Last year was bad, but HCL-T is hoping that this year will be better for its VLSI business Anup Dutta/Head (VLSI Division)/HCL

In a second-floor corner office in Delhi satellite Noida, where the faint smell of paint still lingers, 37 year old Anup Dutta is waiting. "The semi-conductor industry is cyclical," he says pointing to a piece of paper where crests have dutifully followed troughs for the past 20 years. The trough was the deepest ever in 2001. "Last year was the worst," says Dutta, his frame shuddering lightly at the memory of the great chip meltdown. Then he breaks into a smile. "The first half of this year was flat; we're due for a boom now." And his finger traces the upswing of the curve, all the way to the crest that will be in 2003 or 2004.

Dutta heads the VLSI (Very Large Scale Integration, and we suggest you scan the next four pages for a glossary that tells you what that means) division of HCL Technologies and business hasn't exactly been great. It isn't hard to understand why: in 2000, the global chip industry boasted revenues of $204 billion (Rs 9,90,705 crore); in 2001, it did $139 billion (Rs 6,750,39 crore); and it will end this year with $132 billion (Rs 6,410,44 crore).

That should cause some concern for the 100-odd outfits in India focused on chip design. Some are the Indian arms of venerable multinationals such as Intel, Motorola, and National Semiconductor, others are large Indian software companies such as HCL Technologies and Wipro, and still others are start-ups.

All of them have been hurt by the slowdown: HCL's VLSI practice went through a flat 2001; Sasken's revenues dipped 10.5 per cent from Rs 141 crore in 2000-01 to Rs 128 crore in 2001-02; and hotshop Ishoni saw its growth plummet from an amphetemanic-accelerated 100 per cent plus to a relatively conservative 35-40 per cent. Only, the meltdown hasn't changed anything.

The Route To Riches

The multinationals, while reducing headcount elsewhere, have been careful not to touch their chip design operations in India. India's software majors continue to focus on chip design services. And every month sees the launch of a few start-ups focused on, what else, chip design. Attribute this continued optimism to market reality: the growth in the number of cellular phones, handheld computers, and gaming devices will boost demand for chips (or at the least, certain kinds of chips). And shrinking product lifecycles, growing research complexity, and the desire to cut costs will force chipmakers to outsource design and fabrication capabilities. "Outsourcing (of chip-design work) is definitely increasing," admits Ramesh Emani, Chief Executive, Embedded & Internet Access Solutions, Wipro Technologies. "As is the acceptance of India." Speak to any chip-design pro worth his silicon and chances are, the term "reusable design core" will figure in the conversation. That's another big opportunity for Indian companies: as product lifecycles shrink, chip makers will wish to use components (read: reusable design cores).

Ergo, several Indian chip design companies have graduated from basic front-end design to more complex back-end stuff (time to scan the glossary again). HCL Technologies is working on Hitachi's next-gen SH series of chips and on Vittess' high speed network processor. Wipro's Emani claims the company's chip-design practice does more "back-end design and verification work" now than it did before. And Sasken has emerged as a leading player in the dsp-for-telcos segment. Each of these companies has sensed the imminent boom. Since January, Wipro has recruited 100 more code jocks for its VLSI team; Sasken has increased the size of the team that works on the Texas Instruments account by 50 per cent; and HCL has invested in Electronic Design Automation tools, the Computer Aided Design of the chip world. It isn't yet Y2K, but it's getting there.

Ishoni has a pure chip-design business model: it is fables chip maker Vivek Mansingh/MD/Ishoni Networks

There's Chip Design...

...and there's chip design. Most Indian companies are content to provide "design services", an amorphous term that describes just about any of the work outsourced to them by a company designing a chip- front-end design, back-end design, or verification. Nasscom estimates that this market was worth Rs 1,01,984 crore in 2001 and that it will grow to Rs 2,112,53 crore by 2005. Some companies, however, are also trying to create what they term Silicon Intellectual Property, or sip, essentially reusable design components (or cores) that can go into any chip. Three Indian companies, Moschip, Cradle and Ishoni, have the purest design model of them all: they are fabless chip makers that design and market chips; the manufacturing is outsourced to a foundry in Taiwan. Then, there are companies that make EDA tools, like Poseidon, a Bangalore-based start-up that has been selling its tools in the US market for the last three months. "Customers are beginning to show interest," says Suhas Hiwale, CEO, Poseidon. But marketing, that old bugbear of Indian technology companies, could spike the ambitions of the few 'product' companies in India's chip-space. "Without a product you can't enter a market, and without a marketing network, you cannot generate product ideas," rues Vivek Bhargava, CFO, Moschip.

Design services and sip is where the action is. The semiconductor industry is structured into four categories: memory chips, where a few giants like Samsung and NEC call the shots in a business where scale is everything; microprocessors, where Intel's writ runs; commodity integrated circuits, where profits are slim; and the complex System on Chip (soc), essentially all about building a chip with an entire system's functionality. The soc market revolves around consumer applications, for everything from mobile phones, to digital cameras, to cheap personal computers, to hand-held devices. Consumers will continue to demand newer features (at lower prices). And companies that need to achieve these twin objectives will increasingly outsource part of the chip-design work, or scour the market for design components, or both. A report by market intelligence company Frost & Sullivan predicts that the soc design market in India could be worth $183 million (Rs 888 crore) by 2003. "soc work is heavy in human effort, so it is perfect for India," laughs Vivek Mansingh, MD, Ishoni Networks. And, over time, back-end design and verification services can help a company create its own product. That's what Indra Networks has done: it has built on the expertise acquired from verification and design work to productise a web accelerator. That's a thought.

His company has emerged as a leading player in the DSP-for-telcos segment Rajiv C. Mody/CMD/Sasken Communication Tech

Touches Of Grey

The scarcity of micro-electronic engineers is an area of concern for India's blooming chip-design industry. The country's engineering colleges graduate between 250 and 300 VLSI engineers every year; the requirement far exceeds that. Indian chip-design companies-Wipro is an exception; it has alliances with leading Taiwanese chip makers like TSMC and UMC-do not boast linkages with the foundries (if you are designing something, you'd better know if it is physically possible to manufacture it). And most Indian companies do not have expertise in analogue and mixed signal domains.

Still, things could have been worse. Recently, Intel has announced its plans to establish a chip design centre in India. And two months ago, Pentium-man Vinod Dham instituted a venture capital fund that would focus on Indian chip design hotshops. "Wait till the end of the year," whispered one analyst. "There are some big outsourcing deals (in chip design) that will be announced." And so, an entire industry waits for the boom-to-be.