Chip makers

China is currently the undisputed king in chip manufacturing. And with India showing great promise on the research and design element of chips, experts feel that the time is ripe for our companies to take a closer look at Chinese manufacturers. Tie-ups between Indian design companies and Chinese chip manufacturers are expected to boost Indian efforts in chip manufacturing and help design companies derive greater value.

According to the CEO founder of New Path Ventures and NEA-Indo US Ventures, the recent migration of the size of a wafer (on which chips sit) from 200 millimeter to 300mm and the resulting reduction in the size of the die (on which a chip is fabricated) from 90 nanometer to 65nm and below will result in dramatic increase in chip count.

China’s lead through leveraging decades of wafer fabrication expertise and its willingness to spend billionns of dollars for building cheap products for its local market has boosted its chip production capacity by 40% annually, much faster than the world average of 10%. Overall, this capacity increase, coupled with the slowing down of technology migration will result in excess capacity at 65nm to 90nm nodes. India’s chip design industry will need to form closer relationships with these mega foundries in Asia.

The semi semiconductor industry seems to have reached an inflection points at around the 45 nanometer node, below which the cost of achieving the scaling would be economically exorbitant and technically daunting. In turn, this is expected to push suppliers to aggregate their needs and syndicate investments in costly wafer fabrication plants.

The cost of a new leading edge fab is soaring out of control. Today it costs $3-4 billion to build a 90nm to 300nm fab with capacity to process thousand wafers a day. About 90% of this cost is due to the capital needed to buy the expensive equipment therefore offering no real advantage in lower labor cost advantage available in India and China. In future, only a handful of semiconductor suppliers will have the scale and profits to build such expensive fabs.

Intellectual property protection is a concern in China. But experts believe China will soon do something to fix that problem. This gives us another good reason why we must look at more tie ups in the area of fabrication and manufacturing.

It is imperative for India to go beyond design. By doing only design, we cannot tap into the true economic value. Typically, 40-50% of the costs go into manufacturing of the chip while 15-20% goes into designing them. And India does engineering at one-third the cost of developed markets. So the full economic value can be realized only if we also do chip manufacturing.