By Jim Montgomery, News Editor

India’s semiconductor design industry will nearly triple in size over the next five years to $1.7 billion, as domestic and international suppliers rush to take advantage of a fast-growing market, low-cost design talent, improving infrastructure, and government support, according to a recent report from analyst firm iSuppli Corp.

Since Texas Instruments established the first captive design house in India two decades ago, more than 100 companies have established semiconductor design operations there, with about 70% of the industry held by multinationals including TI, Intel, Cypress, Infineon, and STMicroelectronics. A key factor driving interest in India’s chip design industry is lower costs — offshoring creates aggregate cost savings of 25%-50%, and salaries for skilled employees are about 80%-90% lower. Salaries are offset somewhat by higher training costs and productivity concerns due to cultural differences and security issues, according to the El Segundo, CA-based firm. Other factors include rapidly growing local markets, a strong education infrastructure, short product lead-times, reduced barriers to entry, rising government support, and improved infrastructure.

India’s chip design sector still faces many challenges, iSuppli noted. Even with a strong education network, there was an unfilled demand for more than 3000 professionals in 2004. That gap is expected to shrink over the next few years thanks to government initiatives, industry-academia collaboration, and better recruitment and training policies, but attrition also will be high as in-demand skilled workers hop from one company to another and salaries escalate. Other challenges to domestic chip design growth include the relative absence of a domestic manufacturing industry, and growing competition from other low-cost destinations elsewhere in Asia as well as Eastern Europe. — J.M.