Semiconductor Industry Outsourcing Surge Boosts Growth For Indian IT

As the semiconductor industry thrives globally, engineering outsourcing is poised to increase over the next two to four years. This presents a prime opportunity for IT firms already developing capabilities to leverage this burgeoning trend. With chip demand set to rise, the semiconductor industry globally is making active investments to amp up manufacturing and research and development. India, too, is big on the semiconductor push with its Production Linked Incentive schemes to attract investment in the country. As the industry grows, outsourcing is also bound to increase, according to analysts. “Semiconductor engineering has one of the lowest outsourcing intensities (ratio of outsourcing to total R&D spend) among all industries. Until recently, IT companies’ semiconductor portfolio was only a niche service offering due to limited expertise and low market demand for outsourcing,'' said Pareekh Jain, chief executive at Pareekh Consulting and EIIRTrend.However, over the past few years, semiconductor demand has surged dramatically. Many semiconductor companies now seek partnerships to accelerate time to market and innovate more solutions. Additionally, there is also the India semiconductor push, adding to the optimism as the R&D market has opened geographically, thus creating opportunities for IT companies. “The overall R&D pie is close to $70-80 billion, of which engineering outsourcing is $2 billion. Generally, outsourcing is 5% of total spend; this indicates that outsourcing should reach $3.5–5 billion in the next four years, as research investments also increase. It is also a defensive move, as the semiconductor industry might not be as significant for companies, but failing to offer a complete chip-to-cloud solution leaves them vulnerable to competitors,” Jain said..India To Become Major Exporter Of Semiconductors, Says Ashwini Vaishnaw — NDTV Profit Exclusive.Similarly, the semiconductor industry is increasingly focused on software alongside hardware design, with software content expanding rapidly, said Kishor Patil, chief executive officer of KPIT and ER&D chair at Nasscom. “The semiconductor companies although would not outsource the VLSI (Very Large Scale Integration), which is core to them, but on the software part, where one needs to get into actual implementations and integrations with the clients, there lies opportunity. Currently, 7-8% is outsourced; this will continue to grow as the overall spend is growing at a rate 14-15%,” Patil said. Further, the semiconductor industry is advancing with complex architectures needed for high-performance applications like automotive and AI. This evolution requires new products and designs, creating opportunities for Indian companies, particularly in design services, he said.In the recent past, Indian IT services companies, including Infosys Ltd., Wipro Ltd., HCL Technologies Ltd., and Tech Mahindra Ltd., among others, have acquired semiconductor engineering service provider companies to leverage the opportunity. Earlier this year, in January, Infosys acquired InSemi, a semiconductor design and embedded services provider. Tech Mahindra acquired Cerium Systems, Wipro acquired Eximus Design in 2020, and HCLTech acquired Sankalp Semiconductor in 2019. “The Indian IT services companies have not created capabilities and are instead acquiring companies, which is helping them build vertical capabilities or have a geographical footprint,” said Omkar Tanksale, Research Analyst at Axis Securities. “We focused on acquisitions last year to focus on engineering services. We looked at the automotive and semiconductor areas. These are areas where we see good growth opportunities, where software is being built within those product areas,” said Salil Parekh, chief executive officer of Infosys, at the company's recent AGM.IT firms are also actively collaborating with semiconductor majors. Wipro recently expanded its collaboration with Intel Foundry to accelerate chip design innovation, and HCL Tech too expanded its collaboration with Intel Foundry to co-develop customised silicon solutions for semiconductor manufacturers, system OEMs, and cloud service providers to enhance foundry services. The dependence on chips and embedded systems has increased across most verticals, majorly in the aeronautical, automobile, large-scale manufacturing, and consumer durable industries. Hence, having a servicing capability in the domain has become a lucrative opportunity for IT services companies. The semiconductor domain also has resilient demand for the next two-three years, despite the macro scenario, Tanksale said. .Brokerage Views: Nuvama, Jefferies On HDFC Bank And More

Semiconductor Industry Outsourcing Surge Boosts Growth For Indian IT

With chip demand set to rise, the semiconductor industry globally is actively investing in manufacturing and R&D.

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