Indian Semiconductors Industry Presentation 060109
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S e m i c o n d u c to r December 2008
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Se m i c o n d u c to r December 2008
Contents • Semiconductor Sector – Overview • Semiconductor – An Upcoming Sector • Regulatory Framework in the Semiconductor Sector
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Semiconductor Sector – Overview
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Se m i c o n d u c to r S e c to r –Overview December 2008
Indian Semiconductor – A Sunrise Sector Indian Semiconductor Sector The semiconductor sector comprises pre-fabrication, fabrication (fab) and post-fabrication verticals. In the last four years, the Indian semiconductor market has grown from about US$ 2.1 billion to about US$ 4.1 billion. Further, semiconductor market is expected to reach US$ 9.8 billion in 2012. India accounted for 1.3 per cent of the global semiconductor revenue in 2007. The country’s share is expected to reach 1.62 per cent by 2009 at a CAGR of 26.7 per cent. The demand for semiconductor solutions, the heart of the electronic systems, is also expected to get a fillip as the consumption of electronic equipment in India is expected to grow at a CAGR of 29.8 per cent over 2005–2015 to US$ 363 billion.
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Se m i c o n d u c to r S e c to r –Overview December 2008
Indian Semiconductor – A Sunrise Sector Indian Semiconductor Sector • The growing demand for IT hardware and office automation products, and consumer electronics products such as mobile phones, automotive products, etc., is spurring the demand for semiconductor and a full-fledged semiconductor ecosystem in India. • The major semiconductor end-user segments have been identified as communications, IT and consumer electronics. At the same time, the important product subcategories that are expected to drive the semiconductor market in India are mobile handsets, wireless equipment, set-top boxes and smart-card terminals. • S emiconductor are poised to impact human life far more as they open up new possibilities in nano-sciences, biotechnology, medical sciences, electro-mechanical devices, photonics, remote sensing and so on. While still in its nascent stages, the semiconductor sector in India posseses immense potential to emerge as a global hub.
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Se m i c o n d u c to r S e c to r –Overview December 2008
Share of the Indian Semiconductor Sector in the global semiconductor market is expected to increase to 1.6 per cent by 2009 The semiconductor sector involves pre-fabrication, fabrication (fab) and post-fabrication verticals. The semiconductor segment can be divided into semiconductor designing, semiconductor manufacturing and semiconductor ATMP.
Semiconductor Market in India (2003-2009) 2009E
5.5
2008E
4.4
2007
4.1
2006
2.7
2005
2.8
2004
2.1
2003
1.6 0
1
2
3 US$ billion
4
5
6
Source: ISA 2007 report, F&S
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Se m i c o n d u c to r S e c to r –Overview December 2008
Share of the Indian Semiconductor Sector in the global semiconductor market is expected to increase to 1.6 per cent by 2009 Accrding to an ISA 2007 report, the Indian semiconductor market has grown from approximately US$ 2.6 billion to approximately US$ 4.1 billion. The semiconductor market is expected to grow from US$ 2.7 billion in 2006 to US$ 5.5 billion in 2009. The country accounted for 1.09 per cent of the global semiconductor revenue in 2006 and this share is expected to reach 1.62 per cent by 2009, which will represent a CAGR of 26.7 per cent.
Percentage Share of the Indian Semiconductor Market in the Global Semiconductor Market (2006-09) 2009E
1.62
2008E
1.42
2007E
1.27
2006 0.00
1.09 0.35
0.70 1.05 Percentage
1.40
1.75
Source: ISA 2007 report F&S
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Se m i c o n d u c to r S e c to r –Overview December 2008
Reasons for growth in the semiconductor sector The semiconductor design requirements of verticals such as automotive, electronics, telecommunications, commercial electronics and IT hardware and office automation, provide an opportunity to multinational companies to enter into India and tap the potential.
Significant export potential
Growth in the Chip Design industry
Reasons for growth in the semiconductor sector
Increased semiconductor content in the electronic industry
Unprecedented growth in domestic consumption of electronic goods
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Se m i c o n d u c to r S e c to r –Overview December 2008
Telecom segment is expected to be the main growth driver in the Semiconductor Application Market • The IT and Office Automataion segment along with the telecom segment dominate the demand for semiconductor products in India. These two segments control more than 75 per cent of the total semiconductor requirement in the country.
Total Semiconductor Product Market in 2006
3%
8%
8%
2% 6%
6% 8%
7%
• The telecom segment is the largest application segment contributing to the semiconductor market. According to ISA, it registered a market share of approximately 43 per cent in 2006 and is expected to grow to 46 per cent by 2009.
44%
46%
30% 32%
n Telecom
n IT & OA
n Consumer Electronics
n Industrial
n Automotive
n Others
Source: ISA 2007 report, F&S
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Se m i c o n d u c to r S e c to r –Overview December 2008
Semiconductor design revenues expected to witness CAGR of 29.5 per cent India is on the world map in chip designing; the growing production and consumption of electronics across various sectors is further driving growth of semiconductor designing in the country. According to data provided by ISA the semiconductor designing segment generated revenues worth US$ 6 billion in 2007 and is expected to reach approximately US$ 14.4 billion and US$ 43.1 billion by 2010 and 2015, respectively. During 2005–2015, it is expected to register growth at a CAGR of approximately 29.5 per cent.
Total Semiconductor Designing Market in India 2015E
43.1
2014E
35.4
2013E
29.0
2012E
23.7
2011E
18.5
2010E
14.4
2009E
11.2
2008E
8.6
2007E
6.6
2006E
4.6
2005
3.3
2004
2.4 0
5
10
15
20 25 30 US$ billion
35
40
45
50
Source: ISA 2007 report, F&S
10
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Semiconductor design revenues expected to witness CAGR of 29.5 per cent The growth in the Indian semiconductor design market is expected to lead to growth in the engineering workforce employed by this segment. According to the ISA, it employed an estimated 0.13 million engineers in 2007 and the employment figure is likely to grow to 0.29 million by 2010 and 0.78 million by 2015, growing at a CAGR of approximately 27 per cent during 2005–2015.
Engineering Workforce Employed by Indian Semiconductor Design Market 2015E
0.78
2014E
0.65
2013E
0.55
2012E
0.45
2011E
0.36
2010E
0.29
2009E
0.23
2008E
0.18
2007E
0.10
2006E
0.10
2005
0.07 0
0.15
0.30
0.45 in million
0.60
0.75
0.90
Source: ISA 2007 report, F&S
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Se m i c o n d u c to r S e c to r –Overview December 2008
Embedded software is a leading segment in semiconductor designing • ISA-Frost & Sullivan report on the Indian semiconductor sector estimates that the number of chip designs executed in India will increase at a CAGR of 13 per cent from 320 in 2005 to 1,075 in 2015.
Indian Semiconductor Design Market Revenue Break-up 2007
0.36%
• Revenue of the different sub segments – embedded software,VLSI design and hardware/board design – is expected to register a CAGR of approximately 30 per cent, 24 per cent and 27 per cent, respectively, from 2005 to 2015.
2015 E 1.64%
0.78%
36..34%
4.86%
n VLSI Design
5.09%
n Embedded software
n Hardware/Board Design
Source: ISA, F&S,The Economic Times
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Se m i c o n d u c to r S e c to r –Overview December 2008
Competitive landscape in semiconductor designing At present, the top 10 fabless design companies and 19 of the top 25 semiconductor companies have their operations in India.
Foreign and Domestic Companies Operating in Semiconductor Designing Segment VLSI DESIGN COMPANIES IN INDIA
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Foreign Companies
Domestic Companies
Freescale Semiconductor, Inc.
TATA Consultancy Services Ltd.
Intel Corporation
Wipro Technologies Ltd.
National Semiconductor Corporation
Tata Elxsi Ltd.
Texas Instruments, Inc.
Sasken Communication Technologies Ltd.
NXP Semiconductor
MindTree Consulting Ltd.
Cisco Systems, Inc.
HCL Technologies Ltd.
Tessolve, Inc.
Hexaware Technologies Ltd.
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Competitive landscape in semiconductor designing There are 125 integrated chips (IC) design companies operating in India and almost 50 per cent of the semiconductor design work in the country is carried out in the areas of wireless and wired communications.
EMBEDDED SOFTWARE COMPANIES IN INDIA Foreign Companies
Domestic Companies
Alcatel-Lucent
HCL Technologies Ltd.
Cisco Systems, Inc.
Ittiam Systems
NXP Semiconductor
Satyam Computer Services Ltd.
Intel Corporation
Wipro Tecnologies Ltd.
Flextronics International Ltd.
TATA Consultancy Services Ltd.
D-Link Corporation
MindTree Consulting Ltd.
Embedded Communications Computing Group
Tata Elxsi Ltd.
HARDWARE/BOARD DESIGN COMPANIES IN INDIA
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Foreign Companies
Domestic Companies
Cisco Systems, Inc.
Wipro Technologies Ltd.
NXP Semiconductor
Sasken Communication Technologies Ltd.
Advance Micronic Devices Limited
MindTree Consulting Ltd.
Intel Corporation
HCL Technologies Ltd.
Flextronics International Ltd.
Ittiam Systems
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Se m i c o n d u c to r S e c to r –Overview December 2008
Trends in semiconductor designing Chip designing companies are looking forward to not just India-designed chips but also India-focused chips as these companies are also looking at India as a key product market. This confidence is based on the country’s sharp growth in mobiles and consumer electronics sector.
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Se m i c o n d u c to r S e c to r –Overview December 2008
Trends in semiconductor designing Emerging Trends in Semiconductor Designing Venture Capital
Technology Convergence
Emergence Design Start-ups
Moving up the Value Chain
India is attracting a large number of VCs to invest in the domestic semiconductor design segment. The country is now becoming a preferable destination for VC firms due to factors such as availability of skilled labour, strong local market and flexible regulatory framework of the IT ministry.
Various semiconductor consuming sectors, such as digital media, consumer electronics, auto and wireless, are demanding devices with multi-features having different technologies on a single platform. Further, the growth of mobile applications is driving the combination of microprocessors and digital signal processors in order to take advantage of both technologies.
Many domestic and foreign start-ups are coming into the picture and expanding their operations in the country. Currently, it is not difficult to establish a start-up unit, as financing schemes for these start-ups are available in the country. This trend will firmly embed India on the global map in the field of semiconductor designing.
Many multinational semiconductor companies have also started either offshoring their developing and designing work to India or opening their own captive centres in the country. These designing companies in India are now moving up the value chain by moving from low end-to-end design activities to front-end design work.
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Se m i c o n d u c to r S e c to r –Overview December 2008
Expansion plans of semiconductor design companies in India MAGMA Magma Design Automation has 200 employees spread across three centres in India. Its Bengaluru operations has moved to a new 40,000 sq. ft facility, which will enable Magma to expand in the region and provide prompt support to its growing customer base in India. The company is also focused on expanding its product portfolio and building its expertise in IC implementation. Management Dynamics, Inc. Management Dynamics, Inc. expanded its operations in Asia Pacific by sales and operational units in Europe and India to meet the demands of its growing Asian customer base.
17
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Expansion plans of semiconductor design companies in India Freescale Semiconductor Freescale Semiconductor is expanding its Indian operations with the development of a 300,000-sq ft campus in Noida. The company plans to increase its headcount in India to 1,500 engineers over the next four years to support its global R&D efforts. CISCO In 2005, Cisco announced to invest US$ 1.1 billion in India over the next three years, i.e., US$ 750 million on R&D activities, US$ 150 million on providing leasing and other financial solutions, US$ 100 million on funding of Indian start up companies and US$ 100 million on customer support operations.
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Se m i c o n d u c to r S e c to r –Overview December 2008
Expansion plans of semiconductor design companies in India CISCO In 2005, Cisco announced its plans to invest US$ 1.1 billion in India over the next three years, i.e., US$ 750 million on R&D activities, US$ 150 million on providing leasing and other financial solutions, US$ 100 million on funding of Indian start up companies and US$ 100 million on customer support operations. Alliance Semiconductor Corp Alliance Semiconductor Corp., a leading world-wide provider of analog and mixed signal products, systems solutions, and high performance memory products, announced to invest approximately US$ 50 million in its India design centre over the next five years. Conexant Systems, Inc. Conexant Systems, Inc., a leader in fabless semiconductor solutions for broadband communications and digital home, is investing approximately US$ 250 million in India over the next few years. 19
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Expansion plans of semiconductor design companies in India Fairchild Semiconductor Fairchild Semiconductor has opened a new R&D centre in Pune to design and develop the company’s new generation of power MOSFETs and IGBT technology for supporting applications such as solar inverters, uninterruptible power supplies (UPS), automotive, lighting and ballast applications. Alereon, Inc. Alereon, Inc. announced the opening of Alereon Semiconductors Pvt., the company’s new product oriented R&D facility in Pune, India. The R&D centre will focus on developing the company’s patented UWB chipsets for the next generation products.
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Se m i c o n d u c to r S e c to r –Overview December 2008
Semiconductor Manufacturing in India The increasing spending on electronics products offers a large opportunity to global semiconductor companies to set up their manufacturing plants in the country. Recently, setting up of some new fabs has been proposed and the already approved fab units are expected to be operational by 2009 and 2010. The Indian government has also proposed to develop a ‘Fab City’ in Hyderabad, which is expected to house 10 manufacturing plants and to create 5,000 jobs by 2009 and up to 1.4 million jobs by 2016 in over 200 ancillary industries
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Se m i c o n d u c to r S e c to r –Overview December 2008
Semiconductor Manufacturing in India • It is estimated that approximately seven to eight Solar Photovoltaic (SPV) units will be set up in India, at an investment of US$ 5–6 billion. The number of solar chip fab units in India is expected to surpass the number of semiconductor chip fab units in the country in the next few years. • Currently, there are no operational wafer fabs in the country and semiconductor manufacturing is limited to only three government companies (Bharat Electronics Limited, Society for Integrated Circuit Technology and Applied Research, and Semi-Conductor Laboratory).
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Se m i c o n d u c to r S e c to r –Overview December 2008
Factors fuelling growth in semiconductor manufacturing The Indian Government is currently offering various incentives to the global semiconductor companies to set up their chip manufacturing plants in the country. Factors Fuelling Growth • Chip manufacturing is getting a fillip in India as various electronics manufacturing services (EMS) providers and mobile phone equipment manufacturers, such as Samsung, Motorola and Nokia, are setting up their plants in India. For example, according to a Gartner report, by 2011, 10–20 per cent of mobile phone production in India could be for exports. There is potential for chip manufacturing companies to partner with these EMS players and leverage this opportunity.
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Se m i c o n d u c to r S e c to r –Overview December 2008
Factors fuelling growth in semiconductor manufacturing • The Indian Government has announced various tax incentives to companies that are starting chip manufacturing operations in the country. The incentives are expected to provide an impetus to companies plannning to set up their chip manufacturing plants in India. • The newly operational international airport in Hyderabad is expected to boost chip manufacturing in India. ‘Fab City’ is located just outside Hyderabad and Hyderabad is well connected to all major cities in India as well as all major cities in the Middle East and South East Asia.
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Se m i c o n d u c to r S e c to r –Overview December 2008
Assembly Testing Mark Pack (ATMP) ATMP is the post-fabrication stage, where the chip reaches the testing lab and undergoes various tests. At this stage, faulty chips are identified and the rest are taped out for shipment. This post-fabrication stage completes the overall value chain of the semiconductor sector and complements the Indian semiconductor ecosystem.
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Se m i c o n d u c to r S e c to r –Overview December 2008
Assembly Testing Mark Pack (ATMP) ATMP in India Market • The number of ATMP units in India is very small but various firms including both domestic and foreign testing and packaging companies are foraying into IC testing. For India to emerge as a complete semiconductor solution provider, it has to develop as an ATMP hub. • The global ATMP market is valued at approximately US$ 20 billion (as of 2007) and if India can tap even five per cent of this market by 2015, it will translate into big business for the country.
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Se m i c o n d u c to r S e c to r –Overview December 2008
Assembly Testing Mark Pack (ATMP) Exemptions ATMP units are entitled to tax exemptions under Software Technology Parks of India (STPI) norms. Some of these exemptions are:
• Custom duty exemption
• Excise duty exemption
• Central sales tax reimbursement
• Corporate tax exemption on 90 per cent export turnover
• S ales in Domestic Tariff Area (DTA) upto 50 per cent of the ‘free on board’ (FOB) value of exports permissible
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Se m i c o n d u c to r S e c to r –Overview December 2008
Growth prospects for ATMP Cost competitive manpower is typically the deciding factor for ATMP units, a resource that India has in plenty. The second factor that makes India a good location for ATMP units is the presence of a growing domestic electronics market.
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Se m i c o n d u c to r S e c to r –Overview December 2008
Growth prospects for ATMP
Growing Domestic Electronics Market
India – A Cost Competitive Country
The presence of a growing domestic electronics market consisting of MP3 players, personal computers (PC), digital cameras and mobile handsets offers a great opportunity for mix-signal testing, flash testing and packaging memory devices.
ATMP units are located predominantly in cost competitive countries. India with its abundant skilled, low-cost, and competitive workforce offers tremendous opportunities for ATMP units.
Growth Prospects for ATMP Units in India
Upcoming Fabs and Manufacturing Facilities The upcoming semiconductor fabs in India may require in-house operations to carry out assembling and testing of their ICs to have full control over the manufactured ICs. At the same time, plans of some of the consumer electronic majors, such as Samsung, Nokia, LG and Dell, to set up their manufacturing plant in India, are favourable for assembling, testing and packaging of chips and final products.
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Se m i c o n d u c to r S e c to r –Overview December 2008
Investment Plans in ATMP Intel Intel plans to invest US$ 400 million to establish a testing and assembly facility in India near Bengaluru or Chennai. SemIndia SemIndia is setting up a US$ 100 million ATMP unit at Maheshwaram, near Hyderabad, and plans to roll out its first chip by March 2008. Tessolve Tessolve along with its investors has announced plans to undertake an investment of US$ 200 million for a Testing Assembling Packaging and Prototyping (TAPP) facility in Chennai. SPEL SPEL, India’s only commercial semiconductor chip assembly and testing company, plans to invest US$286 million in a special economic zone near its existing facility in Chennai. 30
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Se m i c o n d u c to r S e c to r –Overview December 2008
Current Trends in ATMP Venture Capital Targeting ATMP Segment Some VC firms are targeting the Indian semiconductorATMP segment. For example, Sandalwood Capital Partners, an India-focused venture fund, is keen to invest in the ATMP segment. Sandalwood invested US$ 30 million in the SemIndia’s Phase 1 proposed test and assembly facility in Hyderabad. Currently, Sandalwood is increasing its corpus in India from US$120 million to US$500 million. It aims to increase its investment to US$ 1 billion in the next three years in technology-related business.
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Current Trends in ATMP Outsourcing of Assembly and Testing Services Outsourcing of assembly and testing services is expected to give a fillip to the revenue of ATMP units in India. Foreign companies are expected to outsource their work to these ATMP units in India and at the same time, captive design centres of semiconductor companies such as Intel, TI and AMD are also expected to outsource their work to these ATMP units. This trend is further supported by the fact that the market for outsourced assembly and testing services has grown from 30 to 40 per cent in the past five years.
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Semiconductor An Upcoming Sector
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Se m i c o n d u c to r – A n Upcomin g Sector December 2008
Semiconductor Sector: Advantage India Strong Growth in Related Verticals
Market for Semiconductor Across Different Industry Verticals (US$ million)
The Indian semiconductor sector is likely to witness a strong growth rate due to expected growth in some related sectors, such as automotive, consumer electronics and durables, IT hardware and office automation, telecommunications, etc.
YEAR
Automobile Sector
Electronics and Durables Sector
IT Hardware and Office Automation Sector
Telecommunication Sector
Commercial Electronics Sector
2004
76.3
202.9
2005
100
297.9
660.0
828.6
121.6
780
1281.5
153.4
2006
121.9
2007
145.9
378.4
1000
1884.3
186.9
471.4
1280
3010
245.4
2010E 2015E
240.2
791.1
2610
7980.8
484.7
459.5
1529.5
6960
24297.2
1647.6
Engineering Workforce Employed by Different Design Sector Verticals in India
Strong Academia Semiconductor being a knowledge intensive sector requires a large pool of engineering workforce. Here, India has an edge over other countries owing to its large talent pool.
YEAR
TOTAL DESIGN MARKET
EMBEDDED SOFTWARE DEVELOPMENT MARKET
VLSI DESIGN MARKET
HARDWARE/BOARD DESIGN MARKET
2005
74,850
60,220
11,300
3,330
2006E
102,120
83,500
14,200
4,420
2007E
140,235
116,305
18,060
5,870
2008E
178,675
148,790
22,300
7,584
2009E
227,265
190,030
27,455
9,780
2010E
286,220
241,000
33,135
12,085
2011E
360,440
305,665
39,850
14,925
2012E
454,010
387,665
47,910
18,436
2013E
545,665
465,196
57,700
22,770
2014E
653,365
558,236
67,000
28,130
2015E
781,780
669,885
77,150
34,745
Source: ISA 2007 report 34
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Se m i c o n d u c to r – A n Upcomin g Sector December 2008
Semiconductor Sector: Advantage India Cost Savings India offers a large pool of technically and scientifically skilled English-speaking workforce. At the same time, the country also offers plenty of semiconductor design talent at competitive cost. For example, an employee in the engineering services cost US$ 25 per hour in India, which is approximately one-third for a similar employee of comparable skill and experience in the US. Approximately 20 per cent of the Fortune 500 companies have their research and development operations in India and recruit managerial and engineering staff locally for their Indian operations.
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Se m i c o n d u c to r – A n Upcomin g Sector December 2008
Semiconductor Sector: Advantage India Government and Industrial Support Initiatives taken by the government and the industry are providing new business opportunities to the existing companies to move up the value chain. The Government of India has been taking various initiatives to support business activities of the semiconductor sector in India. To attract electronics companies to invest in India, it is working towards establishing a favourable FDI environment, reducing taxation rates and is giving fiscal and financial benefits to the sector.
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Regulatory Framework in the Semiconductor Sector
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Reg ulato ry F r a m e wo r k in Semiconductor Sector December 2008
Regulatory Policy and Incentives Offered in the Semiconductor Sector To become self-reliant in chip manufacturing and attract semiconductor companies to set up their manufacturing plants in the country, the Indian Government announced ‘National Semiconductor Policy’ (NSP) or ‘Fab Policy’ in 2007. Under this policy, the government has proposed a special incentive plan to encourage companies to come to India for semiconductor and related ancillary manufacturing Regulation of NSP The threshold investment for a semiconductor manufacturing (wafer fabs) plant would be US$ 575 million (approx.) and US$ 220 million (approx.) for other ancillary units (storage devices, organic LED, micro or nano-technology products).
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Reg ulato ry F r a m e wo r k in Semiconductor Sector December 2008
Regulatory Policy and Incentives Offered in the Semiconductor Sector Incentives offered by the government Incentives under the National Semiconductor Policy The policy covers LCDs, storage devices, plasmas, photo-voltaics, solar cells and nanotechnology products, and also includes assembly and testing of these products.
State Governments can provide additional incentives to semiconductor companies.
20 per cent of the capital expenditure of a semiconductor manufacturing unit located in a Special Economic Zone (SEZ) will be borne by the government for the first 10 years.
Assuming a 1:1 debt to equity ratio for the project, the government restricts its participation to 26 per cent of the equity capital.
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In case of units located outside the SEZ, the Countervailing Duties (CVD) on capital goods will be exempted.
In case of units located outside an SEZ, the government will bear 25 per cent of the capital expenditure for the stated time duration.
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DISCLAIMER This presentation has been prepared jointly by the India Brand Equity Foundation (“IBEF”) and Evalueserve.com Pvt. Ltd., EVALUESERVE (Authors).
While due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of the Author’s and IBEF’s knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice.
All rights reserved. All copyright in this presentation and related works is owned by IBEF and the Authors. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF.
The Author and IBEF neither recommend or endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed in this presentation. Neither the Author nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation.
This presentation is for information purposes only.
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Contents • Semiconductor Sector – Overview • Semiconductor – An Upcoming Sector • Regulatory Framework in the Semiconductor Sector
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Semiconductor Sector – Overview
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Se m i c o n d u c to r S e c to r –Overview December 2008
Indian Semiconductor – A Sunrise Sector Indian Semiconductor Sector The semiconductor sector comprises pre-fabrication, fabrication (fab) and post-fabrication verticals. In the last four years, the Indian semiconductor market has grown from about US$ 2.1 billion to about US$ 4.1 billion. Further, semiconductor market is expected to reach US$ 9.8 billion in 2012. India accounted for 1.3 per cent of the global semiconductor revenue in 2007. The country’s share is expected to reach 1.62 per cent by 2009 at a CAGR of 26.7 per cent. The demand for semiconductor solutions, the heart of the electronic systems, is also expected to get a fillip as the consumption of electronic equipment in India is expected to grow at a CAGR of 29.8 per cent over 2005–2015 to US$ 363 billion.
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Se m i c o n d u c to r S e c to r –Overview December 2008
Indian Semiconductor – A Sunrise Sector Indian Semiconductor Sector • The growing demand for IT hardware and office automation products, and consumer electronics products such as mobile phones, automotive products, etc., is spurring the demand for semiconductor and a full-fledged semiconductor ecosystem in India. • The major semiconductor end-user segments have been identified as communications, IT and consumer electronics. At the same time, the important product subcategories that are expected to drive the semiconductor market in India are mobile handsets, wireless equipment, set-top boxes and smart-card terminals. • S emiconductor are poised to impact human life far more as they open up new possibilities in nano-sciences, biotechnology, medical sciences, electro-mechanical devices, photonics, remote sensing and so on. While still in its nascent stages, the semiconductor sector in India posseses immense potential to emerge as a global hub.
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Se m i c o n d u c to r S e c to r –Overview December 2008
Share of the Indian Semiconductor Sector in the global semiconductor market is expected to increase to 1.6 per cent by 2009 The semiconductor sector involves pre-fabrication, fabrication (fab) and post-fabrication verticals. The semiconductor segment can be divided into semiconductor designing, semiconductor manufacturing and semiconductor ATMP.
Semiconductor Market in India (2003-2009) 2009E
5.5
2008E
4.4
2007
4.1
2006
2.7
2005
2.8
2004
2.1
2003
1.6 0
1
2
3 US$ billion
4
5
6
Source: ISA 2007 report, F&S
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Se m i c o n d u c to r S e c to r –Overview December 2008
Share of the Indian Semiconductor Sector in the global semiconductor market is expected to increase to 1.6 per cent by 2009 Accrding to an ISA 2007 report, the Indian semiconductor market has grown from approximately US$ 2.6 billion to approximately US$ 4.1 billion. The semiconductor market is expected to grow from US$ 2.7 billion in 2006 to US$ 5.5 billion in 2009. The country accounted for 1.09 per cent of the global semiconductor revenue in 2006 and this share is expected to reach 1.62 per cent by 2009, which will represent a CAGR of 26.7 per cent.
Percentage Share of the Indian Semiconductor Market in the Global Semiconductor Market (2006-09) 2009E
1.62
2008E
1.42
2007E
1.27
2006 0.00
1.09 0.35
0.70 1.05 Percentage
1.40
1.75
Source: ISA 2007 report F&S
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Se m i c o n d u c to r S e c to r –Overview December 2008
Reasons for growth in the semiconductor sector The semiconductor design requirements of verticals such as automotive, electronics, telecommunications, commercial electronics and IT hardware and office automation, provide an opportunity to multinational companies to enter into India and tap the potential.
Significant export potential
Growth in the Chip Design industry
Reasons for growth in the semiconductor sector
Increased semiconductor content in the electronic industry
Unprecedented growth in domestic consumption of electronic goods
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Se m i c o n d u c to r S e c to r –Overview December 2008
Telecom segment is expected to be the main growth driver in the Semiconductor Application Market • The IT and Office Automataion segment along with the telecom segment dominate the demand for semiconductor products in India. These two segments control more than 75 per cent of the total semiconductor requirement in the country.
Total Semiconductor Product Market in 2006
3%
8%
8%
2% 6%
6% 8%
7%
• The telecom segment is the largest application segment contributing to the semiconductor market. According to ISA, it registered a market share of approximately 43 per cent in 2006 and is expected to grow to 46 per cent by 2009.
44%
46%
30% 32%
n Telecom
n IT & OA
n Consumer Electronics
n Industrial
n Automotive
n Others
Source: ISA 2007 report, F&S
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Se m i c o n d u c to r S e c to r –Overview December 2008
Semiconductor design revenues expected to witness CAGR of 29.5 per cent India is on the world map in chip designing; the growing production and consumption of electronics across various sectors is further driving growth of semiconductor designing in the country. According to data provided by ISA the semiconductor designing segment generated revenues worth US$ 6 billion in 2007 and is expected to reach approximately US$ 14.4 billion and US$ 43.1 billion by 2010 and 2015, respectively. During 2005–2015, it is expected to register growth at a CAGR of approximately 29.5 per cent.
Total Semiconductor Designing Market in India 2015E
43.1
2014E
35.4
2013E
29.0
2012E
23.7
2011E
18.5
2010E
14.4
2009E
11.2
2008E
8.6
2007E
6.6
2006E
4.6
2005
3.3
2004
2.4 0
5
10
15
20 25 30 US$ billion
35
40
45
50
Source: ISA 2007 report, F&S
10
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Se m i c o n d u c to r S e c to r –Overview December 2008
Semiconductor design revenues expected to witness CAGR of 29.5 per cent The growth in the Indian semiconductor design market is expected to lead to growth in the engineering workforce employed by this segment. According to the ISA, it employed an estimated 0.13 million engineers in 2007 and the employment figure is likely to grow to 0.29 million by 2010 and 0.78 million by 2015, growing at a CAGR of approximately 27 per cent during 2005–2015.
Engineering Workforce Employed by Indian Semiconductor Design Market 2015E
0.78
2014E
0.65
2013E
0.55
2012E
0.45
2011E
0.36
2010E
0.29
2009E
0.23
2008E
0.18
2007E
0.10
2006E
0.10
2005
0.07 0
0.15
0.30
0.45 in million
0.60
0.75
0.90
Source: ISA 2007 report, F&S
11
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Se m i c o n d u c to r S e c to r –Overview December 2008
Embedded software is a leading segment in semiconductor designing • ISA-Frost & Sullivan report on the Indian semiconductor sector estimates that the number of chip designs executed in India will increase at a CAGR of 13 per cent from 320 in 2005 to 1,075 in 2015.
Indian Semiconductor Design Market Revenue Break-up 2007
0.36%
• Revenue of the different sub segments – embedded software,VLSI design and hardware/board design – is expected to register a CAGR of approximately 30 per cent, 24 per cent and 27 per cent, respectively, from 2005 to 2015.
2015 E 1.64%
0.78%
36..34%
4.86%
n VLSI Design
5.09%
n Embedded software
n Hardware/Board Design
Source: ISA, F&S,The Economic Times
12
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Se m i c o n d u c to r S e c to r –Overview December 2008
Competitive landscape in semiconductor designing At present, the top 10 fabless design companies and 19 of the top 25 semiconductor companies have their operations in India.
Foreign and Domestic Companies Operating in Semiconductor Designing Segment VLSI DESIGN COMPANIES IN INDIA
13
Foreign Companies
Domestic Companies
Freescale Semiconductor, Inc.
TATA Consultancy Services Ltd.
Intel Corporation
Wipro Technologies Ltd.
National Semiconductor Corporation
Tata Elxsi Ltd.
Texas Instruments, Inc.
Sasken Communication Technologies Ltd.
NXP Semiconductor
MindTree Consulting Ltd.
Cisco Systems, Inc.
HCL Technologies Ltd.
Tessolve, Inc.
Hexaware Technologies Ltd.
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Se m i c o n d u c to r S e c to r –Overview December 2008
Competitive landscape in semiconductor designing There are 125 integrated chips (IC) design companies operating in India and almost 50 per cent of the semiconductor design work in the country is carried out in the areas of wireless and wired communications.
EMBEDDED SOFTWARE COMPANIES IN INDIA Foreign Companies
Domestic Companies
Alcatel-Lucent
HCL Technologies Ltd.
Cisco Systems, Inc.
Ittiam Systems
NXP Semiconductor
Satyam Computer Services Ltd.
Intel Corporation
Wipro Tecnologies Ltd.
Flextronics International Ltd.
TATA Consultancy Services Ltd.
D-Link Corporation
MindTree Consulting Ltd.
Embedded Communications Computing Group
Tata Elxsi Ltd.
HARDWARE/BOARD DESIGN COMPANIES IN INDIA
14
Foreign Companies
Domestic Companies
Cisco Systems, Inc.
Wipro Technologies Ltd.
NXP Semiconductor
Sasken Communication Technologies Ltd.
Advance Micronic Devices Limited
MindTree Consulting Ltd.
Intel Corporation
HCL Technologies Ltd.
Flextronics International Ltd.
Ittiam Systems
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Se m i c o n d u c to r S e c to r –Overview December 2008
Trends in semiconductor designing Chip designing companies are looking forward to not just India-designed chips but also India-focused chips as these companies are also looking at India as a key product market. This confidence is based on the country’s sharp growth in mobiles and consumer electronics sector.
15
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Se m i c o n d u c to r S e c to r –Overview December 2008
Trends in semiconductor designing Emerging Trends in Semiconductor Designing Venture Capital
Technology Convergence
Emergence Design Start-ups
Moving up the Value Chain
India is attracting a large number of VCs to invest in the domestic semiconductor design segment. The country is now becoming a preferable destination for VC firms due to factors such as availability of skilled labour, strong local market and flexible regulatory framework of the IT ministry.
Various semiconductor consuming sectors, such as digital media, consumer electronics, auto and wireless, are demanding devices with multi-features having different technologies on a single platform. Further, the growth of mobile applications is driving the combination of microprocessors and digital signal processors in order to take advantage of both technologies.
Many domestic and foreign start-ups are coming into the picture and expanding their operations in the country. Currently, it is not difficult to establish a start-up unit, as financing schemes for these start-ups are available in the country. This trend will firmly embed India on the global map in the field of semiconductor designing.
Many multinational semiconductor companies have also started either offshoring their developing and designing work to India or opening their own captive centres in the country. These designing companies in India are now moving up the value chain by moving from low end-to-end design activities to front-end design work.
16
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Se m i c o n d u c to r S e c to r –Overview December 2008
Expansion plans of semiconductor design companies in India MAGMA Magma Design Automation has 200 employees spread across three centres in India. Its Bengaluru operations has moved to a new 40,000 sq. ft facility, which will enable Magma to expand in the region and provide prompt support to its growing customer base in India. The company is also focused on expanding its product portfolio and building its expertise in IC implementation. Management Dynamics, Inc. Management Dynamics, Inc. expanded its operations in Asia Pacific by sales and operational units in Europe and India to meet the demands of its growing Asian customer base.
17
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Se m i c o n d u c to r December 2008
Expansion plans of semiconductor design companies in India Freescale Semiconductor Freescale Semiconductor is expanding its Indian operations with the development of a 300,000-sq ft campus in Noida. The company plans to increase its headcount in India to 1,500 engineers over the next four years to support its global R&D efforts. CISCO In 2005, Cisco announced to invest US$ 1.1 billion in India over the next three years, i.e., US$ 750 million on R&D activities, US$ 150 million on providing leasing and other financial solutions, US$ 100 million on funding of Indian start up companies and US$ 100 million on customer support operations.
18
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Se m i c o n d u c to r S e c to r –Overview December 2008
Expansion plans of semiconductor design companies in India CISCO In 2005, Cisco announced its plans to invest US$ 1.1 billion in India over the next three years, i.e., US$ 750 million on R&D activities, US$ 150 million on providing leasing and other financial solutions, US$ 100 million on funding of Indian start up companies and US$ 100 million on customer support operations. Alliance Semiconductor Corp Alliance Semiconductor Corp., a leading world-wide provider of analog and mixed signal products, systems solutions, and high performance memory products, announced to invest approximately US$ 50 million in its India design centre over the next five years. Conexant Systems, Inc. Conexant Systems, Inc., a leader in fabless semiconductor solutions for broadband communications and digital home, is investing approximately US$ 250 million in India over the next few years. 19
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Se m i c o n d u c to r S e c to r –Overview December 2008
Expansion plans of semiconductor design companies in India Fairchild Semiconductor Fairchild Semiconductor has opened a new R&D centre in Pune to design and develop the company’s new generation of power MOSFETs and IGBT technology for supporting applications such as solar inverters, uninterruptible power supplies (UPS), automotive, lighting and ballast applications. Alereon, Inc. Alereon, Inc. announced the opening of Alereon Semiconductors Pvt., the company’s new product oriented R&D facility in Pune, India. The R&D centre will focus on developing the company’s patented UWB chipsets for the next generation products.
20
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Se m i c o n d u c to r S e c to r –Overview December 2008
Semiconductor Manufacturing in India The increasing spending on electronics products offers a large opportunity to global semiconductor companies to set up their manufacturing plants in the country. Recently, setting up of some new fabs has been proposed and the already approved fab units are expected to be operational by 2009 and 2010. The Indian government has also proposed to develop a ‘Fab City’ in Hyderabad, which is expected to house 10 manufacturing plants and to create 5,000 jobs by 2009 and up to 1.4 million jobs by 2016 in over 200 ancillary industries
21
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Se m i c o n d u c to r S e c to r –Overview December 2008
Semiconductor Manufacturing in India • It is estimated that approximately seven to eight Solar Photovoltaic (SPV) units will be set up in India, at an investment of US$ 5–6 billion. The number of solar chip fab units in India is expected to surpass the number of semiconductor chip fab units in the country in the next few years. • Currently, there are no operational wafer fabs in the country and semiconductor manufacturing is limited to only three government companies (Bharat Electronics Limited, Society for Integrated Circuit Technology and Applied Research, and Semi-Conductor Laboratory).
22
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Se m i c o n d u c to r S e c to r –Overview December 2008
Factors fuelling growth in semiconductor manufacturing The Indian Government is currently offering various incentives to the global semiconductor companies to set up their chip manufacturing plants in the country. Factors Fuelling Growth • Chip manufacturing is getting a fillip in India as various electronics manufacturing services (EMS) providers and mobile phone equipment manufacturers, such as Samsung, Motorola and Nokia, are setting up their plants in India. For example, according to a Gartner report, by 2011, 10–20 per cent of mobile phone production in India could be for exports. There is potential for chip manufacturing companies to partner with these EMS players and leverage this opportunity.
23
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Se m i c o n d u c to r S e c to r –Overview December 2008
Factors fuelling growth in semiconductor manufacturing • The Indian Government has announced various tax incentives to companies that are starting chip manufacturing operations in the country. The incentives are expected to provide an impetus to companies plannning to set up their chip manufacturing plants in India. • The newly operational international airport in Hyderabad is expected to boost chip manufacturing in India. ‘Fab City’ is located just outside Hyderabad and Hyderabad is well connected to all major cities in India as well as all major cities in the Middle East and South East Asia.
24
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Se m i c o n d u c to r S e c to r –Overview December 2008
Assembly Testing Mark Pack (ATMP) ATMP is the post-fabrication stage, where the chip reaches the testing lab and undergoes various tests. At this stage, faulty chips are identified and the rest are taped out for shipment. This post-fabrication stage completes the overall value chain of the semiconductor sector and complements the Indian semiconductor ecosystem.
25
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Se m i c o n d u c to r S e c to r –Overview December 2008
Assembly Testing Mark Pack (ATMP) ATMP in India Market • The number of ATMP units in India is very small but various firms including both domestic and foreign testing and packaging companies are foraying into IC testing. For India to emerge as a complete semiconductor solution provider, it has to develop as an ATMP hub. • The global ATMP market is valued at approximately US$ 20 billion (as of 2007) and if India can tap even five per cent of this market by 2015, it will translate into big business for the country.
26
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Se m i c o n d u c to r S e c to r –Overview December 2008
Assembly Testing Mark Pack (ATMP) Exemptions ATMP units are entitled to tax exemptions under Software Technology Parks of India (STPI) norms. Some of these exemptions are:
• Custom duty exemption
• Excise duty exemption
• Central sales tax reimbursement
• Corporate tax exemption on 90 per cent export turnover
• S ales in Domestic Tariff Area (DTA) upto 50 per cent of the ‘free on board’ (FOB) value of exports permissible
27
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Se m i c o n d u c to r S e c to r –Overview December 2008
Growth prospects for ATMP Cost competitive manpower is typically the deciding factor for ATMP units, a resource that India has in plenty. The second factor that makes India a good location for ATMP units is the presence of a growing domestic electronics market.
28
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Se m i c o n d u c to r S e c to r –Overview December 2008
Growth prospects for ATMP
Growing Domestic Electronics Market
India – A Cost Competitive Country
The presence of a growing domestic electronics market consisting of MP3 players, personal computers (PC), digital cameras and mobile handsets offers a great opportunity for mix-signal testing, flash testing and packaging memory devices.
ATMP units are located predominantly in cost competitive countries. India with its abundant skilled, low-cost, and competitive workforce offers tremendous opportunities for ATMP units.
Growth Prospects for ATMP Units in India
Upcoming Fabs and Manufacturing Facilities The upcoming semiconductor fabs in India may require in-house operations to carry out assembling and testing of their ICs to have full control over the manufactured ICs. At the same time, plans of some of the consumer electronic majors, such as Samsung, Nokia, LG and Dell, to set up their manufacturing plant in India, are favourable for assembling, testing and packaging of chips and final products.
29
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Se m i c o n d u c to r S e c to r –Overview December 2008
Investment Plans in ATMP Intel Intel plans to invest US$ 400 million to establish a testing and assembly facility in India near Bengaluru or Chennai. SemIndia SemIndia is setting up a US$ 100 million ATMP unit at Maheshwaram, near Hyderabad, and plans to roll out its first chip by March 2008. Tessolve Tessolve along with its investors has announced plans to undertake an investment of US$ 200 million for a Testing Assembling Packaging and Prototyping (TAPP) facility in Chennai. SPEL SPEL, India’s only commercial semiconductor chip assembly and testing company, plans to invest US$286 million in a special economic zone near its existing facility in Chennai. 30
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Se m i c o n d u c to r S e c to r –Overview December 2008
Current Trends in ATMP Venture Capital Targeting ATMP Segment Some VC firms are targeting the Indian semiconductorATMP segment. For example, Sandalwood Capital Partners, an India-focused venture fund, is keen to invest in the ATMP segment. Sandalwood invested US$ 30 million in the SemIndia’s Phase 1 proposed test and assembly facility in Hyderabad. Currently, Sandalwood is increasing its corpus in India from US$120 million to US$500 million. It aims to increase its investment to US$ 1 billion in the next three years in technology-related business.
31
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Se m i c o n d u c to r December 2008
Current Trends in ATMP Outsourcing of Assembly and Testing Services Outsourcing of assembly and testing services is expected to give a fillip to the revenue of ATMP units in India. Foreign companies are expected to outsource their work to these ATMP units in India and at the same time, captive design centres of semiconductor companies such as Intel, TI and AMD are also expected to outsource their work to these ATMP units. This trend is further supported by the fact that the market for outsourced assembly and testing services has grown from 30 to 40 per cent in the past five years.
32
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Semiconductor An Upcoming Sector
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Se m i c o n d u c to r – A n Upcomin g Sector December 2008
Semiconductor Sector: Advantage India Strong Growth in Related Verticals
Market for Semiconductor Across Different Industry Verticals (US$ million)
The Indian semiconductor sector is likely to witness a strong growth rate due to expected growth in some related sectors, such as automotive, consumer electronics and durables, IT hardware and office automation, telecommunications, etc.
YEAR
Automobile Sector
Electronics and Durables Sector
IT Hardware and Office Automation Sector
Telecommunication Sector
Commercial Electronics Sector
2004
76.3
202.9
2005
100
297.9
660.0
828.6
121.6
780
1281.5
153.4
2006
121.9
2007
145.9
378.4
1000
1884.3
186.9
471.4
1280
3010
245.4
2010E 2015E
240.2
791.1
2610
7980.8
484.7
459.5
1529.5
6960
24297.2
1647.6
Engineering Workforce Employed by Different Design Sector Verticals in India
Strong Academia Semiconductor being a knowledge intensive sector requires a large pool of engineering workforce. Here, India has an edge over other countries owing to its large talent pool.
YEAR
TOTAL DESIGN MARKET
EMBEDDED SOFTWARE DEVELOPMENT MARKET
VLSI DESIGN MARKET
HARDWARE/BOARD DESIGN MARKET
2005
74,850
60,220
11,300
3,330
2006E
102,120
83,500
14,200
4,420
2007E
140,235
116,305
18,060
5,870
2008E
178,675
148,790
22,300
7,584
2009E
227,265
190,030
27,455
9,780
2010E
286,220
241,000
33,135
12,085
2011E
360,440
305,665
39,850
14,925
2012E
454,010
387,665
47,910
18,436
2013E
545,665
465,196
57,700
22,770
2014E
653,365
558,236
67,000
28,130
2015E
781,780
669,885
77,150
34,745
Source: ISA 2007 report 34
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Se m i c o n d u c to r – A n Upcomin g Sector December 2008
Semiconductor Sector: Advantage India Cost Savings India offers a large pool of technically and scientifically skilled English-speaking workforce. At the same time, the country also offers plenty of semiconductor design talent at competitive cost. For example, an employee in the engineering services cost US$ 25 per hour in India, which is approximately one-third for a similar employee of comparable skill and experience in the US. Approximately 20 per cent of the Fortune 500 companies have their research and development operations in India and recruit managerial and engineering staff locally for their Indian operations.
35
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Se m i c o n d u c to r – A n Upcomin g Sector December 2008
Semiconductor Sector: Advantage India Government and Industrial Support Initiatives taken by the government and the industry are providing new business opportunities to the existing companies to move up the value chain. The Government of India has been taking various initiatives to support business activities of the semiconductor sector in India. To attract electronics companies to invest in India, it is working towards establishing a favourable FDI environment, reducing taxation rates and is giving fiscal and financial benefits to the sector.
36
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Regulatory Framework in the Semiconductor Sector
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Reg ulato ry F r a m e wo r k in Semiconductor Sector December 2008
Regulatory Policy and Incentives Offered in the Semiconductor Sector To become self-reliant in chip manufacturing and attract semiconductor companies to set up their manufacturing plants in the country, the Indian Government announced ‘National Semiconductor Policy’ (NSP) or ‘Fab Policy’ in 2007. Under this policy, the government has proposed a special incentive plan to encourage companies to come to India for semiconductor and related ancillary manufacturing Regulation of NSP The threshold investment for a semiconductor manufacturing (wafer fabs) plant would be US$ 575 million (approx.) and US$ 220 million (approx.) for other ancillary units (storage devices, organic LED, micro or nano-technology products).
38
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Reg ulato ry F r a m e wo r k in Semiconductor Sector December 2008
Regulatory Policy and Incentives Offered in the Semiconductor Sector Incentives offered by the government Incentives under the National Semiconductor Policy The policy covers LCDs, storage devices, plasmas, photo-voltaics, solar cells and nanotechnology products, and also includes assembly and testing of these products.
State Governments can provide additional incentives to semiconductor companies.
20 per cent of the capital expenditure of a semiconductor manufacturing unit located in a Special Economic Zone (SEZ) will be borne by the government for the first 10 years.
Assuming a 1:1 debt to equity ratio for the project, the government restricts its participation to 26 per cent of the equity capital.
39
In case of units located outside the SEZ, the Countervailing Duties (CVD) on capital goods will be exempted.
In case of units located outside an SEZ, the government will bear 25 per cent of the capital expenditure for the stated time duration.
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Se m i c o n d u c to r December 2008
DISCLAIMER This presentation has been prepared jointly by the India Brand Equity Foundation (“IBEF”) and Evalueserve.com Pvt. Ltd., EVALUESERVE (Authors).
While due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of the Author’s and IBEF’s knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice.
All rights reserved. All copyright in this presentation and related works is owned by IBEF and the Authors. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF.
The Author and IBEF neither recommend or endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed in this presentation. Neither the Author nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation.
This presentation is for information purposes only.
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