Design-Focused Schemes More Suited For India’s Semiconductor Aspirations

It’s quite evident now that the aftermath of the COVID-19 pandemic along with disruptions in the supply chains, geopolitical events, the Ukraine-Russia War and chip shortages have set in motion the wheel for a new world order. Countries that have historically been on the sidelines of global powerplay are now making long-term moves to have a larger stake in the world of tomorrow.

With an anticipated GDP growth of about 6 per cent in FY24 and a large consensus of it becoming the world’s third-largest economy by 2030, India is among the leading countries making the play for a chair on the global high table. Given the macroeconomic and geopolitical factors heavily impacting the semiconductor industry today, India has clearly identified the semiconductor industry to be one of the ways to get its proverbial foot into the door.

Semiconductor Talent Issues

Multiple reports say that about 20 per cent of semiconductor design engineers globally, which is about 1,20,000 people in the industry. This number is expected to grow by another 85,000 in the next two years, according to the Union Minister of State for Electronics & Information Technology (MeitY) Rajeev Chandrasekhar.

India’s design prowess is no secret in the semiconductor space as the majority of chip giants such as NVIDIA, Micron, Intel, Samsung Electronics, Applied Materials, and NXP Semiconductors lead their R&D efforts from India by tapping into the country’s design human resources.

But semiconductor talent from a global perspective had been in short supply in 2022 and it is expected to only worsen in 2023 for many segments of the industry. It will also be a challenge for the remainder of the decade as countries across the globe intensify their journeys to localise semiconductor manufacturing. This would mean that there is an opportunity for India, given the abundance of design engineers that it churns out every year, to adequately meet the domestic requirements and step up its design-led chip innovation for its global semiconductor aspirations. But as India begins its journey of chip production, it will have to double down on the talent it produces in the country in terms of manufacturing too.

In a panel discussion earlier this year, Ministry of Electronics and IT Scientist 'E' Prashant Kumar said that there was no skilled talent equipped to operate manufacturing plants in India. In fact, the 10-13,000 people required to run such facilities would have to come from overseas until human resources are developed in the country, he added.

In March, when BW Businessworld spoke to India Electronics and Semiconductor Association (IESA) President and CEO K Krishna Moorthy, he did not feel that the lack of manufacturing talent was a major impediment. “I don't see that as an issue. But yes, we will require international expertise for first one or two years at the senior technical level – people who know how to operate the fab, control the processes, improve the yield and make sure that the safety of the operation is properly established and managed,” he said.

While speaking at the panel, MeitY scientist Prashant Kumar also highlighted that India had a big pool of semiconductor design talent but lacked the same on the manufacturing side.

“When we talk about talent, even the design talent was not available when we started designing. If you go back to the early days of chip design, the senior management or the senior technologists were expats and it took about 10 years for the Indian design industry to become mature for Indian designers. It took a little while, but it happened. Today, the design ecosystem is well-established. What's going to happen in the manufacturing is probably the same thing but in a different way,” explained IESA’s Moorthy.

According to Deloitte, the global semiconductor workforce needed to add roughly 1,00,000 chip talent annually to meet the requisite demand globally. But it also mentioned that each country in Asia had its own unique set of challenges to grow this talent pool as they look to establish their own domestic chip production.

In fact, the chip talent shortage is so prevalent in today’s world that a KPMG survey revealed that 67 per cent of companies surveyed mentioned talent supply chain, development and retention to be the #1 strategic priority for chipmakers in 2023.

DLI Scheme - A Filip But Needs More Gunpower

Against the backdrop of the shortages in semiconductor talent across the world, the Indian government seems to be taking steps in the right direction to encourage design innovation with its Chips to Startup (C2S) Programme and Design-Linked Incentive (DLI) scheme.

MeitY has sought applications from 100 academia, R&D organisations, startups and MSMEs under its Chips to Startup (C2S) Programme with an eye on training 85,000 engineers in the area of Very large-scale integration (VLSI) and Embedded System Design as well as result in development of 175 ASICs (Application Specific Integrated Circuits), Working Prototypes of 20 System on Chips (SoC) and IP Core repository over a period of five years.

This step is intended for growth in the Electronics System Design & Manufacturing (ESDM) space encouraging SoC/ System Level Design at Bachelors, Masters and Research level which could, in turn, act as a catalyst for the growth of startups involved in fabless design.

Meanwhile, the DLI Scheme, which was largely considered a bellwether for Indian design innovation, has seen slow implementation. But the Indian Government recently awarded three startups including Vervesemi Microelectronics, Fermionic Design and DV2JS Innovation for the scheme.

Semiconductor design companies have had a long history of struggle and failure in India, which has caused design innovation to close to stagnating and limiting the IPs coming out of the country. This condition has only been exacerbated over time due to the unwillingness of Venture Capitalists (VCs) to wait and watch if companies could deliver. Long wait times for the semiconductor startups to deliver products and faster delivery time in SaaS have easily tipped the scales against the former for the VCs.

“VCs look at how quickly they can make an exit with a twofold to fivefold valuation. With startups developing mobile apps and software, VCs can generally assess this in six months to one year. But with the chip design industry VCs need to stay invested with doubt about whether they will make any money or not,” explained IESA’s Moorthy.

Under this nightmarish scenario, funding coming in from the government’s DLI scheme could be a major help for design companies. “The government is doing a very good job because the kind of fund they are putting on the table is to the tune of Rs 50 crore per product – not ‘per company’. That’s Rs 15 crore for the design proof-of-concept and Rs 35 crore for marketing, sales, productisation and more. So, if you are a startup and you can do two full products end-to-end, you stand to get Rs 100 crore in funding,” Moorthy added.

Global semiconductor company Micron’s India MD Anand Ramamoorthy was present at the Indian Government event in February where three chip design startups were announced as the first few companies to be selected under the DLI scheme.

“Given the gestation time for semiconductor startups is longer compared to other sectors, support in the pre-silicon phase is critical. We are encouraged by the focused steps India is taking to develop its semiconductor design ecosystem. The DLI scheme will help strengthen India’s semiconductor design aspirations,” Ramamoorthy told BW Businessworld.

The Micron India MD mentioned that he was particularly impressed by Noida-based Vervesemi. “They have the unique distinction of collaborating with global leaders producing 50+ IPs on 30 products per year,” he said.

While global semiconductor companies such as Micron have been contributing greatly to encourage and harness the chip design talent in the country over years, BW Businessworld asked Ramamoorthy how the DLI scheme can be improved upon. He replied to that query by emphasising the inclusion of global companies to strengthen the scheme and ensure sustained momentum by incentivising the participation of semiconductor giants present in the country. He felt that the experience of the global players could benefit domestic players, including startups and micro, small and medium enterprises.

“Multinational corporations can play a key role in startup development by providing mentorship and sharing guidance on unique customer problems and architectural issues. Collaborative support from global semiconductor leaders can help facilitate the growth of domestic semiconductor design capabilities and help transform India into an innovation powerhouse,” Ramamoorthy added.

Given the pace of scheme implementation, the Indian Government could definitely seek help from global semiconductor players present in India to support domestic companies. Multiple companies in the space have told BW Businessworld that they were willing to share a floor with these startups to undertake experiments and access sophisticated equipment to enable it.

India Emulating The West?

According to a Deloitte report, over 90 per cent of the world’s assembly and testing (AT) base is in Asia, either in foundries or outsourced semiconductor assembly and test (OSAT) providers. Most of these are concentrated in China, Taiwan and South Korea. But with USD 100 billion committed to supporting localisation of semiconductor capacity globally, many companies from the industry are adding new AT capacity in Europe, North America and Southeast Asia. Deloitte believes this could increase the existing challenge of “disparate and siloed supply chain tech and systems, rendering it even more difficult to predict potential supply chain disruptions.”

But can India compete with the likes of China, Taiwan and South Korea in Asia? It is highly unlikely, as the country would host two fabs – at the most – in the near term, according to experts from the industry. If approval were to come through from the government’s end within Q1 FY24, a fab could only reach its full production capacity and be capable of generating revenue only by FY27.

Last year, when BW Businessworld spoke with Synaptics CEO Michael Hurlston, he opined that the manufacturing ship had already sailed because of the sheer amount of time it would take for everyone to catch up to the scale of Asia’s capabilities. “To address the current gap, the quickest way is to help the existing foundries and manufacturers build up their capacity. But this effort is not needed at advanced modes. The trailing edge is where the problem exists,” he said.

The United States intends to grow its domestic semiconductor manufacturing capacity share from 11 per cent in 2020 to 30 per cent in 2030. Meanwhile, Europe is aiming to expand its share from 9 per cent to 20 per cent over the same period. The industry is expected to double in size and touch USD 1 trillion in revenues in this time.

Given the investments being made in the US and Europe, the sheer scale isn’t being matched by India for a timeline of 2030. Hence, India’s time horizon for becoming an important stakeholder in semiconductor manufacturing could be decades-long or even half a century.

India could instead opt to become a major stronghold for chip design within a much shorter time period if it were to increase its focus manifold toward encouraging local design talent in the country to innovate and go after IPs. But even in that India’s bigger struggle would be to prevent brain-drain and talent from opting for better remunerations offered by global semiconductor conglomerates.