Long way to go for Brazil's chip biz?

The birth of the Brazilian semiconductor industry has been protracted and difficult, but even as the infant takes its first steps, it is facing an uphill battle.
Critics see outdated technology, an unclear business model and a domestic market too small to create a competitive chip industry. And the training that Brazilian engineers need to approach industry best practices just serves to expose them to overseas opportunities. Nevertheless, against all odds, Brazil's semiconductor industry is gaining momentum.

Final additions
The finishing touches are being added to the semiconductor clean room of Ceitec, Brazil's first semiconductor front-end manufacturing line. Ceitec's activities are part of a huge effort by the Brazilian government to modernize the nation's economy. Since President Inacio Lula da Silva took office in 2003, the Brazilian government has consistently invested in information technology. Some $150 million has been invested in Ceitec (Excellence Center of Advanced Electronics Technology) in the southern city of Porto Alegre. And last December, the group licensed a 0.6µm manufacturing technology from X-Fab Semiconductor Foundries AG.

"Our equipment can handle 0.35µm and in about three years, we will be able to move to 0.18µm," said Ceitec president Sergio Dias.

The chips produced are intended to serve the local market, at least initially, and target automation, machinery and automotive industry applications. But while there is growing demand for consumer and commercial applications in the domestic Brazilian market, industry observers said the country won't be able to produce the chips required for these products for the foreseeable future.

Skeptics abound?
Many are skeptical about Brazil's ability to find a place in the global chip economy in the near term. "There are a couple of caveats," said Alfonos Velosa, a research director for semiconductors with Gartner. "I am not going to say they won't succeed, but it will take time until they will become competitive on an international scale."

Brazil is trying to ramp up its capabilities, Velosa said, but the technology it uses is way behind the leading edge. "The facilities necessary to build state-of-the-art semiconductors are very expensive, and they require a complex infrastructure that is difficult to put on a greenfield site."

Others share the skepticism. Some doubt that Brazil will ever be able to compete on the manufacturing side with the Far East. Though Brazil is considered a low-wage country, "you always will find someone who does it for less money," said the Brazilian manager of a foreign semiconductor company, who requested anonymity. He also doubts that local demand is strong enough to justify a modern manufacturing line.

"To utilize a Brazilian manufacturing line, they would have to export at least 40 to 60 percent of their capacity," he said. This would be difficult because of adverse currency conditions and, even more so, because Brazil does not have the critical mass to benefit from economies of scale.

Chip design rules
"Chip design is much more important than manufacturing. The innovation is in the design," said Thomas Hinderling, CEO of Centre Suisse d'Electronique et de Microelectronique (CSEM). Swiss-based CSEM operates an Innovation Center in Belo Horizonte, which, starting in 2009, will design MEMS and other semiconductors for automotive, aerospace and medical applications. "If you look 30 or 50 years into the future, you certainly won't find much semiconductor production in Europe, but you will still find chip design."

The same is true for Brazil, he said. The type of production Ceitec is planning will only make sense if the government erects tariff walls to protect the local market. "But this can only be a temporary measure; Brazil will have to open its trade," Hinderling said.

Hinderling is not alone in advocating that Brazil pursue design over manufacturing. Over the past two years, the Brazilian government has initiated and funded eight design centers across the nation. It plans to increase that number to 15. Eventually, all the state-supported design houses will become commercial companies—if they can attract enough trained experts.

Obstacles to conquer
Brazil's labor market for design engineers is another stumbling block in the way of its progress. While software engineers are readily available, the industry lacks semiconductor design and manufacturing experts. Ceitec, for instance, is estimated to have hired more than 50 percent of the country's specialist engineers. In the face of the engineering shortage, EDA software vendor Cadence Design Systems Inc. came to the aid of the Brazilian IC industry.

"The Brazilian chip industry faced a classic chicken-and-egg situation," said Cadence vice president Wendy Reeves Dunn. "However, they did not have the time to wait." Cadence decided to donate chip design software to universities and help them develop curricula. The target is to turn out 15,000 chip designers in three years.

It is not clear how this will play out for Brazil. Once graduated, many engineers prefer to leave the country to work abroad, where salaries are higher.

Many Brazilians have European roots, which makes it easy for them to move to places where they can earn much more. "We love to travel to the U.S. for holidays, but for work, we prefer Europe," said a Brazilian engineer.

Ray Bulger, CEO of Ireland's Duolog Technologies Ltd sees it the same way. When he changed his company's business model from that of an intellectual-property licensor to an EDA software company, Bulger advertised globally to find experts in Eclipse and Java. He found them in Brazil. "In Ireland, salaries are three times higher than in their home country," he said.

Nevertheless, there is an established chip design business in Brazil. Besides the design houses launched by the government, North American and European companies maintain design centers there. Freescale, for example, designs microcontrollers for automotive and industry automation applications in a center near Campinas in the state of Sao Paulo.

There is expertise in the Brazilian consumer electronics realm that could benefit the chip industry. Brazil has modified the Japanese HDTV standard to create a national derivative, said Cadence's Dunn. "This makes a good opportunity to build chips for. They already have designed software and protocols," she said.

In addition, many cars in Brazil have a "Flex" motor that can burn gasoline as well as biofuel derived from sugar cane. This requires specific engine control electronics--a potential technology candidate for exports.

But Gartner's Velosa contended that a semiconductor industry requires a complex ecosystem, not just a few design houses and a single production line. Citing Advanced Micro Devices Inc. in Dresden, Germany, and the usual incentives granted by the Chinese government to international companies to settle in a desired location, Velosa said he doubts that Brazil has the resources or intention to compete on this scale.

Government push
In November 2007, the Brazilian government approved the Growth Acceleration Project, through which it allocated $3.5 billion for technology, science and innovation over three years. The Brazilian microelectronics industry will be one of many voices clamoring for a share of that money.

In January, two companies reportedly announced investments in Brazil. One was Korean Brasemi, a back-end manufacturer of flash memory chips that reportedly will invest $32 million in a back-end line, according to newspaper Jornal de Minas. The Brasemi facility will be located in Vespasiano in the state of Minas Gerais, the newspaper said.

And in an interview with Computerworld do Brasil, U.S.-based Symetrix Corp. announced plans to build a factory for smart-card readers and smart-card chips. CEO Carlos Araujo said the company plans to produce chips equipped with a technology hitherto offered only in Japan.

When it comes to the Brazilian chip industry, one name emerges as regularly as the Loch Ness monster during the silly season: Companhia Brasileira de Semiconductores (CBS). This mysterious company, led by former Volkswagen do Brasil manager Wolfgang Sauer, is as tangible as the wind on Brazil's beaches, yet consistently makes it into the headlines.

According to reports in the Brazilian press in January, CBS was negotiating with Brazil's National Bank for Economic and Social Development to obtain $500 million to advance an ambitious project to produce chips for digital TV and telecommunications in Minas Gerais.

Even if some of these reports turn out to be idle talk, it appears that the Brazilian chip industry is in motion.

The industry is in such an early phase, though, that it is not clear which direction it is going to take and how it will position itself in a world market characterized by merciless competition. Some observers believe it is only a matter of time before Brazil will join the global semiconductor camp.

"The momentum is there. It is starting to take off," said Cadence's Dunn.

- Christoph Hammerschmidt
EE Times Europe