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Asia set sights on more design activities

Posted: 08 Jan 2007     Print Version  Bookmark and Share

Keywords:outlook  2007  design challenges  India  forecast 

The "rest of Asia" is ready to shed its supporting role in 2007. With the slew of investments and expansion projects undertaken in India, Singapore, Malaysia and even Vietnam last year, global companies have reaffirmed their confidence in the huge potential of these nations. India, in particular, had a bountiful 2006, as one company after another cemented the subcontinent's status as one of Asia's top design services and R&D destinations.

So what's driving this influx of foreign investment? For one, there is no denying that India's forte is design services, housing Wipro Technologies, one of the world's top IC design houses. A Frost & Sullivan report reveals that from 2005 to 2015, revenue from India's design services industry will post a CAGR of 30 per cent. Accordingly, the number of design starts during the forecast period will record a CAGR of 20 per cent due to increased outsourcing of VLSI design either in the form of offshore units of captive companies or outsourced offshore units of non-captive companies (figure 1).

Southeast Asia's IC services market—which consists of IC design and development services, IC design tool services, the intellectual property (IP) market, assembly, packaging, and testing activities and chip distribution—is poised for rapid growth, despite the changes in the IC market profile due to the emergence of new business models. More chip-design projects are coming to Singapore and Malaysia, for instance, many of which have shown significant improvement, specifically in line width of process technology. Frost & Sullivan also notes the increasing complexity of analogue and mixed-signal (AMS) design as compared to digital, and the steady increase in the number of logic gates used in AMS design. IC packaging, assembly and testing is also one of the growing segments of the IC services value chain in the region, with many integrated device manufacturers, wafer makers and fabless companies outsourcing their requirements to limit their capital expenditure and meet market demand.

Growing design activity in Southeast Asia and India is most probably fuelled by huge demand for digital consumer products and car electronics. A report by the International Monetary Fund (IMF) reveals that most emerging economies in Asia, namely, mainland China, India, Hong Kong SAR, South Korea, Singapore, Taiwan, Indonesia, Malaysia, the Philippines and Thailand, are benefiting from strong external demand for their electronic products. Exports of electronic goods have been robust, especially for the newly industrialised economies, fuelled by a booming market for digital consumer products, semiconductors, mobile phones and flat-panel displays. In Singapore, rising demand for digital audio players and cell phones has generated profits for component makers. Export growth appears to be holding up well in Malaysia and Thailand. A remarkable increase in electronics exports was also noted in the Philippines and Indonesia, although it was not sustained in the latter. In India's case, the growing middle class is raising consumption levels, and corporations continue to build capacity following several years of successful restructuring.

Design starts in India
Figure 1: The number of design starts in India will record a CAGR of 20 per cent due to increased outsourcing of VLSI design.

Sustaining growth
The challenge for India and Southeast Asia is to sustain current growth rates and lure more design initiatives in 2007 and beyond. One barrier to sustainable growth, particularly in India, is the dearth of skilled engineers in the country. A study by the India Semiconductor Association (ISA) shows that there is a shortage of specialised institutes and advanced technical courses in the country. This is also the case for Southeast Asia, as more sophisticated design activities are done in production facilities in the region, changing the skills sets required by the local electronics industry.

To fill this education gap, companies like Intel Corp. are working with governments and universities to groom future talent. Current efforts also include advancing R&D in emerging fields such as nano-scale packaging and multi-core chip architectures, and training teachers to strengthen national science and math curricula, and enhance skills such as problem solving and communications.

Another key to sustainable growth is a combination of political, economic and technological factors. These include liberal tax policies, incentives for locally-conducted R&D, political stability, increase in government research spending, economic growth, increased electronic product usage, easy access to information and communication channels, and faster adoption of technological changes. For their part, governments in Southeast Asia are now drafting policies on technological self-sufficiency and adopting new methodologies for technology development and migration, according to a Frost & Sullivan report.

IMF also warned that a major growth deterrent for Asia would be a sharper-than-expected slowdown in the United States. Countries that depend heavily on electronic exports, including Malaysia, the Philippines, Thailand and South Korea, will be the worst affected by any such downtrend. These economies are thus challenged to shift their focus from exports to more autonomous domestic demand, and to further whet consumer appetite in emerging Asia.

However, the biggest issues confronting the design industry in the next couple of years are IP rights protection and industry standards. These will test not only the capability of the design industry, but the cooperation and camaraderie among its key players. They have no choice but to work together, since only a few own the IP needed to produce devices like cell phones.

After all the forecasts and predictions have been made, the real work begins. India and Southeast Asian nations have a year to make or break. Nevertheless, fortune seems to be favouring them as design firms, particularly in India, will see more business outsourced to them as high-growth segments such as telecoms and consumer electronics will have even shorter market windows, says the ISA study. Moreover, the desire to move up the value chain as well as to shorter product life cycles and a highly competitive market structure will drive companies to innovate and consequently differentiate their products and services from competition.

By Celeste dela Torre

   EE Times Asia




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