Million Chips, Billion Dreams - II (Developing Fabless Ecosystem in India)
Understanding the Fabless Ecosystem
Semiconductors are key ingredients of modern lifestyle. Semiconductors are present in almost all electronic devices we use in everyday life. Rapid pace of technological growth has made semiconductors the world’s fastest growing industry with applications across all sectors of the economy.
Semiconductor industry evolved in a phased manner in second half of 20th century. Starting from fully integrated design manufacturers (IDMs) to eventual functional specialisation in tool manufacturing, foundries, and fabless design companies. The term “fabless” refers to a company that designs and markets hardware while outsourcing the manufacturing of that hardware to a third-party partner. These companies solely focus on product design and development and direct attention to core competencies and R&D involved in design and development of System on Chip/systems/products while outsourcing the design fabrication to established foundries.
Emerging Trends in Global Market
Globally, the growth of fabless industry has outpaced the growth of overall semiconductor industry and is the key driver for the growth of semiconductor manufacturing. In 2020, the fabless companies took about 33% of the revenue share of total semiconductor industry revenue. Key nations who have harnessed the potential of the fabless industry include USA with 64% of the global market share followed by South Korea and China holding 18% and 16% market share respectively. Global majors like Qualcomm, Broadcom, and Nvidia recorded a Y-o-Y growth as high as 52%.
India’s Comparative Advantage
India remains a highly attractive destination for global fabless semiconductor companies. All major global fabless companies have set up their R&D centres in India. Design centres in the country employs over five lakh engineers and designs almost thirty thousand chips every year. High skilled engineering workforce and low labour cost coupled with well-defined IP protection framework provides India a comparative advantage in the industry. Indian start-ups like Saankhya Labs, Cirel System and Steradian Semi etc., have competed with global industry and championed against all odds. Despite a thriving design ecosystem and exceptional talent pool, a minuscule portion of IP created in the country is under Indian ownership. Indian fabless ecosystem is still in a nascent stage with the cumulative annual revenue estimated to be less than $ 50 Mn.
Given that India is in embryonic stage in comparison to global competitors, the domestic landscape provides the country an opportunity like no other. With the availability of abundant talent and skilled labour, the country can well achieve long-term technology capabilities in semiconductor product design. Moreover, with the advent of start-up culture and setting up of incubation centres across the country, now is the opportune time the country can push her “Make in India” initiatives from product assembly to product design and development.
Challenge of Chip Design
Product development in fabless companies is a race against time and technology. Long gestation cycles for product development and high risk of product failure drives away most venture capital from the industry. Besides the challenge of raising capital, startups face challenges in terms of high cost of Electronic Design Automation (EDA) tools and manpower cost of retaining talented workforce. Prototype development and product deployment requires chip fabrication by foundries. Most foundries refrain or quote high prices for low volume fabrication orders. Additionally, with recent glitch in semiconductor supply chains, Indian fabless companies are struggling to found global manufacturing partner.
Policy Priority for Government
The National Policy on Electronics (NPE 2019) envisions creation of a vibrant and dynamic fables chip design ecosystem in the country by way of incentivizing the startups and makes accessible the design infrastructure to them by offering incentives. Government of India is evaluating a policy framework which will not only incentivize different stages of development and deployment of indigenised chips but also provide infrastructure support in terms of EDA tools and mode of demand aggregation to negotiate competitive prices with manufacturing partners.
Parallel efforts are made to set up a Semiconductor FAB in India to provide fabless companies with access to an Indian foundry thereby having more control on supply chain.
Hundred Small Steps
A developed fabless ecosystem is precursor to setting up a semiconductor FAB in India. Fabless ecosystem drives innovation and generates demand to load the FAB. Semiconductor chips are a strategic product with security implications for country’s information and communication infrastructure. Therefore, developing trusted and reliable sources of semiconductors is key national security priority. Developing fabless ecosystem is a key milestone in India’s semiconductor strategy plan, and one small step towards realising the dream of domestic semiconductor ecosystem.
This blog is co-authored by Lakshya Kumar Sharma and Shivika Singh.