At the rate that semiconductor suppliers and fabless design houses are opening design centers in India, it is not surprising to know that the IC design industry has mushroomed in India. According to a recent study conducted by market research firm iSuppli, India’s semiconductor design industry is expected to nearly triple by 2010, as overseas and domestic suppliers rush to establish or expand their chip development efforts in the country. The El Segundo, Calif.-based market research firm forecasts that the semiconductor design industry in India will amount to $624 million in 2005. This industry in India is expected to be worth more than $1.7 billion by 2010.

In 1985, Texas Instruments Inc. was one of the first companies to establish a captive design house in India. Since then, a large number of multinational and Indian players have ramped up operations in the nation. iSuppli estimates that approximately 125 companies now are conducting semiconductor design in India. This has prompted major EDA tools suppliers like Cadence Design Systems, Synopsys and Mentor to expand their presence in India. Last year, giant multinationals like Texas Instruments, Intel, Cypress, Infineon and STMicroelectronics comprised about 70% of the total semiconductor design industry in India. Indian companies, including MosChip and eInfochips Inc., also are seeking to expand their design operations at a rapid pace.

Key factors driving this growth include rapidly growing local markets, a strong education infrastructure, low-cost design talent, short product lead-times, reduced barriers to entry, rising government support and improved infrastructure.

iSuppli estimates that for many of the leading multinational companies, the aggregate cost savings from offshoring design activities to countries like India and China typically ranges from 25 to 50%, while the cost reduction due to lower employee salaries ranges from 80 to 90%.

The overall cost benefit is whittled down somewhat by certain factors, such as higher monitoring costs resulting from the lower experience level of offshore engineers, higher training costs and productivity losses due to cultural differences and security issues.

The growth of the semiconductor design industry and the emergence of a surging market in India for consumer electronics, wireless communications and automotive products provide attractive opportunities to the global semiconductor industry. However, there remain significant challenges that confront companies seeking to expand semiconductor design activities in India.

One challenge is the supply/demand gap for competent professionals, despite a strong education network in the country. iSuppli estimates that the industry witnessed a demand-supply gap of about 3060 professionals in 2004. The main reasons for this gap include a lack of design-related courses, a shortage of qualified faculty, a lack of adequate infrastructure and selective hiring by companies. This gap will close slowly over the next few years due to government initiatives, better collaboration between industry and academia, higher participation of experienced professionals in training activities and greater flexibility in companies’ recruitment policies.

Beyond the shortage of experienced professionals, the absence of domestic semiconductor manufacturing will spur a significant imbalance between design and manufacturing. As India faces increasingly intense competition in semiconductor design from other low-cost destinations, such as Eastern Europe and South-East Asia, the Indian semiconductor design industry will evolve rapidly to provide many multinational companies with a competitive edge in select areas of semiconductor design.