Author: Dan Nystedt
Publication: The Wall Street Journal
Date: November 9, 2003
Ask the executives of some of America's
top semiconductor firms where the next wave of chip sector outsourcing
will go and the answer is India , not China.
That might come as a surprise to
champions of the rise of China as the world's next semiconductor powerhouse.
But while its tax incentives and protective tariffs will likely develop
a healthy chip manufacturing sector, China is missing the boat on higher
value-added work that is heading toward India .
The reason: India's universities
and technology institutes graduate around 300,000 engineers a year, and
after distance and attrition rates are accounted for, firms can get an
Indian engineer for about half the price of a U.S. one for a comparable
job.
Add to this a strong command of
English and a history of R&D work with U.S. companies in software and
other information technology segments and it's no surprise that U.S. chipmakers
are increasingly looking to India for the heavy duty research that goes
into developing a new chip product.
And that's a state of affairs that
could lead to China taking the manufacturing lead, but lagging across its
equally vast southern neighbor when it comes to research.
"We think it's possible to do some
chip work in India ...Every large company that I know of, TI, Intel, Sun,
all the big semis have large facilities there," Sanjay Jha, president of
Qualcomm CDMA Technologies, a division of Qualcomm Inc. (QCOM), the world's
largest pure play chip design firm, told Dow Jones Newswires.
Qualcomm pioneered and commercially
developed CDMA, or code division multiple access, mobile phone technology.
And India and China are two of the fastest growing mobile phone markets
in the world.
Willem Roelandts, president and
chief executive of the world's third largest chip designer, U.S.-based
Xilinx Inc. (XLNX), said his company's "initial plan is India , but then
later also in China...I believe that both of these countries are going
to be the biggest markets in the world."
Market size is a key reason U.S.
chip firms are eyeing the two nations for production as well as research
outsourcing. Both India and China boast populations well over a billion
people, giving them huge future potential.
China The Manufacturing Center,
R&D For India Software developers like U.S. giant Oracle Corp. (ORCL)
have created 24-hour work cycles between their U.S. operations and India
through establishing development centers in emerging high-tech clusters
such as Hyderabad and Bangalore.
Meanwhile, the world's largest chipmaker,
U.S.-based Intel Corp. (INTL), set up the Intel India Design Center in
India as early as 1988, and it is now its largest non-manufacturing site
outside the U.S, according to Intel's Web site.
For its part, through government
incentives and tax breaks on chips made within its borders, China is quickly
developing a foundry chip industry that may some day rival that of Taiwan,
the progenitor of the sector.
Certainly, the dozen or so chip
plants that have or will come online in China between 2002 and 2004 give
the country an edge in semiconductors.
China's semiconductor market is
also growing rapidly. Growth in its chip market outpaced all others in
Asia last year, rising at a 38% clip to US$17 billion from US$12 billion
in 2001, according to Gartner Dataquest.
Gartner estimates China's chip market
will grow at an annual rate of around 16% over the next five years, versus
a forecast of 11% growth in the worldwide chip market this year.
Even the Qualcomm and Xilinx executives
said they will likely outsource some chip production to China in coming
years.
The question is whether China will
be left behind on the vital value-added effort that needs to be carried
out before the grunt work of production can take place.
