"In the next 10 years, there will be dimensions of scale that will justify manufacturing, both by Indian corporations and MNCs"

The resemblance is striking. Pasquale Pistorio, CEO of the Geneva-based $7.2-billion chipmaker STMicrolectronics is a dead ringer for Vitalstatistix, the chief of the Gaulish village we all know so well form the works of Messrs Goscinny and Uderzo. That's only apt: within his industry, Pistorio is a legend of sorts. The great microprocessor meltdown of the early 2000s left ST unscathed, thanks largely to Pistorio's decision (as early as the 1990s) to focus on chips for devices and appliances, not just computers. The 68-year-old was in India to inaugurate ST's new development centre in Noida, a Delhi satellite. He spoke to BT's R. Sukumar about India, ST, and (listen carefully) the technologies he is betting on to stimulate chip demand in the future. Excerpts:

You're an India regular. How many times have you visited the country?

Many times; roughly, once a year. We opened a liaison office in India in 1984, or 1985, and the software centre in 1989. If I go back in time, I think what influenced my decision was that India had the intellectual infrastructure to provide the right talent to any position in the company.

The university system was excellent, the school system was excellent, the legal system was very good, and the people were educated. This was a big decision: so, in 1989, we started hiring young (Indian) engineers and sending them for training to Europe. From that point to now, we have 1,500 people. So, it's been a pretty good and satisfying experience.

There were problems in the late 90s, when people were leaving ST because there was a boom in software and everyone was going to the US. We were becoming a kind of training base...but again, the experience of all this was very good.

There is another reason for our presence in India, and this is our philosophy. You get into a market for several reasons: resources you wish to tap, access to the market of your products, and economic conditions. In India, the resources are there, the economic conditions are there, but the market for our products is not there. I believe that in the next 10 years-and hopefully in the next three to five years-we will see very fast growth in the demand for our silicon because there is a fast-growing affluent middle class and a strong demand for electronic appliances. There will be the dimensions of scale in the market that will justify manufacturing, both by Indian corporations and MNCs in India to manufacture.

Why Noida, and why not Bangalore? When you set up shop, the only other chip major here was Texas Instruments and it was in Bangalore.

That's right and we were the next. We are now opening a centre in Bangalore. But in 1989, Delhi, the capital, was better in terms of infrastructure: (for instance) international connections. Then, when the time came to put down our second centre, we asked ourselves, 'Why not Bangalore?'. Then, we decided to stay where we already were.

Now, with the presence of so many multinational companies, Bangalore has become a very dynamic environment that requires our presence. We are opening this office and we have rented space for it. If things work out, we will go ahead and make a campus there too, but so far we think this is a great place. There is also another advantage here. The employee turnover in the Noida area is much less. In our business, this is a big advantage.

You were speaking about the Indian market...What kind of volumes would you need before you think of manufacturing in India? Volumes are picking up in cellular phones, set top boxes...

I don't think it's only volumes. Our current infrastructure, our locations of manufacturing, will serve us in our plan of expansion for the next five years. So, for the next five years, we do not perceive the need to look for other locations for manufacturing operations. However, after then, we will see if the volume pushover will be able to justify...I think the market is going to grow 10-15 per cent a year worldwide; India will grow double that. So this market will become very important. Our sales here will grow very rapidly.

"The market is going to grow 10-15 per cent a year worldwide; India will grow double that. Our sales here will grow very rapidly"

How location specific do you need to be in the chip industry?

For some products, very, for some, not at all. There are certain basic products like memory. You can do memory chips in Taiwan or Korea, and ship them all over the world. But if you are making customised chips, then it is advantageous to be close to the customer.

How closely do you work with contract manufacturers like Flextronics?

Flextronics is a big customer. So is Solectron. I've read in the press that Flextronics is considering a major manufacturing presence in India. They see what we see, the growth of an affluent middle class demanding electronic appliances and, therefore, there is no need of importing, you can manufacture here.

If you allow me to be honest and frank, I think the Indian environment is a bit difficult for manufacturing for two reasons: the procedural or bureaucratic system is too slow for the speed of our industry. And the other one is infrastructure. Telecommunications is no longer a problem in India, but your airports do not reflect a major manufacturing power.

ST didn't get affected when the microprocessor industry went into a slump in the early 2000s because it had already decided that it would focus on chips for appliances and cellular phones in the early 1990s, a revolutionary strategy at a time when everyone was looking at computers. I believe you invest around 10 per cent of your operating profit every year on researching future technologies...

First, let me specify the number. The operating profit is variable; so I will make it sales. We invest 0.5 per cent of sales in research, non-product linked research. Companies that plan to stay here in the long run must look into the future. We spend $30-$40 million a year doing this; in research activities that are associated with future revolutions like nanotechnology, biotechnology, and MEMs.

A company has the obligation to serve the future. We have engineers in the Berkeley; we have engineers in MIT, in University of Melbourne, we have engineers in the most advanced universities of Europe, and this is a window in the knowledge areas that we spend some money. Not in isolation; we are working with centres of knowledge at the most advanced universities of the world to be sure we'll be catching it early enough. For example, this so called system on chip, that has been the buzz word in the last 10 years; if I remember, in 1983, when we opened our design centre in Germany, we were speaking publicly on the system solution on silicon, well, the system wasn't there, but we knew this was the way technology was progressing.

Name one emerging technology important from ST's point of view.

One is MEMs, which is not so emerging; it is emergent. When we started working on it, 10-12 years ago, it was emerging. Now, it is coming into 'volumes'. Second one that is relatively closer is biotechnology applied to biochip. Not having organic material based transistors, but having biotechnology applied to silicon so that we can have medical applications. In the next five years, you are going to see a huge variety of biochips for medical applications, DNA identification, lab on a chip. Third one, which is a bit remote, but which has huge implications is nanotechnology.

Nanotechnology can create totally new materials. To mention some of the things we are working on: we believe that you can do solar panels using plastic dotted with nanocubes rather than silicon. This way we can have photo-electric conversion at the price of oil. If you can generate electricity at the price of oil it will be fantastic. Then, there is photonics. We have invented long ago, silicon emitting light, and using the light to connect parts within the silicon, instead of using diodes. We see a huge potential if the light can become the connecting material rather than the wires, the speed will increase.

How important are the India operations to ST?

Very important. Let me make some quantification. If I look at the workforce of ST, it's about 44,000 people. Out of those 44,000 people, there are 8,500 engineers. Out of that, 1,000, going on 1,500 are here. We are saying that over 10 per cent of our R&D population is in India. In the next three to four years, we will more than double this population in India, but we will not more than double our overall engineering workforce. Because you have very good engineers. At the output level, an Indian engineer costs much less than an European engineer.