Growth drivers for embedded electronics in India

The strength of India’s embedded systems and software industry is well known globally. Naturally, interest is extremely high in this area.

Keeping that in mind, the India Semiconductor Association (ISA), recently organized a conference on “Embedded Electronics: Trends and opportunities in India”, during the BangaloreIT.biz event.

Speaking on the global electronics systems design and manufacturing ecosystem, BV Naidu, chairman, ISA, estimated the global electronics industry at $1.75 trillion for 2009, and projected to reach $2 trillion in 2014. The annual growth rate has been 3 percent for 2004-09.

India lags behind in (electronics) numbers!
India’s story is starkly revealed in its numbers. While the electronics industry is the key to national growth, India is extremely small in this segment. Taking telecom/electronics hardware production as a share of GDP, China has a GDP share of 12.7 percent, while India only has 1.7 percent share.

Even smaller countries, such as Korea — 15.1 percent, Taiwan — 15.5 percent, and Israel — 23.6 percent, respectively, have much higher GDPs. The share of USA is 5.4 percent, Japan — 4.5 percent, and Germany — 8.3 percent, respectively.

India’s domestic production, excluding imports, is $10.8 billion during 2009. Consumption reached $45 billion in FY09 and the demand is likely to reach $125 billion in FY 2014. The expected domestic demand will likely grow 22 percent from 2009-2020, reaching $400 billion by 2020. Exports reached $4.4 billion in FY09, and it is likely to reach $15 billion in FY14 and $80 billion in FY20, growing at 31 percent.

The trade imbalance is projected to increase to $323 billion by 2020 as the imports of electronic products are likely to increase to 16 percent of the GDP. As a result, it is important for some Indian companies to play a major role.

It has the potential to leapfrog!
There exists a tremendous potential for India to leapfrog technologies and lead. Potential exists in several areas such as wireless, smart meters (AMI), LEDs, green energy/energy efficiency, affordable devices/telemedicine, digital classrooms/virtual classrooms for education, digitization in terms of electronic society/unique ID/TV, radio, etc., integrated surveillance systems, and low-cost zero emission cars.

Touching on the VLSI/electronics ecosystem, Bangalore itself is home to over 90 companies in VLSI and embedded. However, most of these are arms of MNCs. High-tech manufacturing does not exist, as yet. However, the solar PV industry has been attractive recently, and high-tech manufacturing is likely to grow there. The silicon fab, however, may take some more time.

Within the Indian electronic system design industry, there are companies such as Ittiam, SemIndia, etc., who focus on made in India and made for India. Naidu called upon the government to encourage the domestic manufacturing and systems companies.

In this respect, the electronic components and accessories ecosystem industry is currently moderate. It used to be 15 percent and has now grown to 35 percent. That means, 35 percent of the costs of production can be sourced and managed using components from India.

India has managed to attract some EMS companies, especially to Sriperumbudur, an industrial town in the Kanchipuram district, Tamil Nadu. However, low end products are being developed, or rather, work that is at the low end of the value chain is being done. That needs to change! Here, embedded software can play a key role.

“Our local markets should provide opportunities for the local companies. Access to global markets will help us grow,” he added. He presented segment-wise projections for the Indian electronics industry up to 2020 (see table here).Source: ISA, India

Embedded electronics as ICT driver
Srini Rajam, chairman and CEO, Ittiam Systems, discussed the role embedded electronics could play as an important growth driver for India’s ICT industry. India boasts of a powerful embedded electronics ecosystem. It currently has three clusters in embedded. These are:

* World class design and services — which is export driven and mature. It creates leading edge technology and has broad based competencies. Also, it can offer complete system solutions.
* High volume market — which is driven by the domestic economy. We are seeing applications in mobile communication, entertainment and industrial electronics.
* Cost effective delivery — which is an emerging area. We have excellent prototyping skills, low-medium volume development and EMS partnerships.

Touching on the global embedded electronics trends, he said the customers and end equipment makers are trying to retract and not do everything themselves. With IP and system design being India’s strength, these trends place India in a nice, middle path. This will greatly help India in connecting with the semicon suppliers, as well as the EMS houses and customers.

Highlighting some opportunities, Rajam said India could develop digital STB for Rs 500 – with the market opportunity being 100+ million TV homes, and IP STB for Rs 200 – in this case, 50+ million Internet homes.

Some other opportunity areas are IP surveillance with — a price target of Rs 3.000, IP videophone — with a price target of Rs 10,000, and IP videoconferencing — with a price target of Rs 25,000. The size of the opportunity is Rs 1,000 crores in 2009, and is forecast to grow to Rs 47,000 crores by 2017. This opportunity requires a total solution — front end + back end.

Even MIDs and smartphones provide great opportunities for India. For smartphones — a price target of Rs 7,500, with an opportunity size of 20 million units in 2009. For MIDs/netbooks — a price target of Rs 12,500, with an opportunity forecast of 2 million units per year.

India is home to core competencies — from chip design to software and system design. The strong growth of the domestic market adds the vital dimension. With the right EMS strategy, the volume market can be served with world class solutions.

Evolving from services to design and manufacturing
Vinay Shenoy, COO, SemIndia Systems discussed the role embedded electronics could play — from sevices to design and manufacturing.

While the global electronics market is growing moderately at a CAGR of 9.5 percent from 2006-12, the Indian electronics market is growing at a much faster pace at a 23 percent CAGR from 2006-15. However, a large percentage is serviced by imports. India imported nearly $14 billion worth electronics in 2007, but exported nearly $2.6 billion worth of electronics in 2007.

Despite the presence of the top six global EMS players in India — Foxconn, Flextronics, Jabil Circuit, Celestica, Sanmina-SCI and Elcoteq, as well as the presence of over 40 Indian EMSs, and, the availability of R&D talent, the total R&D offshoring revenues is estimated to be $9.1 billion in 2009. However, we haven’t prospered yet! It is partially due to the fact how the associated industries have evolved. So what does it take to evolve from services to design and manufacturing?

On analyzing the value chain, the components industry is the weakest link. It is said to be at 27.35 percent. Localization of components needs to go up to 60 percent.

Time for new model
In a new model, two operators — ODM and contract manufacturer — should participate actively in cost reduction. The IP comes from the original design. The model also eliminates the OEM and goes directly to the contract manufacturer. This model should be seriously explored in the Indian context. It is advised that the Indian design houses work closely with the EMS companies, who have huge purchasing power. That would facilitate cost competitiveness.

Some opportunity areas for India include government contracts – such as egovernance, ehealth, metro and rural broadband; decentralized distributed power generation; telco/DTH operators; and large retailers.

Shenoy also provided some tips for Indian embedded design houses. These include:
* Focus on mature products initially.
* Focus on sunrise and sunshine markets.
* Focus on high volume low mix product family.
* Co-develop requirements with operators (customer’s customer).
– Differentiator: Towards feature management
* Strong partnership with semicon technology partner
– Combined go-to-market strategy
* Import talent from Singapore/Malaysia for manufacturing interface
* You can’t do it all. Let others do what they are best at!

There is a big opportunity for India’s design centric organizations to evolve into design and manufacturing. A large local market justifies the evolution. However, they need to first address manufacturing-interface related weaknesses. Also, the local component ecosystem needs to improve.