India's chip design revenues to rise 330%

Declining margins for overseas product companies.

India is fast emerging a popular place for designing cellphones, high-definition TVs, media players and other 'smart' devices for western and Far-Eastern companies, according to the latest survey by global market research firm Frost and Sullivan.

The study, commissioned by the India Semiconductor Association, claims that the revenues from designing computer-embedded products is set to go up a staggering 330 per cent to nearly $14 billion in the next five years, from around $3.25 billion (Rs 15,000 crore) in 2005.

According to the study, around 75,000 engineers were engaged in designing 'smart' products which contain microchips that control their functions in 2005, generating an estimated $3.25 billion value for their Indian and foreign employers.

As per the latest results, the revenue from designing smart devices "" both hardware and software "" is worth around double the value of the 'normal' software products designed for full-scale computers and servers in India. It is, however, only about a fifth the size of the country's revenue from software services, the mainstay of the IT industry.

"There are many reasons for the growth," said S Sabarinath, senior research analyst at Frost and Sullivan India, "including the pressure on consumer electronics and communication products firms to come up with newer products very fast and keep development costs to the minimum owing to the increased competition."

Among the products whose design is being outsourced to India are communication devices such as cellphones, digital set-top boxes that are used to connect to the internet without a computer, network products like routers, and even toys.

The study expects the industry, comprising software and hardware design, to employ about 2.86 lakh engineers by 2010, against the current 75,000. "Today, India in embedded design and development is akin to what China is to the manufacturing world," it said.

Factors driving the manufacturing industry are cheap skilled labour and economies of scale or, in other words, domestic demand, while embedded design and development demand a combination of a strong base of experienced engineers and a large base of emerging, affordable engineers with sound fundamentals on the embedded electronics space.

India has been able to develop these competencies over a time and is now on the verge of building a complete ecosystem with few weak links, the report pointed out.

There are seven-odd listed and hundreds of smaller firms engaged in developing hardware and software for 'embedded products'.

These include Wipro, TCS, HCL Technologies, Tata Elxsi, Sasken Communication Technologies, Moschip Semiconductors and Satyam Computer Systems.

The study further said around 78 per cent of the engineers are engaged in developing software for such devices, while around 15 per cent design the chips used in them. The rest "" around 3,300 engineers "" are engaged in designing circuit boards and overall designs for such devices.

Ravi Amur, vice-president - embedded systems group, Satyam, said the growth has thrown up a lot of challenges also, especially with Indian companies increasingly catering to the firms in the Far East.

"The entry of the Taiwanese manufactures has changed the rules of the game... Unlike the US firms, they are looking for companies that can design an entire product and not a part of it," Sabarinath said.

Most Indian companies currently adopt a services-based model, wherein the product design "" in part or in whole "" is developed under an outsourcing contract, the rights to which is held by the outsourcing firm.