Shortage of semiconductor chips has been in the news for some time now. The number of electronic components that go into any product has seen manifold increase in the last 5-6 years and the rise is anticipated to gain momentum in the coming years. For example, cars in India are expected to be 50% electronics from the present 20% very soon. This was unimaginable just a few years ago. On the other hand, the supply has not been able to match up with the strong demand witnessed in the market as hardly any investments were made by global chipmakers in capacity expansion in the last 10 years. Chipmakers were increasing capacity through consolidation and not by investing in capex, says Dr Sreeram Srinivasan, CEO of Syrma Technology Pvt Ltd and an industry veteran with 36 years of experience. Syrma Technology – a part of Tandon group with over 40 years of expertise in the electronics manufacturing space – is considered to be a pioneer in electronics manufacturing services (EMS). In this exclusive interview with Rakesh Rao, Dr Sreeram Srinivasan discusses reasons behind the current chip shortage crisis and new growth opportunities for Syrma Technology.

How is Syrma Technology serving its customers?
Syrma, operating for the last more than 15 years, has two main divisions – ODM (original design & manufacturing) and EMS businesses. We offer services like designing, manufacturing, rapid prototyping, etc for all electronics components and parts. About 85 per cent of our revenues come from exports (mainly to US and Europe) as we cater to global OEMs. Our domestic business is also growing strongly. In the future, our exports to domestic ratio is expected to be 60:40 from the present 85:15. With IoT becoming prevalent, almost every product – right from automotive, white goods products, to toothbrush, footwear, etc – are becoming smarter with electronic components. This is helping us broaden our domain.

What is the company coping with Covid 19 pandemic?

Except for initial few weeks of nationwide lockdown in 2020, Syrma was able to continue its manufacturing operations, with all safety precautions in place, as we serve healthcare and other sectors manufacturing essential products. With lot of uncertainty in the market with respect to supply of raw materials and logistics, we had to carry more inventory than normally we would. Being a design and manufacturing company helped us, as we were able to suggest alternate components to customers and manufacture them quickly. Most of the customers, knowing situation around, were patient with us and very supportive.

As Syrma has many overseas customers, there was steady stream of orders to work on. Despite Covid, our sales growth was significant last year.

How is the electronic manufacturing services (EMS) market (globally and in India)?

Globally, market size of EMS is around $ 6-7 trillion with China cornering 40% market share and India accounting for about 3-3.5%. Even with this small share (of about $ 200 billion), India EMS market is big compared to what it was 5-6 years back. Mobile phones revolution has been one of the key drivers of EMS market in India. It is estimated that Indian EMS market will touch $ 400 billion by 2024-25, which now looks like a reality. If this projection comes true, then Indian EMS market can reach $ 1 trillion in the next 10 years.

What kind of opportunities does the EMS market offer to companies like Syrma?

It offers huge opportunity. Before pandemic, one would have said that US firms are very China focus when it comes to manufacturing. If they want design, they look at India. However, today the situation has changed (due to Covid pandemic) not only for Syrma, but also for other Indian companies. Now, customers in the US and Europe are opting for China Plus One strategy. These companies are now willing to talk about procuring from India, in spite the fact that the country lacks a robust supply chain ecosystem for electronic components and products. This is a positive sign. We were successful in acquiring new customers during the Covid pandemic.

While India is a huge consumption market for electronic goods, the majority of these are imported into the country. What are the reasons for this?

We raced ahead in software, but we fell behind in hardware. Realising this, the Government of India came with special incentives for electronic manufacturing. However, it is still a long way to go for India to be recognised as an electronic manufacturing powerhouse. In spite of all the hindrances, we are catching up very fast in electronic manufacturing.

The Government is one step ahead in framing policies for electronic hardware industry. In the last 3-4 years, the government has been proactively engaging with the industry to bolster electronics manufacturing in the country. Building infrastructure to produce parts and components that go into electronics take time. Things are improving and gradually the imports will come down as supply chains for electronics manufacturing develop in the country.

Given India’s entrepreneurial spirit and proactive policy support of the government, many companies are committing themselves to invest in electronic hardware manufacturing.

Will the Production Linked Incentive (PLI) scheme announced for the electronics industry be of any help?

PLI scheme has provided a spark for entrepreneurs to bloom again. It has helped in creating awareness among global companies to seriously look at India to invest in setting up manufacturing base. More than the incentive offered in the scheme, it is sending an important message to the industry that the government is creating a conducive environment for the industry’s growth. This gives a confidence to the investors.   

Companies from the US and Europe are seriously looking at China Plus One strategy. Though India is still not a big beneficiary of this strategy so far (as it is facing stiff competition from other Asian countries like Vietnam, Philippines, Indonesia etc), whatever investment is coming its way will help in capacity building in India. Also, one must not forget that India offers a huge domestic market, unlike other competing countries. At the end of the day, our domestic market is going to bail us out.

This is what we believe in and, hence, we see our business in India growing faster and contribution to increase to about 40% of our revenues (from the present 15%) in the near future.

Shortage of chips has been in the news for quite some time. What are the reasons for this chip shortage?

There are lots of theories floating around why there is a chip shortage. If you look at the historical data of the last 10 years, the chip manufacturing industry has been consolidating through mergers and acquisitions. In the last 4-5 years, the number of chip manufacturers have come down from 15 to 5 companies. It costs about $7-8 billion to build chip manufacturing plant and it takes 3 years for a foundry to be set up. Chipmakers were increasing capacity through consolidation and not by investing in capex.

More and more industries were incorporating electronics in their products; thus, increasing the requirements of chips by manifold. For example, in one of the conferences in 2016, experts were estimating that 20% of cars in India will be electronics in the next 5 years (from 5% then). The 20% target was achieved in less than 2 years. Now, they are talking about 50% of car to be electronics, which nobody had anticipated 4-5 years ago. If in India cars can contain 50% electronic components/parts, then the share of electronics in cars will be much higher in the developed countries. It is said that the latest E-Class Mercedes-Benz has 108 sensors from bumper-to-bumper. While many electronic components will be used to fit these sensors, 108 sensors will themselves need chips to continuously collect data.

Ever since human being came on the Earth up to 2018, total data of 40 Zettabytes (10²¹ bytes) was created. It is estimated that from 2018 to 2021-22, 160 Zettabytes data will be generated – i.e. four times increase in the data in just 4 years. This clearly indicates the manifold rise in the need of chips.

So, Covid 19 pandemic is not a cause for chip shortage. Lack of investment in capex in the last 10 years is the real reason for the current crisis in the chip market. World is dependent on a few companies for foundries – the basic ingredient for chip manufacturing. Covid, at most, has complicated or compounded the shortage situation, which was bound to happen sooner or later.