The race to make indigenous chips gathers pace

The race to make indigenous chips gathers pace

India was always globally renowned for its semiconductor design services. But a few entrepreneurs are now going several steps ahead to make indigenous chips as well.

Cosmic Circuits Co-founder & CEO Ganapathy Subramaniam Cosmic Circuits Co-founder & CEO Ganapathy Subramaniam
RBR Layout is a world apart from glitzy Whitefield or Electronic City where most of Bangalore's globally-renowned technology companies have their offices. Yet it is in this smelly, rundown neighbourhood that Saankhya Labs, one of just a handful of Indian companies that makes chips - the vital brain inside every electronic device - used to be located. The company's interior was as unimpressive as its surroundings - a drab double-storey building with no air conditioning, paint peeling off the walls, desks reminiscent of a government office. Strapped for funds, Saankhya Labs could not afford anything better. Two years ago, a prospective Singaporean client who visited the office was so shocked he could not take his eyes off the ugly-looking walls.

"Don't look at the walls, look at our technology," Parag Naik, Co-founder and Chief Technology Officer of Saankhya Labs, remembers telling him. And indeed, the PowerPoint presentation Naik made transformed the visitor's initial impression. Saankhya was then making a state-of-theart chip with 15 functionalities, whose uniqueness the presentation described step by step - the same chip could be used in televisions, set top boxes, personal computers and even mobile phones. Called a communication receiver, it could support multiple communication standards.


Estimated cost of taking a chip to the production stage in India

ON PEOPLE Rs 13-15.5cr




Rs 10.5cr
Though India has acquired a global reputation for information technology services and semiconductor design work, its contribution to hardware so far has been nothing to crow about. But that is changing with companies like Saankhya Labs, Cosmic Circuits, Ineda Systems, Aura Semiconductor, Signalchip and a few others leading the way. They are all making high-quality chips using what is called the 'fabless model' - they design and develop chips, and later market them, but outsource the actual fabrication to companies in Taiwan, China and Singapore, the world's premier hardware manufacturing hubs. It is a model followed by numerous other companies across the globe, including the United States, since setting up 'fab' units is extremely expensive. Intel's new plant in Arizona, called Fab 42, for instance, cost $5 billion (Rs 26,000 crore). One of the most successful fabless chip manufacturers, whose example inspired a number of the nascent Indian efforts, hails from Taiwan - MediaTek, which makes chips for wireless communication and digital multimedia.

Of the indigenous chipmakers, Cosmic Circuits is by far the most successful. Cofounded by current CEO Ganapathy Subramaniam and three others, it sells around two to three million chips a month, which are used either in touch sensors or in the power management processors employed by devices like tablets and smartphones.

Subramaniam spent 15 years at Texas Instruments, one of the world's biggest chipmakers, before starting his own company. "Most of our customers are in China," says Subramaniam, sitting in his laboratory, located near Whitefield. He has spent a million dollars on the lab, which he has fully equipped to conduct quality checks on the chips. One of the tests even involves putting them in a 'burning chamber' at a temperature as high as 150 degrees Centigrade to test their reliability. He notes that he has sold around 20 million units since his company began making chips in 2009, competing successfully against reputed, multinational chipmakers such as Maxim and Linear Technology.

Aura Semiconductor, two years old, again based in Bangalore, makes chips for TVs and mobile phones. Signalchip makes chips for use in communications. Hyderabad-based Ineda Systems is building a new kind of chip that will make tablets and smartphones much more energy- efficient. "Customers are open to entertaining Indian firms if they see a good team with experience, and as long as they understand what makes us different," says Balaji Kanigicherla, founder and CEO of Ineda Systems.

Why did India take so long to get into products? It has been providing semiconductor design services for over two decades now - Texas Instruments has had a Bangalore-based Indian subsidiary since 1985. But the transition from design to product is not easy, and it is only now, after nearly three decades of design services that India has a sizeable number of people capable of making it. "Fabless chipmaking is very complex unlike the Internet business, which is about business model innovation," says Naik of Saankhya Labs.

Not surprisingly, the founders of semiconductor start-ups are usually older - and thus more experienced - than their counterparts in the online business. When Sachin Bansal and Binny Bansal started retailing site Flipkart, for instance, in 2007, they were 26 and 25, respectively. In comparison, the Co-founder and CEO of Saankhya Labs Vishwa Kayargadde is 49, while Naik is 42.

The rise of mobile device s is now also helping Indian chipmakers, since they have increased the demand for chips. While products such as desktops may need only one processor and a memory chip, smartphones require at least four chips to work.

There is also the all important matter of funding. Indian venture capitalists are largely reluctant to fund semiconductor companies where developing the product can take as long as four years. Many of the present chipmakers have thus had to find ingenious ways to subsidise their early efforts.

Cosmic Circuits, for instance, began in 2005 as a semiconductor intellectual property company, licensing its technology to other chipmakers and used some of this income to fund its research. Aura Semiconductor started with design services. "When we looked around in 2008, there was no VC funding in the semiconductor space in India," says Kishore Ganti, its Cofounder.


Where fabless chip manufacturing stands in India today

Have started to mushroom. Examples: Saankhya Labs, Cosmic Circuits, Aura Semiconductor, Signalchip, Ineda Systems

Available. Indias legacy in design services means there are plenty of people with 20 to 25 years of experience

Missing. Few VC fi rms have specialised knowledge of fabless chip companies. Early bird VCs include Intel Capital

Hardly exists, but has great potential. Indias electronics market rarely sources local components

Exists. Manufacturing and packaging can be outsourced to Taiwan, China and Singapore.

"So the first step was to do things with your own money. Design was cash-flow positive from day one." Saankhya Labs was able to move into a presentable office only last year, after it won funding from Intel Capital.

An exception among VCs, however, is Hemant Kanakia, who is creating the Walden India Semiconductor Fund - along with Lip-Bu Tan, CEO of Cadence, which provides design tools to semiconductor companies. The fund, as the name implies, will focus only on semiconductor investments in India.

It has already invested in Cosmic Circuits, and hopes to fund around 15 such companies for a start. Kanakia, a US-based serial entrepreneur-turned-venture capitalist, explains why he began looking at India. "It has become fairly expensive to fund fabless start-ups in the US," he says. "The cost can vary between $70 million and $100 million, while in India it is possible to have similar ones with an investment of $5 million to $20 million. Again, the design cycle times are much shorter in India."

Saankhya Labs Co-founders Vishwa Kayargadde and Parag Naik
Saankhya Labs Co-founders Vishwa Kayargadde (L) and Parag Naik displaying one of their products
The other big problem is that a domestic electronics manufacturing industry barely exists. Fabless chipmakers have no choice but to sell the bulk of their wares overseas. A report by the India Semiconductor Association (ISA) estimates that by 2020, the overall semiconductor consumption in the country will be worth about Rs 3 trillion. But with the key parts of electronic goods sold here being mostly imported, this will hardly help the chipmakers.

"Currently, none of the Indian system companies manufactures in India. So they don't buy from us," says Dr Satya Gupta, Chairman of ISA, and Co-founder of Concept 2Silicon Systems, which is working on medical and other industrial devices.

That hardly augurs well, given the way consumption of electronic goods is growing in this country. Industry body Assocham has estimated that India's electronics market will grow from Rs 5 trillion in 2012 to Rs 20 trillion by 2020. (A trillion is one lakh crore.) Unless local manufacturing takes off, it will add substantially to India's import bill.