We're well-placed to cash in on emerging demand for chip designing: L&T Tech global head

Consumer-facing companies across the world are dealing with shortage of semiconductors as the Covid pandemic has pushed up demand for electronic goods like computers and mobile phones. While chip manufacturing is going through a supply constraint, chip designers are witnessing high demand in the last one year. In a conversation with Bizz Buzz, Giri KK, Global Head (telecom & hi-tech) at L&T Technology Services (LTTS), said chip design is a growth spot as many companies are entering into this space for meeting the rising requirement of semiconductors. Also, emerging areas such as electric vehicle segment, internet of things (IoT)-powered devices, 5G and other digital technology-powered solutions are likely to drive the demand for high-end chips for the next 3-5 years. As a company, LTTS is well-placed to cash in from the emerging demand as the engineering services firm has acquired entities with chip design prowess in recent years

The current pandemic has led to severe shortage of semiconductors as the demand has seen a sudden surge due to wide-spread adoption of work from home (WFH) operating model. In this context, how semi-conductor shortage is likely to affect engineering services companies in general and L&T Technology Services in particular?

The global semiconductor landscape can be divided into two parts –semiconductor manufacturing and designing. While the manufacturing side of this segment has seen some supply chain challenges, chiefly on account of the pandemic, we have witnessed good demand for semiconductor design engineering services.

While L&T Technology Services (LTTS) doesn't have much exposure on the semiconductor manufacturing side, it is one of the leading companies engaged in semiconductor design engineering related projects for a global clientele. From our conversations with technology customers, we have witnessed a continuously rising demand for semiconductor design services. This has not just been from traditional semiconductor manufacturers, but also from technology giants who are fast entering the chip design space.

How is the industry faring so far? Do you feel the demand momentum to continue in the near future?

There is still a lot of high-end work being undertaken in the semiconductor segment despite the shortfalls. Ecosystem players are adjusting to the ongoing manufacturing-related challenges and investing more to cope with the global shortage. Demand is expected to boom in the next three years and the ecosystem players are poised for a strong run.

Leading companies, including global tech giants are focusing on establishing foundry services. Thus, corrective measures are being pursued by players and eventually one is hopeful that normalcy will be restored in due course.

As India reopens, demand for various consumer goods is likely to go up. Will chip shortage impact the ability of companies to deliver products in time?

Firstly, we need to understand that the Indian market is quite unique, because Indian consumer sentiment is unique. The Indian consumer has a high purchasing power but is cautious due to the pandemic. In terms of the demand for consumer goods, there has been some impact on a few segments, however, demand for smartphones and laptops has not witnessed much of a dent.

Indian companies are currently able to manage the situation by sourcing chips through global supply chain network. This is further complemented by expansion of the chip set manufacturing companies that has witnessed more players establishing their respective positions in the market and thus consumers in India have more options to choose from.

India is becoming an engineering services hub and there are many companies, including LTTS, who are engaged in engineering design services for both semiconductor manufacturers as well as big technology companies. This demand is likely to go up.

LTTS has a dedicated team of more than 2,000 engineers and state-of-the-art R&D infrastructure, catering to the semiconductor vertical. From our conversations with customers, we expect the demand for embedded chip design to go up in the coming years.

What the industry is doing to overcome the shortfall?

As LTTS doesn't have exposure to the chip manufacturing ecosystem, we are not in a position to comment or make a forecast.

Will the R&D budget of big manufacturers reduce due to chip shortage? Will it impact the growth of Indian engineering services firms?

The ER&D (engineering research & development) sector is poised for massive growth. According to Zinnov, the global ER&D market will grow to $1.95 trillion in the next three years from the current $1.4 trillion. There is a lot of demand for digital engineering services and new-age solutions such as EV (electric vehicle), autonomous vehicles, IoT, AR/VR, connected ecosystem, medical devices, 5G with embedded systems. Also, conventional manufacturing companies are embracing digital engineering, paving the way for accelerated IoT and Industrial IoT adoption. This too is complementing the demand for ER&D services players, in spite of shortage in sourcing chips.

The pandemic has left players with no choice, but to reimagine themselves relevant for the new normal world and earlier perceived technology spend are now looked upon as investment strategies. The times ahead remain exciting and promising for the Indian ER&D services firms.

How LTTS is placed to cash in the emerging opportunities in the chip design space?

An important factor that is often overlooked when discussing about the semiconductor industry is that one section of the industry is booming - the design engineering services segment. So, organizations and players with exposure or niche skills in the area are poised to grow further. Overall, in terms of the demand, the industry is well-positioned to see increased demand due to the rising need for laptops, smartphones, and many more in the future. Companies and ecosystem manufacturers are looking at various measures to cope with the shortfall.

At LTTS, we are well-placed to cater to the rising demand in the segment over the next five years. We have made key acquisitions in the semiconductor space to enhance our global offerings and capabilities in the complete VLSI chip design and embedded software. These acquisitions will act as a force multiplier for LTTS in times to come.