Venture funding for India's IC design industry set to grow

Venture funding for India's IC design industry set to grow
By K.C. Krishnadas, EE Times
June 10, 2003 (2:52 p.m. EST)
URL: http://www.eetimes.com/story/OEG20030610S0025

BANGALORE, India — Venture capital funding targeting India's semiconductor design industry has so far totaled only $75 million, according to estimates. But industry expertsand venture capitalists predict venture funding is poised to take off as Indian companies, many subsidiaries of western firms, gain design experience.

The VC estimates, released by the National Association of Software and Service Companies (Nasscom), does not take into account investments by private companies into their operations here. It also excludes investments by Indian government agencies.

A key reason for the slow pace of IC investment here is the absence of fabs. The only fab worthy of the name, Semiconductor Complex Limited (SCL), at Chandigarh in northern India, was set up by the Indian government. By contast, billions of dollars have been invested in Chinese chip fabs.

The Indian government has so far been both unwilling and incapable of bringing in the mas sive investment needed to upgrade SCL. It has also failed to carry out a global search for joint venture partners to co-develop the facility.

Hence, venture funding is likely to initially be restricted to semiconductor design facilities, a segment which has been gathering steam in the last few years.

Nasscom President Kiran Karnik said India's growing design expertise coupled with a deep software talent pool make him confident that investment momentum would pick up. "The semiconductor industry in India is an upcoming one, with immense opportunities. We are quite sure that this sector [will] attract venture funding in the near future," he said.

Industry experts blame the high costs associated with the semiconductor production business for the lack of investment activity here. "The infrastructure required for semiconductor fabrication and the ecosystem that supports the industry are not present in India," said Sridhar Mitta, former research and development head of Wipro Ltd. who now heads the ventu re funding firm e4e Labs Pvt. Ltd.

Mitta said expensiive fabs are "not compatible with India's strengths, [which] lie in its abundantly available and still inexpensive technology workforce. So design becomes a natural area for investments."

Another problem, Indian executives stressed at the recent Design Automation Conference is India's distance from key global markets.

Experts here are unfazed by the lack of Indian fab capacity here. They said the fabless model is especially suited to Indian companies given their inability to raise huge amounts of capital for a fab. The dominance of contract manufacturers such as Taiwan Semiconductor Manufacturing Corp. and others in the region also mitagates against spending on a new fab.

Besides, information technology in India has been synonymous with those providing software services. "This was also a known and proven business model," Sanjay Anandaram, managing director of Jumpstartup Fund Advi sors. "This encouraged venture capitalists to put their funds into such firms."

Only in the last two years has there been an uptick in VLSI design activity. This coupled with the large number of Indian-born designers returning has raised prospects and drawn the attention of investors.

"The number of people who understand the semiconductor industry are forming a critical size only now. Earlier there were not many who understood issues such as patenting and protecting intellectual property rights, which is essential to the semiconductor industry," Anandaram said.

Nasscom's investment figures don't tell the whole story since all investments, including those by industry and the government should be taken into account, said M. Harish, business developments manager for Texas Instruments (India). He said investment in semiconductors has been hindered by low semiconductor product consumption in India, which is about $500 million a year compared to the $250 billion global market.

Along with this, Hari sh said Indian universities must begin teaching more VLSI design courses. "These issues have to be fixed to get investments into semiconductor design, fabrication, tools, packaging and material science research.

"That will create number of opportunities for further investments in semiconductor and allied industries," Harish added.