CIRCUIT BARRIERS NOT ANYMORE - I

BV Mahalakshmi, June 22, 2009
The Financial Express

Indian semiconductor industry is getting down to business. Overcoming months of lower demand and anxiety on account of the global economic slowdown, the mood is humming along nicely now.

There are signs of revival in the global semiconductor industry and optimism for the semiconductor players—domestic as well as multinational—is brewing on account of the strong domestic sales in recent times. The main sectors driving semiconductor sales in India are telecom, automotive, industrial electronics and consumer electronics. Other sectors like solar, renewable energy, intelligent healthcare too are chipping in with their growing appetite for semiconductor products.

Inventory periods for semiconductor products have reached a 60-day level in the first quarter of 2009, as compared to a 77-day period in the last quarter of 2008. The Indian Semiconductor Association (ISA) estimates the total revenue of the Indian semiconductor market to grow from $5.9 billion in 2008 to $7.9 billion in 2010 at a CAGR of around 13 percent. At the same time, ISA feels that the current slowdown will impact manufacturing investment prospects in the country.

In spite of this, one of the bright spots, according to Gartner, is that the PC and the laptop markets have bottomed out and things are likely to improve. The utilisation of fabs, which was less than 50 percent just a few months ago, has picked up. Some of the chip manufacturers have witnessed a growth in their quarterly revenue forecasts. The wireless handset market—one of the biggest consumers of semiconductor chips—continues to grow. At the same time, the automotive sector is witnessing an increasing adoption of chips into the vehicles.

Bolstered by the positive growth sentiments, semiconductor companies are getting ready for new opportunities of growth. For one, the government’s resolve to modernise the three wings of its armed forces—army, navy and air force—by investing vast sums of money in the latest armoury, could be a money-spinner for the semiconductor industry. Other than that, WiMax, 3G, DTH, medical electronics, photovoltaic and nano-technology are some of the growth areas over the next few years.

Rural opportunities spawned by cheaper handsets, affordable services and enhanced connectivity have resulted in millions of subscribers across India. This price reduction can be attributed to smarter semiconductor components, coupled with efficient manufacturing techniques. No wonder, there is an opportunity for the semiconductor industry as the investment in urbanising India stands at around $500 billion.

Another growth area is bridging the digital divide with more than five billion people around the world who have never had access to or used computers, informs Intel chief sales and marketing officer, Sean Maloney. He believes the best way to solve this problem is to address both cost and connectivity challenges. On a recent visit to India, he disclosed an initiative Intel is working on in the country called ‘Project Blue’ that combines affordable net-tops based on the Intel Atom processor with WiMAX connectivity.

The communications segment is a key semiconductor revenue generator. Buoyed by the growing emphasis and initiatives for broadband penetration, the roll out of 3G services later this year and government initiatives to enable rural connectivity, this segment is expected to become even more attractive. Also, the industrial segment has historically been a high contributor to the semiconductor revenues and this trend is expected to be further strengthen during the forecast period. The entire production for the high volume markets of inverters, offline UPS and energy meters take place locally thereby ensuring high consumption of the semiconductor components used therein.

Madhusudan Atre, president, Applied Materials (India) feels that the automotive sector is one of the biggest consumers of chips. “High-end cars require a great amount of automation and require as many as 300 to 400 micro-controllers, which help control everything—from temperature to tyre pressure, navigation etc. Some of these technologies will also penetrate the medium and low-end cars. Hence, there is extraordinary potential for the semiconductor industry,” he adds. In addition, the key-driving factor for this segment is expected to be the environmental regulations aimed at reducing emission levels as also the continuous drive to develop safer and sophisticated vehicles.