Mobile telephony boosts semiconductor market

The Indian semiconductor market is on a high, having clocked a growth rate of 15.6 per cent last year – in comparison, the global market has shrunk by 11 per cent since 2008 – aided by the growth in demand for wireless handsets, low-priced notebooks and smart cards.

“Factors driving the growth of semiconductors in India include application segments such as the wireless telecom equipment, which is in turn driven by the spurt in mobile handset suppliers and assemblers; and the promise of the 3G network, along with the demand for other equipment backed by the drive for e-governance,” says Poornima Shenoy, president of the Indian Semiconductor Association (ISA).

The growth, may seems phenomenal at first sight, but could also be attributed to the fact that in India, the semiconductor industry is at a nascent stage.

The importance of the sector can be gauged from the fact that the import of telecom equipment accounts for about 13 per cent of India’s present trade deficit — second only to petroleum. Roughly translated, this means that India imports about 90 per cent of its present semiconductor needs.

Semiconductors are the ‘chips’ that form the core of electronic equipment. In standard equipment, interestingly enough, about 90 per cent of the cost of manufacture comes from the cost of the design system and the component — the semiconductors.

“Predominant electronics assembly activity in the country happens on SKD units, which eliminates the need for local semiconductor purchase. Global sourcing models by high-volume multinational manufacturers further impact the low volume of locally supplied semiconductors,” states a report by Frost and Sullivan.

There is an absence of infrastructure that would aid industry growth, rues Shenoy, adding that things are often made worse by the lack of research and development. The tax structure does not help either.

Where the semiconductor companies themselves are concerned, it is easy to sense dissatisfaction over government policies. “Complying with the norms of the World Trade Organisation (WTO), which would mean a zero per cent import duty on electronics, means that there is no incentive for the development of a local sector. This also means an eternal struggle for existing players,” said Sanjay Nayak, chief executive officer and managing director, Tejas Networks, a homegrown semiconductor company.

Local players are demanding incentives such as development of a national innovation fund and for facilitating the growth of R&D activities, given the physical cost of hardware development.