India struggles to fill talent void

Sujeeth Joseph had a bachelor's degree in electrical engineering from Bombay University and three years of experience when he joined Wipro's fledgling IC design service in Bangalore in 1994. Now one of India's big success stories, Wipro is best known as an IT and business process outsourcer. A dozen years ago, it had fewer than 100 people on its VLSI design team, doing mostly piecemeal work from global semiconductor companies.

Wipro's VLSI team has evolved from job shop to full design services, with 1,400 engineers, including more than 840 IC designers. It began to win business in ASICs and SOCs five years ago and in the last two years has taped out 125 designs in automotive, consumer, industrial and other segments. About 25 percent were 130 nanometer and 10 percent were 90 nm, including as many as 20 million gates. It recently taped out its first 65-nm design.

The growth of IC design at Wipro is the story of IC design in India. The Indian design business, including multinationals and domestic companies, is forecast to grow 23 percent per year, reaching $1.72 billion by 2010 (see "Revenue Growth in India's IC Design Industry," page 43).

Several factors are driving the growth: the chip industry's increased globalization, a shortage of engineers and growing costs in the West, and qualified talent and lower salaries in India.

But with growth can come growing pains.

Indian engineers are hardworking and eager to learn. They're also eager to further their careers. Like Silicon Valley engineers during the 1990s gold rush, Indians are quick to job-hop for fatter nuggets. There's a shortage of hardware engineers, so they have many opportunities. The industry turnover rate ranges from 15 percent to 20 percent—and salaries keep rising.

By some estimates, the demand/supply gap threatens to push salaries to average Western levels within five years. Some executives at global companies admit that low salaries were one reason they went to India but maintain that the other—talent—is the reason they'll stay even if costs reach parity. Some skeptics doubt that, believing that global companies will eventually turn to the next cheap labor market, wherever it is (see "Wage Spiral" below).

Texas Instruments is one company that is in India for the long haul. "Even if salary rates equalize, India will be a consistent part of our global strategy," says Greg Delagi, TI vice president and general manager of DSP systems.

In 1985, TI became the first multinational to open a design center in India. Today it employs 1,400 people, about 60 percent in hardware, in Bangalore. "They're working on a lot more than chip design, including development tools; applications software; and, increasingly, entire systems," says Delagi. "Their work includes high-performance analog, leading-edge DSPs and complete SOCs."

TI's India center designs at 90 nm and has begun doing 65 nm. "IC design capabilities in India are as advanced as any on the planet," says Delagi. "Compared to our teams in Dallas, Nice, Tokyo and Tel Aviv, there are no limitations in India."

India is further along in design than China, Delagi adds. India's most advanced engineers are at least two process nodes ahead of Chinese engineers. India has other advantages over China, including superior technical education, excellent English-speakers and IP protection laws like those in the West. Compared to China, India has as many or more engineers who began their careers in the West and then returned home (see "First Class to China," September 2006 issue).

Yet when it comes to a broad electronics ecosystem, India lags behind China. India has the IC design, software development, IP creation and EDA skills, but manufacturing—especially consumer electronics—is just now starting to take off. According to a recent study by market research firm Frost & Sullivan, sponsored by the India Semiconductor Association, India's electronics consumption could reach $363 billion by 2015, much of it produced by Indian manufacturers.

Because India doesn't have much manufacturing, few engineers have designed end products such as cell phones and audio players. "OEMs are just now starting to show up, so this will change," says Delagi. SOC designs in particular require knowledge of end products, so TI's Indian engineers work on specific markets long enough to develop their "systems IQ," as Delagi puts it.

India has no chip foundries, which most multinational executives consider irrelevant. They're used to designing in Texas or California for foundries in Taiwan or Singapore. Executives at Indian companies don't exactly see it that way, though.

"Not having foundries is a bit of a disadvantage," says Vilas Bhade, director of engineering for Sasken Communications Technologies, founded in 1989 in Bangalore. Today the company has nearly 3,000 staff members concentrating on embedded telecom ICs. "You can bring something new to the global market only if you have the end-to-end value chain. India is looked at as a knowledge base, not as a production base. If you need a complex SOC, we have all the expertise except the ability to make the silicon."

Jagdish Rebello, an analyst at iSuppli, a market research firm, agrees: "Foundries are relevant to some extent. It is a slight negative that India doesn't have one. There's no way to test and validate without going outside."

Frost & Sullivan estimates that India's domestic market for chips was $1.2 billion in 2005, mostly for white goods. As consumer electronics take off, domestic chip consumption is expected to grow to $14.42 billion in 2010 and $43.07 billion in 2015.

SemIndia, a consortium of Indian technologists, including some returnees, hopes to erase the fab deficit through a $3 billion investment to build a foundry in Hyderabad. The 200-millimeter and 300-mm lines will make chips for consumer and industrial electronics for the Indian market. SemIndia reached an agreement to license chip-making technology from Advanced Micro Devices in November 2005. Investors include Flextronics, one of the largest EMS companies, which has a plant in India. (See "India tries to get its fab groove going," ELECTRONIC BUSINESS online, May 23, 2006.)

The fab deficit has not stunted design services. According to iSuppli, India's design services industry grew from revenue of $511 million in 2004 to $623 million in 2005. About 30 percent was produced by homegrown companies. India has about 125 companies doing design, including multinationals, domestic companies such as Wipro and Sasken, and a handful of Silicon Valley startups with Indian R&D centers (see "India Design Services by Segment, 2005," page 44).

What does stunt the growth of design is a shortage of hardware engineers. In 2005 India had more than 11,000 VLSI designers, according to Frost & Sullivan. By comparison, the country had more than 60,000 embedded-software engineers in 2005. The study suggests that India will need 78,000 VLSI designers by 2015, and it isn't clear where they'll come from.

According to iSuppli, demand for VSLI designers and EDA engineers, combined, in 2004 was 4,400 but the supply was 1,340, a 70 percent shortfall. iSuppli attributes the gap to several factors, including selective hiring by multinationals, a dearth of design courses, a shortage of qualified faculty and a lack of infrastructure in schools. The hardware engineer shortage has hit all electronics centers but is especially acute in Bangalore, where at least 70 companies, domestic and global, have IC design operations.

"There's high demand for experienced engineers," says Vivek Sharma, vice president for emerging markets and director of the India design center for STMicroelectronics, which also arrived early in India: 1992. Among the multinationals, it has one of the largest staffs: 1,650, mostly in Greater Noida, with 50 in Bangalore. About two thirds do hardware design. "The average national turnover rate is around 15 percent, and we are within that average," Sharma says.

Many of the big multinationals—TI, Freescale Semiconductor, Infineon Technologies and others—have less than 10 percent turnover. Their executives argue that the type of work they assign to Indian teams, and the effort they put into training, keep attrition in check. "If you treat them like a job shop, you're going to have retention problems, but that is true anywhere," says Delagi.

This is a key point, one that some multinationals and most domestic companies have begun to understand: In India, as elsewhere, it is important that engineers have ownership of designs and work on advanced technology.

"We have very low attrition, because we have our India team do end-to-end products at cutting-edge processes," says Sumit Sadana, senior vice president of strategy and business development at Freescale, which has 800 engineers and plans to increase staff to 1,500. Three fourths are in Noida and are focused on hardware; the remainder are software developers in Bangalore. The engineers work on complete designs at 65 nm in wireless, networking and transportation.

Freescale gives each job applicant a test that Sadana says is tougher than the entrance exams to India's top technical institutes. "Within the first hour of the test, 80 percent drop out," Sadana says. Hours of grueling interviews await those who pass. Sadana believes that the rigorous process creates a situation that helps make hires want to stay.

High-profile multinationals such as Freescale can probably get away with these tactics, but not everyone can afford exclusivity. Startups with staff in Silicon Valley and large India R&D resources—the "hybrid" model—must find other ways to keep people from leaving. Stock options and other Silicon Valley-style incentives help.

Open-Silicon, a three-year-old Silicon Valley company that does ASIC designs for various clients, has 65 engineers in Bangalore—about two thirds of its total staff. CEO and cofounder Naveed Sherwani says the company offers a bonus to employees who remain three years, paid over the course of the fourth year. If they remain five years, they'll get another bonus, paid during the sixth year. Turnover has been 5 percent, but Sherwani expects it to rise. "There are a lot more choices for young people."

Sherwani once thought he might need 200 engineers to get the productivity his 65 engineers now accomplish. The company has had about 70 design wins, many of them at 90 nm. The ASICs power everything from consumer devices to entertainment systems for the airline industry.

Executives at Ample Communications, another Silicon Valley/India hybrid, which develops silicon for wireline communications, have also been surprised by the rapid improvement of their 50 engineers in Bangalore. "We wanted them to crawl, then walk and then run," says Vish Akella, cofounder and CEO. "We skipped the walking stage and went directly to running. The team in India is capable of designing the next set of products with only cash help from the home office."

The Indian team has designed three chips, one in collaboration with the Americans and two on its own. It is working on several new designs at 90 nm. "They have a lot of pride," Akella says. "They don't want to be second-best at anything."

Many executives see an intangible trait. "There's an attitude here, an extremely positive attitude," says Albert Stritter, vice president and managing director of Infineon's Indian facility, which employs 600 hardware and software engineers in Bangalore. "We ramped up here much faster than I expected."

Previously as Siemens Semiconductor, the company had a small staff in India (in April 1999, Siemens' semiconductor activities moved to Infineon Technologies, a wholly owned Siemens company). Today the Bangalore team not only works on complete designs at advanced processes but also develops design flow and libraries for company-wide use, including the 45-nm process.

Stritter says the educational system is responsible for the high level of talent. Although not known as research centers, India's best technical universities offer an education that matches the best in the West, he says.

The best university programs are excellent, but there aren't enough of them to produce the hardware engineers India needs; this remains the biggest reason for the shortage. In a December 2005 report, iSuppli concluded, "Although engineering colleges and private training institutes are making efforts to establish links with the industry to reduce this gap, more initiatives with respect to training programs in the industry are required."

iSuppli notes a shortage of graduate-level design courses and of qualified faculty, in part because they can make more money in industry. Many schools can't afford the infrastructure that semiconductor education requires. The top technical institutes are strong in these areas; regional colleges and private institutes fall short. The government has set up several regional VLSI design centers to help train engineers at 25 regional institutes.

TI, STMicroelectronics and most other large multinationals are engaged in university programs to help build design expertise in India. TI, for example, has programs in DSP design that reach 10,000 students per year at 350 universities. "We want engineers to come out of the schools understanding DSPs, so we have extensive programs at the universities, helping them educate the students," says Delagi.

STMicroelectronics' Sharma agrees that private industry must help the universities.

"If I look at international standards, the way industry and education can collaborate does not exist in India yet," he says. "So we need a lot more work. The top universities also need to move toward research. We are working with some of the top technical institutes to help them do that, but a lot more can be done." EB

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