Oil boom boosts Russian electronics
June 18, 2007 //
By investing the proceeds of its oil and natural resources boom in its electronics industry, Russia is creating an electronics bonanza and an unprecedented mood of optimism.
MOSCOW By investing the proceeds of its oil and natural resources boom in its electronics industry, Russia is creating an electronics bonanza and an unprecedented mood of optimism. However, Russia has a history of failed intervention in its semiconductor and electronics industries, which until the last couple of years had stagnated for more than a decade. So some observers continue to take a cautious position on the prospects for the Russian market and the Russian players.
At an exhibition and two-day conference organized by the Semiconductor Equipment and Materials International (SEMI) industry trade body in Moscow, Alexander Kalinin, deputy chairman of the Russian Federal Fund for Electronics, announced that $3 billion would be invested in electronics from 2007 to 2011. This does not include investments in nanotechnology research, Kalinin said.
That $3 billion includes some big ticket items, such as $700 million in support of a proposed 300-mm wafer fab in Nizhny Novgorod and $500 million to help move JSC Mikron (Zelenograd) down to 90-nm manufacturing over the next three years. Nonetheless, Kalinin said, "Our focus is in design as he itemized 2007 spending in support of a number of design houses (see chart below).
But the Russian bureaucracy does appear to have learned some lessons from watching the European Commission at work. Thanks to the economic boom and the revenue flowing into government coffers, it at last has some real money to dole out. It is doing that on the basis of matching funds, meaning that a project should have some sort of business case.
It is hard to overestimate the strength of the current boom in Russia, which has been driven by the supply of oil and gas to Europe and the recent oil price of $60 per barrel.
Alex Freedland, chairman and chief executive officer of Mirantis Inc. (Foster City, Calif.), a supplier of offshoring services and consultancy in Russia, pointed out that Russian central bank reserves have grown rapidly to become the third largest in the world, exceeded only by those of China and Japan.
Freedland said that the Russian stock market, valued at less than the capitalization of a single U.S. company - Cisco Systems Inc. * 12 years ago, is now valued at more than $1 trillion and that oil and gas giant Gazprom competes with Microsoft Corp. for the honor of being the world's most highly valued company.
JSC Sitronics, Russia's first technology-based IPO, provides another measure of the Russian boom. Sitronics was established in December 2002 to bring together a portfolio of Russian and East European enterprises.
It provides telecommunications infrastructure and consumer equipment, owns chipmaker JSC Mikron and in one year increased its own annual sales revenue by 69 percent in 2006 to $1.61 billion. Not surprisingly, Sitronics was able to raise $350 million in an IPO conducted on the London Stock Exchange in February 2007. And under Sitronics' ownership Mikron, a chipmaker that had languished for many years, was able to more than double its annual sales to $122.6 million in 2006 from 2005.
It is seen as a healthy change that the likes of Mikron and JSC Angstrem are now seen as the means to implement applications rather than produce chips for reasons of prestige. As a result Mikron and Angstrem increasingly have to compete with Southeast Asian foundries to get work from the Russian design centers. Laurent Bosson, corporate vice president responsible for front-end manufacturing at STMicroelectronics, attended the SEMI conference as a keynote speaker and said that there was room for Russian design houses to do things a different way. "There has been a consumerization of the semiconductor industry, which has resulted in seasonality, Bosson said.
He added that the extreme cost of leading-edge manufacture had also meant that the chip industry is now driven more by finance than by technology. "It will be rebalanced. Russia is a good place to get that balance between finance and industry. I am very optimistic about the semiconductor industry in Russia, he said.
STMicroelectronics has cut a deal with Mikron and Sitronics to provide a 0.18-micron CMOS EEPROM process, the starting point for Mikron's road map down to 90 nm. Angstrem is working with Advanced Micro Devices to implement a 130-nm CMOS process. They may not be leading edge, but these processes are an opportunity to get Russian chip companies moving again.
Partnership is key to the Russian electronics industry, said Kalinin, who went on to list how Russia now recognizes it has to use EDA software from the United States and semiconductor manufacturing equipment from around the world to get chips made. "Partnership is vital for the survival of our industry, said Kalinin. However, what is not yet in evidence is cooperation in IC design between Russian companies and Western or Eastern counterparts. Almost all of the outsourcing and inward investment that goes on *which includes Motorola, Intel, Sun Microsystems and Hewlett-Packard as significant Russian employers * focuses on software.
"The Israeli business model is much better than the Indian model. Russia is not a low-cost market, said Freedland of Mirantis.
Malcolm Penn, founder and principal analyst at market research firm Future Horizons (Sevenoaks, England), has studied the Russian electronics environment for many years.
"You must remember that most of these design centers were getting state funding anyway. It could be that the federal fund is just repackaging state support, Penn. "I think there is a fresh attitude and it is healthy that they are using overseas foundries. However, I think in too many cases, a business plan is still lacking.
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