the talent but not the required capital found this ‘fabless’ model attractive; it allowed countries like India to get into chip design. Today the industry is highly fragmented, and has hundreds of players concentrating on different aspects of the value chain.

Industry structure
In India, the semiconductor manufacturing industry has a negligible presence, while the design part of the industry has got several players. The key players in the semiconductor design industry can be segregated into fabless firms, design service firms, silicon intellectual property firms and EDA (Electronic Design Automation) tool vendors. Indian players have a presence in all segments of the design part of the value chain, but if you look at the overall Indian chip design industry, a majority of them fall in the design services segment.

Design services
The reasons why a majority of Indian companies follow the design services model are not hard to fathom. This business model is tried and tested, and similar to the one followed by IT services firms. Also, the break-even for such companies is much easier to achieve compared to other sectors in the design value chain since the only investment companies have to make is in tools. Compared to players who specialise in developing IP and then sell it to different customers, design service firms have almost no risk involved as they have to only execute specific contracts for big companies. Currently, this space is the most active one, with players from start-ups to titans like Wipro and HCL.

G Venkatesh feels that the highest potential for growth in the chip design services space is in outsourced R&D

Evolution
It is interesting to trace the evolution of Indian chip design firms. Entrepreneurs who earlier worked with large companies realised the opportunity when they saw their firms subcontract design projects to other companies. The promoters were also ideally placed to leverage their relationships with their previous employers. What followed next finds many parallels between the strategies followed by Indian IT services firms a decade ago.

In the initial stages, chip design companies tried to win as many design assignments as possible in order to bring in cash to survive and sustain operations; these projects also gave the teams the much-needed design experience. Most of these projects were extremely small, and were usually decided on the basis of cost. During this evolution, the focus of these firms was clear: gaining experience over making money. In most of these projects it was seen that the company was willing to lower its price as long as it managed to recover incurred costs. These firms bade for time and knew that as the team gained experience they could play a hand in bigger projects—which is what happened. Also, as companies started gaining expertise in specific domains, they found that clients were willing to pay a premium for specialised services. Accordingly, this stage of evolution saw companies being segregated into specific domains like wireless communication or mixed signal design.

As MNCs started realising the benefits of outsourcing work to Indian chip design companies, they also saw the need to have dedicated design centres within the premises of these companies; while the Indian companies would get assured business, the MNCs would get the benefit of assured dedicated capacity at a lower cost. In terms of experience too, Indian firms gain a lot as they get exposed to high-end technologies. The Indian chip design industry is presently bubbling with action and trying to make the transition from piecemeal services to full end-to-end solutions.

Silicon Intellectual Property firms
Silicon Intellectual Property (SIP) firms are also called chipless firms since they do not create chips but create intellectual property, i.e. designs that can be used by fabless firms or integrated players to create chips. Most large semiconductor companies have SIP and retain it inhouse, but SIP firms create the IP and try to sell it or licence it to other players. This model involves a higher gestation period, and there is no guarantee of any return on investment. To follow the SIP model successfully, a firm needs deep technological expertise along with the required capital. Currently, only a few Indian firms like Sasken and Arasan are present in this domain.

Similar to the products industry, this model can result in significant gains in the long term by way of revenues from licensing and royalty. Unlike the design services industry, this domain requires firms with deep pockets in order to survive the initial years. Some Indian design service companies have spotted the potential in this field and have started offering IP components along with their other services and products. In many cases, the experience and effort involved in a project is spun off into an IP. While IP may not contribute significantly in the short term, it offers other advantages. Indian chip design firms now know that the same IP block can be used for a different design after some tweaking. This helps in ramping up a project in quick time. The other advantage is that clients prefer design service companies that offer IPs in addition to their regular bouquet of services. This is because clients are more sure of companies that have showcased their design capability expertise by way of IP developed.

There are significant differences between an IP block, an IP component and an IP core. An IP block is simply a design that has been developed by a firm and can be re-used and customised. An IP component can be compared to a product where a company buys the component and integrates it into its own design. An IP core is a critical part of the entire design and requires considerable expertise. A client typically pays players in this space not only a licensing fee but also a share of revenues earned on the design.

The products developed by TI India are used by TI Inc. to manufacture semiconductor solutions for TI’s customers worldwide, says Biswadip Mitra

Indian players
Sasken has successfully weathered many challenges to create a brand image for itself in this field. Today, the company ranks among the world’s best when it comes to offering end-to-end chip design services like architecture design, front-end design, back-end design and analogue and mixed signal design in the telecom domain. Though this domain witnessed a slowdown last year, Sasken is still bullish on its long-term prospects. Says G Venkatesh, who heads the semiconductors business division at Sasken, “We see the decline positively, since more and more companies will look at outsourcing to India to reduce their costs. The highest potential for growth is in outsourced R&D. For example, as R&D budgets in the telecom sector start coming under the axe, the ability to achieve more for less R&D spends by outsourcing to India becomes an attractive proposition.” Unlike the software services space where a similar scenario is unfolding, there are not many Indian firms which have the capability that a Sasken has.

Another successful player is Wipro. The company provides a range of services in this space—from turnkey ASIC (Application Specific Integrated Circuit) design and design re-engineering to design verification and block development. The main advantage for Wipro over its competitors lies in its expertise in software, in addition to its hardware domain knowledge. Says Ramesh Emani, chief executive, embedded and access solutions, Wipro, “The software content in hardware is on the rise; it is estimated to climb from 20 percent to 55 percent as we move to submicron and multimillion gate count chips. Hence we believe our competitive edge over others lies in our ability to provide comprehensive hardware and software solutions.” In most cases, Wipro’s clients have a total chip development roadmap as per which they prefer to develop commercial silicon chips based on the design from Wipro; clients who are developing prototypes find it desirable to partner with a single company which takes total responsibility from development to siliconisation. This is where the ability of Wipro to provide a one-stop solution to different clients’ needs scores over competitors. (Wipro has already completed more than 50 system-on-chip designs for its customers.)

Since most companies involved in this space are start-ups—unlike the software services space—most of them are concentrating on different target segments to build domain expertise. Take for instance a company called E-infochips, which specialises in developing verification services. Says Pratul Shroff, president and CEO of the company, “We are currently focused on front-end design and verification services, and provide a variety of verification components. Since last year, over 50 percent of our resources have been engaged in developing verification IP.”

The reason why Shroff is concentrating on this domain: 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 like the ones developed by E-infochips can considerably reduce the time-to-market. The company has already launched four verification components in the international market in the areas of optical networking, high speed IO interfaces and storage
networking.

Another big name in the Indian chip design industry is Moschip, which follows a fabless model. Moschip designs chips inhouse and outsources the fabrication part to foundries in South Asian countries. As a result, the cost of producing a chip with Indian design expertise is only one-fourth of what other global competitors spend.

Opportunity for Indian firms
Nasscom believes that SIP and design services are two segments that Indian players must tap actively. To know why the importance of SIP is growing one has to just look at the growing complexity in designing a chip. Today, designing a chip with several million gates without reusing IP blocks is impractical. Current designer productivity ranges from 200 to 250 gates per designer per day. Current ASICs used in networking equipment have between 1-5 million gates, and research agencies predict this can reach 100 million gates in the next few years. If you take current designer productivity, a project may well run over a thousand man-years. The duration of the same project could be cut down significantly if a company uses a SIP block. While this block may take more time to design initially, in future projects it saves considerable time. It is estimated that over 65 percent of ASICs now use reusable SIP blocks in their design.

Another reason for the increasing usage of SIP has been the 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. Example: 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. This not only increases design timelines but also design costs. The need is to therefore increase design capacity by utilising the number of transistors available for design and reduce time-to-market. The only viable solution is to reuse design with SIP reusable blocks. As design complexity grows, so will the need for reusable designs, which is why Indian firms with the required expertise can make a mark in this space. Compared to design services, players in this space can command fatter margins.

Right now, as per market reports, Indian companies are present in a small way in only one segment of the SIP market: bus interface blocks like PCI and USB. Nasscom believes that the SIP segment can be a big growth area for Indian companies as they can provide value-added services through the addition of related software; this can include protocol stacks, device drivers and real-time operating systems (RTOS). While there is much potential in this space, there is a still a long way to go for Indian companies since Japan, US and Europe dominate this sector in a big way. If Indian companies have to grow, they will have to aggressively address segments such as the microprocessor, DSP and memory SIP markets.

Texas Instruments
After being operational in India for about 17 years now, TI India has grown to 900 members, but more importantly, it has made a series of excellent innovations. The company has developed Ankoor, the first DSP to be designed from scratch in India; Mantra, the world’s fastest control DSP; Malhar, the world’s fastest floating point DSP; and TLV1562, the world’s first programmable resolution analog-to-digital converter. The Indian arm has filed more than 175 patents this year. Further, products from TI India have won several awards, including two successive EDN design awards in 1999 and 2000.

Says Biswadip Mitra, managing director, TI India, “We are currently involved in the design and development of high-end digital signal processors, analog ICs, systems software and applications software in the areas of wireless, cable broadband, WLAN and digital still-cameras. The products developed by TI India are used by TI Inc. to manufacture semiconductor solutions for TI’s customers worldwide.”

EDA tool vendors
As the Indian chip design industry started growing, firms that sold tools used in chip design also jumped into the fray. Today, Bangalore is host to Cadence and Synopses, two of the biggest electronic design automation (EDA) firms. As chip design is a fast-changing technology, Indian firms have to continuously upgrade their design skills to stay in the race. For instance, most chips now use 0.13 micron (which permits up to 10 million gates per chip) as opposed to the earlier 0.18 micron technology (which permits 2-5 million gates per chip). With EDA tools, companies can automate the entire complex process of designing a chip.

Says Himanshu Singh, acting country manager, Cadence Design Systems India, “We have grown tremendously in India, reflecting the growth of the chip industry over here. In the past two years our customer base has grown from 25 to over 80; this includes both start-ups and large companies.” Cadence’s client roster reflects the who’s who of the Indian chip industry: Analog Devices, Broadcom, Cypress Semiconductors, HCL, Mind-Tree, Motorola, Philips Software Centre (India), Sasken, ST Microelectronics, TI India, ECAD Technologies, Tejas Networks and Wipro. Looking at the Indian potential, Cadence has already made investments of close to $100 million; its R&D unit is also the largest Cadence facility outside the US.

Challenges
While there are significant growth opportunities for India’s chip design industry, the same can be squandered if we do not pay heed to some basic problems. For instance, Indian engineering colleges currently train only about 250-300 very large system system integration (VLSI) engineers every year, while the actual requirement is much higher. Moreover, the lack of awareness of chip design opportunities makes potential chip design candidates go into software programming. Also, as most design tools are expensive, most start-ups cannot afford to buy all they need. To address this issue, some vendors like Cadence have started offering flexible engagement models for start-ups. Additionally, the lack of strong linkages between design firms in India and their foundries puts Indian companies at a disadvantage as compared to Taiwanese and Korean companies. Another disadvantage is the lack of analogue and mixed signal domain expertise, which will become even more relevant as semiconductor process technology shrinks. The need is therefore to not only build an infrastructure which will support this industry, but also to help it move up the value chain to offer high-end design services.

Still, there have been positive signs like the continued interest which MNCs have shown in establishing VLSI design development centres in India. The increase in the number of MNCs making inroads in India has also helped in building a favourable business ecosystem, which in turn will help in the growth of the industry. If Indian companies design their strategies the same way they design their chips, they can aspire to reach revenues of over $800 million within the next few years—only from semiconductor design.