New synergy in the fabless arena: The Korea-India connection
11/01/2004
The relationship between Korea and India has never been stronger, and it now encompasses the world of high technology. The two countries are generating a new synergy in the fabless chip industry, with India leveraging its expertise in developing software and IP for leading-edge system-on-a-chip (SoC) designs, while South Korea delivers world-class manufacturing services from semiconductor foundries and assembly/test operations.
Over the last two decades, both countries have undergone major transformations. In the wake of the Asian financial crisis in the 1990s, Korea has successfully diversified its DRAM-centric semiconductor manufacturing expertise and infrastructure to include a broader base of foundry, assembly, and testing services. Meanwhile, India has experienced unprecedented economic growth due to liberalization policies implemented in the early 1980s. Today, India's population is the world's second largest with >1.2 billion people, of which 300 million represent the world's largest middle-class population. This middle class, which is well educated, professional, and has disposable income to adopt new products for lifestyle improvement, is the major reason for India's ~7–8% yearly GDP growth. More than half of India's population is under the age of 25 and eager to adopt new technologies and the latest electronics products. These demographics make India a technology marketer's dream.
South Korea: Major investor in India
The winner in this dream market is none other than South Korea, whose cumulative investment in India rose from a mere $2.5 million in 1991 to $2.3 billion in 2002, making it India's fifth-largest trading partner. The lion's share of these investments has been made by three manufacturing giants — Samsung, LG, and Hyundai — all of which have become household names in India.
These Korean companies recognized early that the large Indian market was virtually untapped, and proceeded to make heavy investments both in sales and local manufacturing. As a result, they have become undisputed market leaders in India, selling an array of consumer products ranging from cell phones, TVs, and other audio/video products to home appliances such as microwave ovens, refrigerators, and air conditioners.
Interestingly, Samsung and LG are the most highly sought consumer products among the brand-savvy Indians, who prefer the Korean products over other imported brands. In the Indian color TV market, LG enjoys >22% market share, while Samsung, with >15% share, is vying to become a market leader. Both have invested large sums in manufacturing and sales infrastructure. Because localization is being encouraged by the Indian government, Korean companies are finding that manufacturing is very cost-effective in India. Currently, Samsung and LG each manufacture >2 million TV sets/month in their respective Indian factories, and each has plans to expand its capacity significantly.
According to the recently published market research reports from Gartner, India (along with China, Russia, and Brazil) is one of the fastest-growing markets for cell phones. The same reports show that Indians purchased >18 million cell phones in 2003 and the number of purchases will grow in excess of 20% every year. Samsung enjoys >60% of the market share today, thanks to its roll-out of GSM phones.
In the PC and peripherals market, Samsung has managed to close the gap with IBM for laptops, and claims to have grabbed >30% of the laser-printer market in India. LG has made its intention clear to become the no. 1 supplier of desktop and laptop computers in India by investing heavily in the local manufacture of these products.
Even in the conventional automotive market, Korean companies like Hyundai and Daewoo have made large inroads, beating out Japanese and US companies. Hyundai is the second-largest car maker in India (behind Maruti Motors, an Indian car maker) and is seeing a 50% sales increase year-to-year in the family car segment. Manufacturing some of its cars in India, Hyundai is not only able to satisfy the local Indian market but export vehicles as well. In fact, Indian car exports grew >30% in 1Q04.
India: Design center for the world
India has made big strides in providing design services to semiconductor companies around the world. Today, virtually every SoC that comes to market has some content that was created in Bangalore, the "Silicon Garden" of India. All major semiconductor and EDA companies have design centers located either in Bangalore, Hyderabad, Pune, or Noida.
Among the major reasons for establishing a design center in India is the availability of well trained engineers, fluent in English, who are eager to tackle any design challenge using project-management disciplines to meet specific requirements and goals. Additionally, the lower cost of labor can potentially reduce overall cost of product development anywhere from 30–45%.
Texas Instruments, one of the first to move into India, currently employs more than 1000 employees in its TI-India operation. Started more than 20 years ago to design mixed-signal ICs, TI-India has grown into a true R&D center that focuses on various technologies, including 3G wireless chipsets, WLAN chipsets, and SoC design systems for ASICs and all TI business using 130nm and 90nm libraries.
Intel, which opened an R&D center in India in 1999, has scaled its center to 2000 employees, making it the largest nonmanufacturing unit outside the US. This Intel India Design Center boasts already designed chipsets for digital home technology, and has a mobile computing team that is developing chipsets for ultrawide-band.
Indian entrepreneurial spirit
There are more than 100 independent semiconductor-design houses as well as IP design providers, most of them with ambitions of moving up in the food chain to become semiconductor product companies. Just as in Silicon Valley, many engineers and managers in Bangalore are starting their own semiconductor ventures. One of the fastest-growing such ventures, for example, is Ittiam, a DSP-based IP provider, with a management team of all ex-TI employees. This venture capital-funded company started in 2001 and now counts Sony, Silicon Lab, and STMicroelectronics among its customers.
The emergence of Taiwanese fabless companies such as Sunplus and Mediatek represents a growth pattern that is also likely to prevail in India. These Taiwan ventures grew out of design houses to become product companies, thanks to the availability of silicon foundry services in their backyard — plus a hot local OEM market for their products. Just as in Taiwan, we can expect an increasing number of Indian fabless companies to spin out of the existing design houses over the next 5–7 years. However, we will likely see these new Indian fabless ventures using the well established semiconductor-manufacturing infrastructures in other Asian countries. Korea, with its longstanding economic and cultural ties to India, is well positioned to gain the most from the proliferation of fabless ventures in India.
The Korea-India fabless connection
According to Dhimant Bhayani, partner of INC3 Ventures, a VC firm that has funded multiple design houses and IP providers in India, the successful development of a fabless business model is following a new global pattern: "Start with an American vision for a solution, specify it in Silicon Valley, design it in India, and finally, manufacture it in South Korea."
The success factors supporting the Korea-India fabless connection are as follows:
- There exists a well established semiconductor-manufacturing infrastructure in South Korea that India will be hard-pressed to develop;
- There exists a large and well trained design-engineering talent pool with a wide array of IP available in India that South Korea currently lacks; and
- The two countries are well positioned to leverage their longstanding economic and cultural ties to build upon their complementary strengths.
DongbuAnam Semiconductor has been making steady inroads into the Indian semiconductor market over the past two years. For example, eInfoChips Inc., a design house with more than 10 years of experience in designing and verifying SoCs and ASICs for many major US-based semiconductor companies, has decided to build a product and test some IP cores using 130nm process at DongbuAnam. Input we've received from senior management at India-based design houses or IP core suppliers is that the Korean manufacturing infrastructure is seen as an attractive option. Most design houses striving to become product companies need very close support from both foundry and assembly/test houses, and businesses such as eInfoChips have found that Korean companies are the most willing and able to provide that kind of support locally.
Thus, contrary to the long-held belief that the Indian market is not big enough to target, and customers are not savvy in their product adoption, Korean companies have proven this untrue and have gained most in the process. While companies in the US and Japan are focused on "China-hype" and swiftly moving their manufacturing there, India remains the most sought-after place for tapping the "soft skills" such as software development, IP cores, and circuit designs. So leveraging the existing synergy between Korea and India has all the makings of a formidable semiconductor zone for the fabless foundry model.
For more information, contact Aabid Husain, director of sales and marketing, at DongbuAnam Semiconductor USA, 2953 Bunker Hill Lane, Santa Clara, CA 95054; e-mail [email protected].