Fabless Start-ups Chip In to Build Robust Supply Chains in 2023
Companies that create their intellectual properties (IPs), like Encore Semiconductors, a startup headquartered in Chennai, are at the bottom of the supply chain structure. Companies that combine IPs into SoCs (Systems on Chip), the next level, are at this point.
In an era of technological innovation and dynamic markets, the semiconductor industry finds itself at the heart of a rapidly evolving global landscape. The recent surge in fabless startups chipping to build resilient supply chains epitomizes this shift. The year 2023 stands out as the pinnacle of this transformation. But before delving deep, let’s understand what “fabless” implies.
According to Neel Gala, CTO of Incore, SoC businesses often get IPs from different players and integrate them into a combination that tackles a particular feature, challenge, or application. The next level of the supply chain, chip production fabs, can get designs thanks to physical design teams, he continued.
However, according to T. R. Shashwath, cofounder and CEO of Mindgrove Technologies, the semiconductor sector has a highly intricate supply chain network. “Chip designs today span international borders, including the US, Europe, China, Israel, and India. On the other side, foundries are primarily found in Taiwan, Korea, Germany, the United States, Japan, Singapore, and China.
While it is still difficult to conceive a huge fab in India, startups have concentrated on what they can do best: chip design. Mindgrove creates SoCs that combine low power consumption with excellent performance. In a few months, the company’s developed chips should be readily accessible on the market.
The startup will contract with a foundry partner outside India to handle the production. After manufacture is complete and the chips are returned to India, Mindgrove will start selling them to customers there and overseas, according to Shashwath.
“In the semiconductor industry, the work by fabless companies constitutes a significant value in the overall supply chain system,” stated Deepak Shapeti, cofounder and CEO of Morphing Machines. In essence, the people who own the chips are the ones who create them.
The foundries and the ATMPs (assembly, testing, marking, and packaging) are responsible for the opposite side of the supply chain value.
These fabless startups also greatly benefit from the burgeoning domestic car and electronics industries. Shapeti said, “Ten years ago, an automobile costing Rs. 10 lacks would have had 19% electric components. The price of such a car’s electrical components now would be almost Rs 4.8 lakh. Today, CPUs are used to power several functions, including cruise control and power windows.
IOTs, energy metres, toy controllers, embedded systems, etc. are just a few examples of the very high volume yet poor profit industries in which fabless startups are particularly interested.
“With modern workloads like generative AI, speech, safety, and other market disruptors, the computational requirements would not only increase and vary rapidly on the cloud, but also for phones, laptops, and other edge devices,” Gala continued.
Shapeti stated, “Moore’s law states that the number of transistors in IC would double every two years, increasing the speed and capability of the computers every two years, and their prices would drop.
Your design today needs to be robust enough to catch up to the computational demand of the industry not only but in the future as well. But as of right now, no more transistor sizes can be shrunk.
Accelerators like Morphing Machines can be useful in this situation. He said, “We assist businesses in increasing transistor power at a time when their size cannot be decreased.”
“India has historically been known as a body shop for chip manufacturing,” Gala continued. We are intelligent. However, the majority of our brainpower is used for design services. The conceptualization or real idea for the design occurs in the West. We went out into the world and enquired as to what people wanted.
That is presently altering. “Today, we are able to change it to “This is what the world wants; how can you achieve this? This approach will address the local and global target problems we have identified as essential. In essence, the people who own the chips are the ones who create them. Gala said, “Today, Indians are not just demanding a solution, but also developing one globally.
Shapeti continued by saying that many Indian deep tech startups are now receiving funding as VCs have also recently stepped up to the plate. “Fabless startups typically have a long gestation period, so seeing so many VCs showcasing and funding such startups is encouraging.”
In order to increase the nation’s chip independence, Shashwath claimed that the government has been providing funding and assistance to Fabless startups. With help from its incubators, Mindgrove self-funded the creation of its first product. They want to submit a grant application for Chip 2 funding.
For Integrated Circuits (ICs), Chipsets, Systems on Chips (SoCs), Systems and IP Cores, as well as semiconductor-linked design, the Design Linked Incentive (DLI) Scheme of the Indian government’s India Semiconductor Mission provides financial incentives and design infrastructure support at various stages of development and deployment.
The programme offers a “Deployment Linked Incentive” of 6% to 4% of net sales turnover over five years, subject to a limit of Rs 30 crore per application, and a “Product Design Linked Incentive” of up to 50% of the qualifying expenditure subject to a ceiling of Rs 15 crore per application.
However, Some industry watchers assert that this is only the beginning and that more work must be done by businesses, governments, and even venture capitalists.
Aditya Joshi, CEO of OpalForce, which offers employment services to semiconductor businesses, stated that it may be challenging to find qualified candidates given the dearth of such individuals in the workforce.
Startups entering this market must be prepared to overcome challenges, including finding finance and putting together teams with the necessary skills. This gets more complicated since well-known semiconductor goliaths sometimes outbid startups and provide tempting pay packages that might be challenging for startups to match.
A fabless semiconductor company focuses on designing and selling hardware devices and semiconductor chips while outsourcing the fabrication (or “fab”) of these devices to specialized manufacturers called foundries. This model contrasts integrated device manufacturers (IDMs) who design and manufacture chips in-house.
Without the constraints of managing their fabrication units, fabless firms are agile. They can quickly adapt to market changes, new technologies, and varied customer demands.
Setting up and maintaining fabrication units requires billions of dollars. By going fabless, startups can divert these resources to R&D, enhancing designs and market strategies. By focusing solely on design, these startups can aspire to create best-in-class products, leveraging the manufacturing expertise of established foundries.
In the face of global supply chain disruptions caused by geopolitical tensions, pandemics, and changing trade dynamics, the role of fabless startups in 2023 is invaluable.
As more fabless startups emerge, there’s a geographical and operational distribution. This diversification is crucial for risk mitigation, preventing supply chain bottlenecks associated with relying on specific regions or companies.
By virtue of not having their foundries, Fabless startups often enter into innovative collaborations. Partnerships with multiple foundries, technology providers, and logistics firms ensure continuity of supply.
The increased demand from fabless companies is prompting foundries to expand their operations, augmenting overall semiconductor production capacity.
Many fabless startups are at the forefront of advanced chip designs, including AI, IoT, and quantum computing. This technological push drives the entire supply chain to evolve and cater to these next-gen needs.
Over-reliance on a few significant foundries can lead to vulnerabilities in supply chains. Outsourcing production can sometimes lead to IP conflicts or risks. Ensuring consistent quality when not controlling the manufacturing can be challenging.
However, these challenges can be navigated effectively with collaborations, rigorous quality checks, and strategic planning.
The wave of fabless startups in 2023 showcases an adaptive semiconductor industry ready to meet global demands.
By merging innovative designs with strategic manufacturing partnerships, these startups reinforce supply chains, ensuring that technology’s relentless march forward is well-supported.
As the boundaries of what chips can achieve expand, the role of fabless firms in shaping the future becomes even more critical.
