Semi design services explode in India; startups face increased costs and competition

By Chitra Giridhar, Contributing Writer -- Electronic Business, 1/16/2007

With the $3.25 billion semiconductor design services market in India forecast to reach $14.4 billion by 2010, according to a recent ISA-Frost & Sullivan report, it's no wonder that startups are sprouting up all over.

Companies such as Cosmic Circuits, Sankalp Semiconductor, Indrion Technologies and Ammos Software Technologies are spearheaded by former multinational-company senior executives now eager to blaze new trails.

"Market opportunity and the easier availability of funds are among the reasons startups are happening," says Rajendra Kumar Khare, chairman of the India Semiconductor Association.

Khare, the former head of Broadcom India, has himself been bitten by the bug: he and four industry veterans are starting IndusEdge Innovations, in the digital video space.

Good model for startups, study says

An industry study, "India Semiconductor and Embedded Design Market (2005-2015): Growth, Trends and Forecasts," coauthored by ISA and Frost & Sullivan found that the larger independent design service companies in India generally adopt a fixed price model, while most smaller design service companies use a time-and-material cost model and execute fixed tasks assigned to them.

Since the capabilities required for implementing fixed tasks are not particularly onerous, this model is ideal for startups, according to the report. One example is Ammos Software Technologies, which has diversified into providing outsourced teams for ASIC design. "We want to complement customer design/product teams to successfully tape out designs within the target cost and schedule," says CEO Syed Ajazul Huq.

The study also says that most of the startups in the VLSI design service market are optimizers whose business model supports a specific activity in the VLSI design value chain.

Another successful startup is Cosmic Circuits, in Bangalore, which was founded in 2005 by former Texas Instruments staffers. The provider of analog, mixed-signal and RF silicon IP cores has a staff of 56. The company has developed a set of IP cores that can integrate power regulators on an SoC to reduce component counts and costs, says founder Ganapathy Subramaniam. Another example he cites is a silicon oscillator, developed and tested in 0.35-micrometer technology, that can substitute for a crystal oscillator in medium-accuracy (+/–2 percent frequency tolerance) control applications. Since the crystal is eliminated, the associated cost goes down by about 15 cents, thereby reducing the bill-of materials, Subramaniam says.

Not all companies are rushing to set up design centers in Bangalore, otherwise known as India's Silicon Valley. Sankalp Semiconductor set up a VLSI design center in Hubli, a small town 250 miles north of Bangalore, in collaboration with B.V. Bhoomaraddi College of Engineering & Technology. Sankalp, an analog/mixed-signal semiconductor service provider, was founded in 2005 and is currently working with customers to provide mixed-signal layout services, including memory layout in 45-nanometer and RF CMOS layout in 65-nm technology.

"We launched a mixed-signal verification service one month ago, with a focus on cycle time improvement and quality metrics," says CEO Vivek Pawar (another ex-Texas Instruments executive). The company is currently working with customers on CPU, medical imaging, broadband, automotive and wireless applications. "We have plans to launch a turnkey service within six months to enable customers to port ICs from one technology to other," reveals Pawar.

Another innovative venture, Indrion Technologies, which works on embedded semiconductor solutions for sensor control networks, is promoted by Uma Mahesh. Mahesh is a serial entrepreneur who started Arcus Technology, India's first private semiconductor company, in 1990. In 1999 Arcus was acquired by Cypress Semiconductor. In 2002 Mahesh founded InSilica Semiconductors. "Our plans are to deliver first-version software in four quarters, deliver FPGAs and evaluation boards in about six, and the first silicon in nine quarters," says Mahesh. Indrion is now seeking formal first-level funding to ramp up engineering.

Semi startups have their challenges

According to Sanjay Anandaram, founding partner at venture capital company JumpStartUp, which has funded companies such as HelloSoft, startup companies in India are typically looking to obtain between $2 million and $8 million in funding. However, he is not sanguine about the prospects of all startups.

"The semiconductor sector is tough for an Indian startup," Anandaram says. "Access to markets, capital, and talent is among the issues that need to be addressed."

Mahesh concurs that the challenges of creating a successful startup have increased. "Costs have risen significantly—as have the risks and competition."

Adds Ash Linani, head of investment bank SVB Global, "The entrepreneurial ecosystem in India is heading in the right direction. Some of the factors that will help—such as additional capital and venture capitalists to advise young companies, management talent's returning to India and an increased tolerance for risk among Indian engineers—are starting to have an influence."