Indian tech innovation: hardware still poor second to software

by Nitin Dahad

Photo courtesy World Bank

I’ve just spent a week in India talking to several hundred people in the electronics system design, manufacturing and components sector at two annual conferences for India: or put simply, the Indian tech hardware industry. And it seems that they are still struggling to make their mark in the global ecosystem – a stark contrast to the Indian software and digital media sector, which is booming, and seeing considerable innovation to solve real world problems, for the huge Indian market and beyond.

The week saw two big events for the Indian electronics hardware and components sector: the annual IESA Vision Summit in Bangalore, their 10th such one; and the Source India event in Chennai run by electronics components industry association ELCINA.  I have two major observations from these two events.

From the semiconductor industry event, it was clear that the rhetoric was much the same as over the last five years – the association still talks about the need to set up semiconductor fabrication facilities in India for some level of self-sufficiency in electronics supplies (and to avoid the surplus imports from China); and it talks about the $400 billion ESDM (electronics systems design and manufacturing) market opportunity in India – this figure hasn’t been updated for at least three years.

The mantra is the same and a number of chief ministers from different states were inviting the audience to come and set up manufacturing in their state, with lots of incentives offered (such as free space).

[Editor’s note on this: I asked a question from the floor to a panel of state IT ministers at the IESA Vision Summit enquiring which state offered which benefits to overseas investors, and how an overseas investor could differentiate between all these states so they could make the right choice; the moderator immediately dismissed the question, saying foreigners need to look at India as many different countries, since that is the reality, as there is no one ‘India’: in one fell swoop they seem to have dismissed Prime Minister Narendra Modi’s efforts to present India as one to the outside world!]

At the component manufacturing level, the issue from some of the speakers seemed to be that India was good for manufacturing low level discrete components for the Indian market, but sometimes innovation and quality was an issue if they were considering export markets.

Is the issue image?

And this might be a key issue – Indian electronics manufacturing could be having a problem with its image. When I was advising the British trade and investment organization in 2012 to encourage business between India and the UK, there was a complete lack of interest from trade bodies like NMI, who said India was purely a low cost software outsourcing destination and couldn’t be considered seriously in the area of electronics systems design and innovation.

But there must be some kind of disconnect between global perception and what is happening on the ground. Take for example Cosmic Circuits, which was acquired by multinational electronic design tools vendor Cadence in 2013. Cosmic Circuits was founded in Bangalore in 2005 and had developed advanced mixed signal (ie: analog and digital) semiconductor intellectual property for functionality like USB, MIPI, audio and wi-fi in leading edge technologies known in the semiconductor industry as 40nm and 28nm. By the time of its acquisition, top tier customers globally were shipping 50 million chips containing Cosmic Circuits’ intellectual property.

While Cosmic Circuits was successful, India doesn’t have many stories like this to tell in electronics systems design – most of the successes are in software startups. The hardware industry still appears to be focused on manufacturing and setting up expensive fabs, rather than encouraging innovation in system design.

Young ambition for startups – inspired by software startups

Despite this, there does appear to be a drive by younger design engineers who have ambition and are willing to go to startup mode. I met several advanced technology startups in Bangalore which look set to take on global markets well. One for example is Maxerience, which doesn’t yet have a web site, but is doing something innovative and smart (see its LinkedIn page) – it has developed technology that converges advanced machine learning algorithms and high speed computing for real time recognition and detection, with applications in surveillance, defense systems and industrial automation. The demo I saw at the conference itself told me there is something worth watching here with this company.

This inspiration in the electronics industry is obviously coming from the ground up rather than being driven by industry associations. Youngsters are probably inspired by what’s happening in the software industry, and reading about the thousands of startups solving real world problems and able to grow rapidly in a global market – these stories are told daily in magazines like YourStory and VCCircle, and many others.

And even in the mainstream press there is a buzz about the Indian tech sector. For example, NASSCOM, the software industry trade association, said that India saw 800 new technology start-ups setting up in 2014, taking the total number of startups to 3,100, and that the country is poised to house the second biggest ecosystem for tech startups after the USA in the next two years, on account of the ongoing high growth rates.

In the report, NASSCOM said these startup companies have received over USD 2.3 billion in funding since 2010, while over 70 private equity and venture capital funds are active in the segment. In addition, there were over 62 angel investors active in 2014, and there are over 80 incubators and start-up accelerators operating in the country.

Another report suggests that India will have at least five ‘Internet of Things’ (IoT) startups with a billion dollar valuation by 2018. According to Anshul Gupta, principal research analyst at Gartner, the continued affordability of smartphones and growing acceptance of BYOD (bring your own device) means more and more people are accessing corporate data through mobile devices; he says that Indian enterprises are at an early stage of understanding the impact of Internet of Things (IoT) technologies on their core business, suggesting this is only just the beginning.

In summary, I have written on numerous occasions about the Indian electronics and software industry over the last 22 years. One of the common themes throughout has always been that India needs to encourage innovation in electronics design, so that they can compete in global electronics ecosystems and match what is happening currently in Indian software. Last week has shown that while the messaging from trade bodies might not have changed, young Indian electronics engineers could be the ones who actually drive change and create innovative startups in technology hardware that compete with the big global players.

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