Talent pool, outsourcing propel India's design firms
This spring ATI Technologies announced that it would invest an additional $50 million and increase the number of employees from 175 to 400 at its research facility in Hyderabad, India.
"The India development team has helped us develop products faster and more efficiently,” says Adrian Hartog, senior vice president, ATI Technologies Inc.
The Hyderabad center plays a key role in the company’s strategy to develop products that meet mass market price-performance demands, adds Dasaradha R Gude, managing director of ATI Technologies India.
ATI is just one example of how Indian design organizations are moving beyond simple labor cost arbitrage to becoming true contributors to product innovation. In fact, this year a number of marquee brands have invested in new design operations in India or significantly expanded existing facilities. These companies include Agilent, Via, Dell, Rambus, Windriver, Wolfson, Austria Microsystems, Tensilica and Sandisk. And it is not just captive design units that are expanding at a furious pace. Third-party outsourced design service providers based in India are also on a tear. Companies like Wipro have even made overseas acquisitions to beef up their design service offerings.
Several factors are driving this trend. One is the competitive pressure companies face to create new products and bring them to market faster, or add new features and functionality to existing ones.
“R&D outsourcing is becoming a strategic option,” says Vasudevan Aghoramoorthy, vice president of the VLSI Group at Wipro Technologies.
On the operational front the trend is driven by “lower costs, a good talent pool and growing global recognition of the ability to take up complex and end-to-end product designs,” says Srinivasan Janakiraman, president of R&D Services at MindTree Consulting Pvt Ltd.
Design partners wanted
About 200 semiconductor companies currently operate a facility in India, and about 120 of those are into chip design (the remainder do software development). Frost & Sullivan estimates the total design market in India is $3.25 billion, with embedded software comprising 78 percent of that figure. The research company predicts that Indian design industry services will grow to $43 billion by 2015.
Is the trend towards company owned captive design units or third-party service providers?
“Larger semicon companies (both fab and fabless types) are going with multiple strategies to optimize their cost of operations and development,” says Praveen Acharya, vice president of the Semiconductor Solution Group, KPIT Cummins Infosystems Ltd. “They are setting up captive design centers where it is critical for IP protection, and simultaneously teaming up with third-party design services to enable ‘bread and butter’ engineering development. The mid-size semicon companies (mainly the fabless types) tend toward third-party design service providers since it cuts cost of operations—and adds directly to the bottom line.”
Earlier this year KPIT Cummins Infosystems Ltd acquired another Indian design outfit, CG-Smith Software Pvt Ltd, to strengthen its service offerings in the automotive electronics segment.
Tapan Joshi, vice president of marketing at eInfochips Inc., says the evolution of skill sets at Indian design companies is blurring the line between chip design and embedded system design.
“There is a change in the level of services being offered; it is no longer about doing point project executions for verification, or back-end,” he says. “Customers are increasingly demanding turnkey ASIC design services--from spec to silicon, and packaged tested parts. Semiconductor clients want design partners who can help take working silicon to a reference design or customer prototype. The line between chip design and embedded system design is blurring.”
Third-party service companies are also moving with the tide, offering more services.
“While the captives are playing the role of co-innovators (i.e., in-house IP development), the third-party service companies are upgrading themselves from being optimizers (i.e., supporting a specific activity or a certain set of activities across the VLSI design value chain) to becoming technology enablers,” notes Poornima Shenoy, president of India Semiconductor Association.
Says Himanshu Singh, executive director of Cadence Design Systems (I) Pvt Ltd., “Third-party companies are focusing on developing IP, and a number of them are moving up the value chain by owning end-to-end product design.”
The Indian industry players are undoubtedly optimistic about future prospects. “As the pressure to ensure more efficient return-on-investment in R&D expenditure increases, multinational companies are realizing that closed innovation may not be the right way to go forward,” Vasudevan says.
Added to this is the growing realization of the cyclical nature of the product business—which is prompting many companies to keep a portion of the engineering as variable cost—and the predictable move to third-party design houses.
Janakiraman of MindTree Consulting Pvt Ltd. predicts that industry segments that will experience growth in design sourcing from India include wireless handsets, consumer appliances and automotive electronics. Concurrently, the demand for design services is also becoming geographically diversified. He adds that some hardware manufacturers from Taiwan, China and Korea are interested in collaborating with Indian companies to improve designs. Taiwan’s Institute of Information Industry, for example, has announced plans to invest $1.5 million in an offshore development center in Chennai. The center will reportedly take on projects for public and private sector companies in Taiwan, and will focus on embedded systems, chip and product design.
Data Sources: India Semiconductor Association, Frost & Sullivan
