After years of working for tech companies like California Micro Devices and Motorola, Gerald Smith wanted to spend the rest of his analog engineering career involved in independent, hands-on tinkering. He found a cause in the growing need for analog chip design services and set up a small design services company—Analog Design Consortium—in San Jose, Calif., with three other analog engineers last year.
"We just don't have the number of analog engineers we need \[here in the U.S.\]," Smith said as he designed away on a pipeline analog-to-digital converter (ADC) for one of his clients (Fig. 1).
He knows the need for analog chip design will continue to rise, since most engineers tend to gravitate toward its ever-pervasive counterpart—the digital side. Its growth is evidenced in his client base, he said, which has expanded from small companies to mid- and large-sized ones.
His booming business is simply keeping pace with the rest of the IC design services industry, which continues to flourish as companies struggle to meet quicker time-to-market pressures. But even when domestic firms offer up the skills in both the analog and digital realms, the temptation of cheaper labor is too good for some companies to pass up.
"I just lost a contract to India," Smith admits, cognizant of a long-standing offshore outsourcing movement that slashes companies' production costs.
Offshore technology services, such as IT assistance or software production, are by no means a new trend, especially not in technology hotspots like India and, more recently, China. Now, design services are following in those footsteps, with U.S. design houses opening offices in these locations—as well as in emerging engineering regions like Eastern Europe. And large, broad-service tech companies like India-based Wipro have added design services to their list of offerings.
There's much to consider, however, before a U.S. company decides to offshore a design. For instance, not all countries have the resources to work in the leading-edge technology space. And as overseas workers become savvier about job opportunities, production costs could balloon.
The web of design-service providers is sprawling. There are "pure" design houses; EDA vendors with field-application engineers and consultants; distributors that pair up clients and design teams; and small startup design-service shops. While big companies like Cadence and Synopsys focus on consultation and assistance, others like Open-Silicon or eSilicon will create GDSII files and ultimately deliver chips.
Ostensibly, design outsourcing is largely due to increasing chip complexity. Transistors can number into the billions, and components are squeezed in exponentially, requiring ever-evolving expertise.
The surge in design for manufacturing (DFM) has pushed the design-services market, too. Designers who create their designs for specific foundries need the expertise of the foundry's manufacturing engineers, and semiconductor companies like IBM have met demand with a broad range of offerings.
Nonetheless, the design services segment in general has struggled to climb out of the hole it sunk into after the dotcom bust. When the electronics industry had its worst year in 2001, design-services engineers were the first to be let go, according to Christian Heidarson, an IC design-services analyst with Gartner Research.
That shakeup changed the industry, causing electronics companies to focus on cost like never before, says Heidarson. So, when it came time to more or less reinvent design capabilities, operation managers looked to cost-conscious solutions like offshore outsourcing.
That's partially why most design-services projects today are low-cost projects done offshore, says Heidarson. Granted, the market stands at about $1 billion, or about half of what it was at its height in 2000. Yet offshore outsourcing plays a big role in the market's success: compound annual growth rate (CAGR) is expected to climb 11% from 2006 to 2011, according to Gartner estimates.
"Only in 2006 have we arrived at the point where the growth in low-cost projects is finally offsetting the decline in high-cost projects, and we are seeing revenue growth again in the industry," says Heidarson.
Analysts say India will continue to be a major player in the offshore chip design-services market. China follows close behind, as its technological capabilities catch up, and design centers are emerging in Eastern European nations like Romania, Bulgaria, and Armenia.
EASTERN EUROPEAN APPEAL
In 2005, eSilicon, a "fabless" ASIC vendor that offers design services based in Sunnyvale, Calif., opened a design center in Bucharest, Romania. The company, which now employs about 25 engineers, worked with Romanian firm Sycon Design for years before acquiring it in February 2005, according to Julie Seymour, a spokesperson for eSilicon.
The two companies had a strong relationship prior to that because Sycon had "loads of raw material engineers with very good tech backgrounds," says Seymour. Many of them graduated from the country's top universities, which are building a solid reputation in engineering.
Another firm, Santa Clara, Calif.-based eASIC, pioneered the establishment of design-services centers in Romania in 2000, and now it employs about 50 engineers in two centers there (Fig. 2). Company spokesperson Tsipi Landen says eASIC received scores of calls for its advice and recommendations on the quality of engineering in Romania, with the hopes of establishing centers in the region.
Landen also explains that like eSilicon, eASIC was drawn to Romania because of its university students, with whom the company had close ties due to its relationships with their professors.
"\[Professors\] helped us recruit because they knew the kind of engineers we were looking for," says Landen. "Most didn't have work experience, but they could work with the leading-edge technologies \[by what they were taught in school\]."
Jordan Selburn, semiconductor design principal analyst at iSuppli, says it's not uncommon for up-and-coming design regions to be "university-centric," where a well-known professor attracts top-notch graduate students.
Other U.S. companies have, instead, opened IC design-services centers in established offshore design regions like India and China. It's a given that global companies like Cadence, Synopsys, and LSI Corp. will have centers abroad, but even smaller design companies have set up shop overseas. QualCore Logic Inc., for example, is headquartered in Sunnyvale, Calif., but its design center is located in Hyderabad, India. Santa Clara-based Verisilicon has a large design center in Shanghai, China.
Those in need of design services also have the option of contracting directly with foreign-based companies. The options span broad service providers like Bangalore, India-based Wipro Technologies to smaller design houses like eInfochips, based in Ahmedabad, India.
DRIVING THE OFFSHORING TREND
Production cost savings are a big driver in offshore outsourcing, especially for digital-chip designers. Selburn says companies can save about 70% of their total production costs through offshoring.
It's a different case for analog. As noted by Analog Design Consortium owner Gerald Smith, engineering skills drive the offshore outsourcing movement. Selburn maintains that demand for analog design services is growing at a rate that outpaces the number of analog engineers.
"It's a case of the chicken and egg," he says. "It makes sense to focus on designing tools for a larger community." EDA companies focus on creating tools to assist the larger digital sector, which, in turn, prompts more engineers to work in digital.
But companies will often claim that one big motivator for establishing offshore design centers is to cater to a growing number of overseas clients.
"Our services are often of most value to our customers when we're near where they are doing design, and increasingly that includes places like China and India," says Matt Gutierrez, director of marketing for Synopsys.
Other global companies like Cadence and IBM offer the same rationale for globalizing their services. However, a 2004 report from the Department of Commerce noted that offshore design centers don't limit projects to specific countries.
These U.S.-based firms take advantage of educated and skilled overseas workforces, whether the engineers come from top-notch foreign universities or if they studied and worked in the U.S. before returning to their home countries.
But not everyone in need of design services is willing to trust their chip design to offshore companies, especially if they don't work with leading-edge technology. A recent iSuppli survey asked companies which aspects of their design they would confidently offshore to emerging regions like India and China (see the table).
While most were comfortable sending standard designs or designs at older process nodes like quarter-micron, offshoring 65-nm designs was "a NO across the board," says Selburn. Designs moving into newer process nodes like 65 and 45 nm are typically done at home.
One design house in India actually offshored part of a complicated design to the U.S., where more skilled engineers could handle it, according to Selburn. Analysts agree that Indian engineering is typically leading-edge, but most say that China's engineering force isn't as experienced in the latest process nodes.
"Not to say that there isn't some level of state-of-the-art in China," says Selburn, "but their design capabilities are usually two or three nodes behind the state-of-the-art."
Still, India and China remain top contenders for attracting companies looking to offshore design centers, as well as for emerging design companies opening up shop in those regions. Much to the frustration of parent companies, engineers in those countries are beginning to realize it.
Selburn says Indian engineers are discovering job-hopping, leaving one employer for another across the street that pays better. Eventually, that could mean offshoring design services will cost more.
"It's going to narrow the gap," he said, "but right now it's the Grand Canyon."
Design houses and service companies won't have to worry about customers trying to find more thrifty design alternatives anytime soon. As chips become more complex, companies will rely on design services to get their projects completed on time, replete with the latest technology. So, as the technological wherewithal rises to match that of U.S.-based firms, companies will likely look east with more frequency.