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COVID-19 Pandemic isn’t the Cause for Chip Shortage

In this exclusive interview with Rakesh Rao, Dr. Sreeram Srinivasan, CEO of Syrma SGS Technology, explains the reasons behind the current chip supply crisis and shares his growth plans for Syrma. Chip shortage has been in the news for quite some time now. To survive in the semiconductor industry isn’t easy as it’s subjected to the ups and downs of regular chip cycles. When demand is high, chipmakers struggle to keep up with requirements. But, if supply exceeds demand, chip prices fall drastically. The present chip shortage crisis has been blamed on the work-from-home scenario needing more electronic gadgets and the COVID pandemic. 

However, Dr. Sreeram Srinivasan, CEO of Syrma SGS Technology and an industry veteran with 36 years of experience believes the chip supply crisis will happen sooner or later. One cannot blame the COVID pandemic alone for the same. Syrma SGS Technology, a part of the Tandon Group with over 40 years of expertise in the electronics manufacturing space, is considered a pioneer in electronics manufacturing services (EMS). In this exclusive interview with Rakesh Rao, Dr. Sreeram Srinivasan explains the reasons behind the current chip crisis and shares his growth plans for Syrma SGS Technology. 

How is Syrma SGS Technology serving its customers? 

Syrma, operating for 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% of our revenues come from exports (mainly to the US and Europe) as we cater to global OEMs. Our domestic business is also growing strongly. In the future, our exports to domestic ratio are expected to be 60:40 from the present 85:15. With IoT becoming prevalent, almost every product – right from automotive, white goods products, toothbrushes, footwear, etc. – is becoming smarter with electronic components. This is helping us broaden our domain.

How is the company coping with the COVID pandemic?

Except for the initial few weeks of nationwide lockdown in 2020, Syrma continued its manufacturing operations, with all safety precautions in place, as we serve healthcare and other sectors manufacturing essential products. With a lot of uncertainty in the market concerning the supply of raw materials and logistics, we had to carry more inventory than we usually would. Being a design and manufacturing company helped us, as we could suggest alternate components to customers and manufacture them quickly. Most of the customers, knowing the situation around, were patient with us and very supportive. As Syrma has many overseas customers, there was a 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, the market size of EMS is around $6-7T, with China cornering 40% market share and India accounting for about 3-3.5%. Even with this small share, the Indian EMS market is significant compared to 5-6 years. The mobile phones revolution has been one of the critical drivers of the EMS market in India. It’s estimated that the Indian EMS market will touch $400B by 2024-25, which now looks like a reality. If this projection comes true, then the Indian EMS market can reach $1T in the next 10 years.

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

It offers a huge opportunity. Before the pandemic, one would have said that US firms are very China-focused when manufacturing. If they want to design, they look at India. However, today the situation has changed (due to the COVID pandemic) for Syrma and other Indian companies. Now, customers in the US and Europe are opting for the China Plus One strategy. These companies are now willing to talk about procuring from India, although 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, most of these are imported into the country. What are the reasons for this? 

We raced ahead in software, but we fell behind in hardware. Realizing this, the Government of India came with special incentives for electronic manufacturing. However, it’s still a long way to go for India to be recognized as an electronic manufacturing powerhouse. Despite all the hindrances, we’re catching up very fast in electronic manufacturing. The Government is one step ahead in framing policies for the electronic hardware industry. In the last 3-4 years, the government has been proactively engaging with the sector to bolster electronics manufacturing. Building infrastructure to produce parts and components that go into electronics takes 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? 

The PLI scheme has provided a spark for entrepreneurs to bloom again. It has helped create awareness among global companies to look at India to set up a manufacturing base seriously. More than the incentive offered in the scheme, it’s sending an important message to the industry that the government is creating a conducive environment for the industry’s growth. This gives 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 faces stiff competition from other Asian countries like Vietnam, the Philippines, Indonesia, etc.), whatever investment is coming this way will help in capacity building in India. Also, one must not forget that India offers a vast domestic market, unlike other competing countries. 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 contributing to an increase of about 40% of our revenues (from the present 15%) soon.

The 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’s 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 previous 4-5 years, the number of chip manufacturers has come down from 15 to 5 companies. It costs about $7-8B to build a chip manufacturing plant, and it takes three years for a foundry to be set up. Chipmakers were increasing capacity through consolidation and not by investing in CAPEX. Ever since human beings came on the Earth up to 2018, total data of 40 Zettabytes (1021 bytes) was created. It’s 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 for chips.

So, the pandemic isn’t the 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. The 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. Many projects have been either postponed or canceled due to lack of chips; however, nobody is ready to talk about it on record. Delays have been blamed on the pandemic. But, the pandemic is a too easy explanation for a complex problem.

What are the emerging trends in the EMS market? 

 Internet of Things (IoT) will be the trendsetter for most of the products. With things becoming smarter, it’ll open up opportunities for all of us. The total global electronics market is estimated today at $6-7T. IoT alone will present an $11-12T opportunity in the next 5-10 years, with everything becoming a subset of IoT. Smart revolution is touching everyone’s life without anyone realizing it.  

What are your growth plans for Syrma SGS Technology?

In November 2020, Syrma SGS Technology and SGS Tekniks announced a merger agreement. With this merger, which will be completed this year, we’ll be able to double our revenue. Given the opportunities in electronic manufacturing and design, we expect the merged entity to double its size in the next 3-4 years.

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Syrma SGS TechnologyCOVID-19 Pandemic isn’t the Cause for Chip Shortage

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