Recession boosts Brazil's chip aspirations

Ceitec, the company at the heart of Brazil's chip aspirations, is growing

The great recession has caused pain across the globe, but it's turned out to be a boon for the man trying to build a chip industry in Brazil.

Ceitec S.A., the state-backed venture set up to develop Brazil's chip industry, opened its first semiconductor factory in February, and plans to add dozens more chip designers to its ranks by the end of this year.

"The crisis has actually helped quite a bit," said Eduard Weichselbaumer, CEO of Ceitec, in a phone interview. "Building a fab during a downturn is actually what you should do and hiring during a downturn is also what you should do."

Hard times for other companies have helped him pick up chip making gear on the cheap, and lure experienced chip design engineers to Brazil. Middle management at the company has basically been imported, he said: either Brazilians that had been working elsewhere and returned to work at Ceitec, or foreign nationals.

Finding opportunity amid the downturn is boosting Brazil's effort to build a chip industry, but there is rising competition for chip talent among a number of developing nations working to build their own prowess in this essential technology. China also wants to start a chip dynasty, while India hopes to translate its success in software to the chip industry and another newcomer, the United Arab Emirates (U.A.E.), is using petro-dollars to chase its chip dreams.

The reason nations want to build their own chip industries is clear: chips are the future. Semiconductors are at the heart of all electronic devices, the calculating engines of PCs, the graphics and display engines in digital TVs, the power managers in hybrid cars and more. Increasingly, they're finding even more uses: in medical devices to improve diagnostics, in refrigerators to manage power, to name a few.

But building a chip industry is no easy task.

Weichselbaumer faces the third attempt by Brazil to enter the chip industry, while other countries, such as China, have failed in the past as well. The main obstacle is cost. Chip wafer fabrication plants, or fabs, cost billions of dollars and require stable electric grids and a number of side industries to feed them the materials, including silicon wafers and gases used in chip making.

Japan's biggest chip maker, Toshiba, last month cited a need for improved infrastructure in Brazil, particularly its power grid, before it would consider building a chip factory there. Brazil's two biggest cities, for example, plunged into darkness in November last year due to a major power disruption. Such blackouts appear to be a yearly phenomenon in the country.

The company also suggested Brazil work to improve its chip engineering talent, and has dispatched some of its own engineers to offer training at universities in Sao Paulo as well as invited Brazilian engineers to Japan for a six-month design course.

It takes years to develop technical expertise among chip designers and production line engineers.

Brazil has so far invested 400 million reals (US$220 million) in its chip industry, a figure that will grow to 500 million reals by the end of this year, Weichselbaumer said.

Much of that money has been spent on the chip fab and development facilities at Ceitec, but some has also gone to build development centers elsewhere. Weichselbaumer plans to build design engineering talent in Brazil instead of focusing on chip factories, to avoid the heavy costs of building fabs. The executive is matching his experienced engineers with graduates to move them along the learning curve faster and is focusing on three kinds of chips needed in Brazil; RFIDs (radio-frequency identification), wireless communications chips and digital multimedia and modular TV.

Some of the first RFID chips are expected to be put in tags to clip on the ears Brazil's 200 million cattle, to better keep track of herds. Other intended uses are to put in passports or other IDs. Wireless communications chips are seen as essential to connect people living outside Brazil's metropolitan areas to telecommunications and broadband networks, while the digital multimedia bid is aimed at making chips for Brazil's digital TV technology standard, which is based on Japan's ISDB-T (Integrated Services Digital Broadcasting - Terrestrial).

Brazil is also working with several successful chip-making countries, including the U.S., Taiwan and Japan. Taiwan offers a good example of a late-comer to the industry that has blossomed. Chip makers from the island now rank among the world's largest, such as Taiwan Semiconductor Manufacturing Co. (TSMC), and the island's chip design industry is now the second biggest in the world, by revenue, behind that of the U.S.

Government support for a chip industry in Taiwan was essential, as it is for Brazil. Brazil is taking its chip ambitions so seriously that the head of Ceitec is nominated and can only be recalled by the president of the nation. President Luiz Inácio Lula da Silva has been "very personally supportive of what we're doing and has been pulling in resources," said Weichselbaumer. The country will elect a new president later this year, but he doesn't expect any changes at Ceitec because the government hopes to see the industry transform Brazil's economy.

Currently, electronics account for 1.9 percent of Brazil's GDP, but the nation hopes to increase that figure to 8 percent in coming years. The idea is to transform Brazil from a country dominated by natural resources such as oil to a more diversified one with electronics goods.

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