The world is rapidly evolving with technology, transforming lives from bustling cities to the most remote villages. In this digital age, semiconductor companies in India play a crucial role in powering various technological advancements. From smartphones and space shuttles to electric scooters and bullet trains, semiconductor chips are the tiny building blocks that make it all possible. In India, as technology gains prominence, the semiconductor industry is experiencing growth and challenges. In this article, we will explore the landscape of semiconductor companies in India, the funding challenges they face, and the future prospects for this dynamic sector.
The Importance of Semiconductor Chips
Semiconductor chips are integral components across diverse industries. However, the world is currently grappling with a chip shortage due to limited supply. Several factors have contributed to this shortage. Besides pre-existing issues within the industry, such as insufficient capacity at semiconductor fabs, the COVID-19 pandemic has presented unprecedented challenges. Automakers, for instance, reduced their chip orders in early 2020 as vehicle sales declined. When demand rebounded in the latter half of the year, the semiconductor industry had already redirected production lines to cater to the increased demand for consumer appliances. Furthermore, disruptions like power failures in Texas, droughts in Taiwan, and stockpiling by Chinese companies due to geopolitical concerns have further exacerbated the situation.
The Funding Challenge for Semiconductor Companies in India
Securing funding for semiconductor companies in India is a significant hurdle. Vinod Dham, Founder and Executive Managing Partner of Indo-US Venture Partners, highlights the major challenges in chip design, including product conceptualization, market identification, funding, and building talented teams. Gaining traction from customers is also a formidable task for these companies.
Typically, semiconductor companies in India require initial funding ranging from $2-15 million or more, depending on the complexity of the chip design. This amount is significantly higher than what an average service aggregator start-up would require at the pre-seed stage. Additionally, the development of a medium complexity chip involves a time-consuming process of over two years, including numerous iterations. Consequently, companies and investors face a prolonged waiting period before they can expect a return on their investment.
For instance, Chipspirit, a company that has developed a chip for converting plain-text data into encrypted-text data, faces funding challenges despite having a ready prototype. The company's first product targets the defense sector, which adds an additional layer of difficulty. While the company is currently bootstrapped, it strives to overcome these obstacles and seek funding.
Unique Challenges Faced by Indian Semiconductor Companies
Compared to global chip start-ups, Indian semiconductor companies encounter specific hurdles. Satya Gupta, President of the VLSI Society of India, notes that the lack of success stories in the country makes it challenging for chip companies to secure funding. Additionally, most semiconductor companies in India benefit from strong academic linkages, which provide access to a larger talent pool of scientists and engineers. P.N. Sudarshan, Partner and TMT Industry Leader at Deloitte India, emphasizes the importance of ecosystem maturity for design companies to thrive in India. While the funding ecosystem in the West is more mature, with investors from semiconductor backgrounds actively supporting the industry, India primarily focuses on service-oriented semiconductor companies, with only a few success stories in product-based companies
Nurturing the Indian Semiconductor Ecosystem
Despite the challenges, there is immense potential for India's semiconductor ecosystem. Industry experts predict a significant transformation in the coming years, considering recent geopolitical challenges, supply chain disruptions, strategic needs, and the government's push for localization. The Indian government has introduced a production-linked incentive (PLI) scheme worth Rs 76,000 crore, encompassing support for silicon and display fabs. This initiative aims to bolster the domestic semiconductor market, which was valued at $27 billion in 2021. According to a joint study by Counterpoint Research and the India Electronic and Semiconductor Association (IESA), the market is expected to grow at a healthy CAGR of 16 percent from 2019 to 2026, reaching $64 billion by 2026. To achieve India's semiconductor vision, there is a need to incentivize the design ecosystem, laying a stronger foundation for design-led manufacturing and related sectors.
Government Initiatives and Collaborations
Recognizing the importance of a thriving chip industry, the government has introduced the design-linked incentive (DLI) component under the PLI scheme. With a budget of Rs 1,000 crore, this initiative enables reimbursement claims of up to 50 percent of eligible spending with a ceiling of Rs 15 crore. Fabless and systems start-ups, MSMEs, and established domestic companies can benefit from this scheme. The government also provides technical support through its national Electronic Design Automation (EDA) and Intellectual Property (IP) infrastructure. Furthermore, state governments actively support early-stage fabless companies through their start-up initiatives and policies. For instance, the Karnataka government collaborates with IESA to provide Indian fabless start-ups access to expensive research and development infrastructure, fostering semiconductor design and prototyping.
Collaborations and Mentorship for Growth
In addition to government support, collaborations and mentorship play a vital role in the growth of semiconductor companies in India. Established fabless players and major corporations can contribute significantly by aggregating demand and promoting the preference for "Make-in-India" products. Companies like Qualcomm and NXP have initiated mentoring programs for select chip design start-ups and engineers in India. These initiatives create opportunities for start-ups to collaborate with high-potential small businesses, potentially reshaping semiconductor supply chains in the future.
Moving Forward with Determination
While governments, corporates, and mentorship programs provide crucial support, semiconductor companies
in India must also take proactive steps to remain relevant and succeed in international markets. Apart from designing chips, they must establish local marketing teams that maintain constant interaction with customers throughout the product development phase. Continuous engagement is essential to ensure that the products remain current and aligned with evolving market demands.
With support pouring in from various quarters, India's design engineers and semiconductor companies hold promising prospects. As the nation witnesses a paradigm shift in the semiconductor ecosystem, it is anticipated that funding opportunities will increase, fostering innovation and growth. By nurturing local talent, strengthening academic linkages, and leveraging government initiatives, India is poised to become a significant player in the global semiconductor landscape.
Semiconductor companies in India are navigating challenges while striving for growth and recognition. Despite the funding hurdles, the industry's potential is being realized, with government initiatives, collaborations, and mentorship programs driving the sector forward. As India focuses on strengthening its design ecosystem and attracting investments, the future of the semiconductor industry in the country looks promising. By fostering innovation, supporting start-ups, and leveraging local expertise, India is poised to carve out a significant role in the global semiconductor market.
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