The industry needs to explore the possibilities that rural India offers as a market as well as the emerging middle class

S Janakiraman

Advisor and Executive Committee Member, ISA

On India market size

As per ISA-Frost and Sullivan report, the total market for semiconductor consumption is estimated at USD 4.39 billion (Rs. 21,950 crore) for 2008 and is projected to reach USD 5.49 billion (Rs. 27,450 crore) by 2009, growing at a CAGR of 26.7 percent. The total available market (TAM - electronic products incorporating semiconductors manufactured in India), currently worth USD 2.38 billion (Rs. 11,900 crore), will reach USD 3.18 billion by 2009 (Rs. 15,900 crore), growing at a CAGR of 35.8 percent.

The higher CAGR for TAM indicates an increase in local manufacturing of electronic products. India has the potential to meet almost 43 percent of this demand with locally manufactured products. Embedded software will make up almost 80 percent of chip design revenues followed by VLSI (13 percent) and hardware/board (6 percent). The total design workforce will go up to 182,538 in 2009, growing at a CAGR of 19 ?percent.

On key growth drivers

Telecom continues to be the main engine for growth and will make up 41 percent of the total available market. The mobile handset manufacturing will grow. The innovation in services from the service providers and the demand for low cost GSM and CDMA handsets will sustain momentum of higher volumes. We will also see increasing acceptance of emerging technologies like WiMAX and VoIP, which will push TAM revenue upwards. The onset of DTH has created a demand for set top boxes or STBs. ASIC consumption will grow with local STB manufacturing in the growth period. With number of four wheelers increasing in India and the statutory regulations being enforced on emission and safety, the semiconductor industry will benefit from growth of automotive industry.

India's average cost of talent is also lower than in most other countries. India has potential to deliver higher productivity on high complexity - medium volume products. The Special Economic Zones (SEZs) are being leveraged by electronic manufacturing services (EMS) companies to set up their manufacturing bases not only to address the Indian market, but for exports too.

On major challenges

The fact that TAM is less than half of the total market is a cause for concern as well as an opportunity to leverage the headroom. Unlike electronic manufacturing, the semiconductor manufacturing is much more CAPEX intensive and needs a complete ecosystem. We are progressing slowly on this and not leveraging the semicon policy promoted by the Government of India. India should focus on strengthening manufacturing eco system, design capabilities in creation of end to end products, leveraging the growing Indian market through launch of India-specific products, etc.

On future prospects