The Electronics Industry : Egypts Gateway to the 21st Century

1
The Electronics Industry Egypts Gateway to
the 21st Century

• Free Zone Technology Farm

February 2006
2
Presentation Outline

• Part I Overview
• World Status of the Electronics Industry
• Electronics Market Segmentation
• Major World Players
• Industrial Phases of Electronic Systems
• Business Patterns in the Electronics Industry
• Status of the Egyptian Electronics Industry

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Presentation Outline (Cont.)

• Part II A Pragmatic Approach Towards a New
  Electronics Industry in Egypt
• Pragmatic vs. Ideal approaches
• Outline of the proposed approach
• Opportunity
• Business Plan
• Project Description
• Financial Model
• Summary and Conclusions

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Part I
Industry Overview
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World Status of the Electronics Industry

• Electronics accounts for more than 10 of the
  worlds GDP close to 1 Trillion US
• The biggest among all industrial sectors
• Highest CAGR among all industries
• US electronics industry is bigger than its steel
  and automotive industries combined
• Electronics industry accounts for 1/4 - 1/3 of
  the GDPs of Asian tigers

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Market Segmentation

• Six major classical segments
• Convergence of consumer, computer, communication

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Total Semiconductor Sales By End Market
Source UBS, 2003
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Components Market
Source IC Insights, 2003
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Top Electronics Products
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Major World Players
Pac Rim expanding mainly at the expense of the US
Source IC Insights, 2003
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Industrial Phases in Electronics

• Silicon Wafers
• IC design
• Embedded SW development
• IC manufacturing
• IC packaging/testing
• PCB design
• PCB manufacturing
• System design and assembly

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Business Patterns in the IC Industry

• Systems Companies
• Nokia, Sony, Cisco
• Integrated Device Manufacturers (IDMs)
• TI, ST microelectronics, Infenion, NEC
• Pure-Play Silicon Foundries
• TSMC, UMC, Chartered
• Fabless Integrated Circuits Companies
• Cirrus Logic, Level One, Qualcomm, etc
• IP Providers
• Artisan, Aspec, Cascade, Pivotal, Rambus
• EDA Companies
• Synopsys, CADENCE, Mentor Graphics

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Foundry Business Market Share
Source Dataquest, 2003
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What is the Size of the Fabless Business ?
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Top 10 Fabless IC Companies

• In 2003, more than 25 Billion US (Fabless
  IP) !!!
• Growth rate 10 times that of the industry.

Source IC Insights
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Egyptian Electronics Industry

• Based on low-level technology licensing
• Imported know-how
• Kit assembly
• Very limited design efforts
• Weak feeding industries
• Very poor technical marketing
• Non-export oriented
• Accounts for around 0.5 of Egypts GDP
• Productivity per worker per year 15 k US
  (significantly less than 70 k US in Pac Rim)
• Lack of a national strategy for the electronics
  industry

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Part II
A Pragmatic Approach Towards a New Electronics
Industry in Egypt
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Ideal Approach
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Pragmatic Approach Look for Windows of
Opportunity
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Explosion of Applications Opportunities
Convergence of Consumer, Computer Communications
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The Modern VLSI Chip
? Very Complex Design Process
Source Intl Technology Roadmap http//notes.sema
tech.org/ntrs/pub1NTRS.nsf
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The Productivity Gap An Opportunity !
Need for more design efforts to bridge the gap ?
IP providers and Fabless Companies
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IP and Design Outsourcing An Opportunity ?!

• Shortage of IP in many areas of design
• Scarcity high cost of design resources in US
  Europe
• Two global mega trends
• IP and design re-use
• More than 90 of any new design is based on IP
  and re-use
• Outsourcing is already underway
• 2M man-year outsourced to China and India in 2005

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Hot Areas For Investment
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Opportunity Assessment

• Strengths
• Highly skilled / low cost design engineers
• Egyptian expatriates

• Weaknesses
• International perception barrier
• No local market
• Low market exposure

• Opportunities
• Increasing demand in niche areas not strongly
  addressed by India China (A/MS, RF, Embedded
  SW)
• Low investment levels

• Threats
• Dubai Silicon Oasis
• India and China
• Brain drain towards US

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Project Concept
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Outline

• Project Description
• Mission Goals
• Project Concept
• Incubator Services and Mechanisms
• Keys to Success
• Products and Services
• Deal Flow
• Financial Model
• Summary

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Mission

• Contribute to the creation and development of a
  strong electronics industry in Egypt
• By providing
• The right environment, facilities, resources
  support to nurture hi-tech start-ups with the
  objective of spinning them off as world class
  independent companies.

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The Project

• Free Zone Technology Farm hosting a combination
  of
• Established companies (multi-national and local)
• Incubator for start-up companies
• Established companies provide
• Revenue by leasing facilities and services
• Symbiotic/synergistic relationship with start-ups
• Possible exit scenarios for start-ups
• Start-ups companies get full incubation services

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Concept

• Incubator and VC
• Incubation period 18-24 months
• Full financial support
• Strong professional/operational support
• Increasing the probability of success among the
  selected start-ups.
• ROI and Exit strategy
• Holding company owns equity in all start-ups
• Early sell out to foreign / local investors,
  partner VCs, multi-national companies.

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Goals

• Achieve the highest possible percentage of
  success (higher than 60 ) among selected
  start-ups
• Spin-off at least 3 companies per year
• Gain international credibility and open doors to
  world markets for the incubator and its spin-offs
• Foster a culture of innovation, quality and
  ethics

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Incubator Services and Mechanisms

• Financing
• Auto financing through lease generated revenue
• Subsidized space, facilities and services
• Venture Capital investment in start-up companies
• Financing operations and product development
• Feasibility assessment business planning
• Core team, IMC, consulting and expert firms
• Technical support and access to lab facilities
  and design tools
• University partnership
• University liaison office

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Incubator Services and Mechanisms

• Logistics (IT, accounting, secretarial, etc..)
• Core team, consulting and service companies
• Training and human resource development
• Partnership with government agencies,
  NGOs/Associations
• Marketing support
• Eitesal
• Indirect support
• IMC
• ITIDA
• Other

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Keys to Success

• Eitesal partnership
• Identify start-ups
• Facilitate exit
• Network of experts, consultants, service
  providers, etc..
• Marketing support
• Access to high quality engineering talents
• Large pool of Egyptians working abroad
• University partnership
• Access to technical support, labs and design
  tools
• Partnership with EDA companies and foundries

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Products and Services

• Design services
• Intellectual Property
• Design IP
• Software for electronic systems
• System Level Products
• Focus on system design, development and
  prototyping
• Outsource manufacturing

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Deal Flow

• Capitalize on Eitesal network
• Solicit Egyptians working in the US and Europe
• Solicit multi-national companies to technology
  farm
• Seek a major customer/partner for each start-up
  to facilitate exit
• Reach for with Universities and RD Institutes
• Build partnerships with EDA companies and
  foundries

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Financial Model Pilot Phase

• Assumptions
• Model based on a modular and repeatable pilot
  tech farm of 10,000 sq m
• Average area per engineer 10 sq m
• 70 to be leased by established companies at a
  rate of LE25 per sq m per month
• Number of companies 5
• Total number of employees 600 800
• 20 hosting start-up companies
• Number of companies 10
• Total number of employees 150-200
• 10 common facilities and support activities
• Cost of facilities LE 2500 per sq m

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Financial Model

• Annual revenue from property lease
• Established companies 7000x30x12 LE 2520 k
• Start-up companies 2000x10x12 LE 240 k
• Facilities 500x20x12 LE 120 k
• Total LE 2.9 M
• Operating Expenses
• Rental LE 1800 k
• Wages LE 300 k
• Other LE 200 k
• Total LE 2.3 M

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Summary

• The electronics industry, by virtue of its vast
  size and huge growth, is our best gateway into
  the 21st century as a developed country
• Huge opportunities in three areas
• Design outsourcing
• Intellectual property
• Embedded SW
• Pragmatic approach to seize the above
  opportunities through the creation of private
  incubation company providing finance and
  technology/marketing support

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Glossary

• VLSI
• Very Large Scale Integration. Integrated Circuits
  with very high density of transistors.
• PCB
• Printed Circuit Board
• Fabless IC Company
• A company that designs and markets Integrated
  Circuits (ICs) while not having manufacturing
  lines.
• IDM (Integrated Device Manufacturer)
• An IC company having all activities required to
  design, produce, test and market their products.

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Glossary

• Pure Play Foundry
• A company specialized in manufacturing integrated
  circuits as a service for Fabless, IDM or system
  companies. A pure play foundry has no IC products
  of its own.
• EDA Company (Electronics Design Automation)
• A company developing, producing, marketing,
  selling and supporting software, hardware and
  services to help automate electronics design.
• IP (Intellectual Property)
• A pre-designed, pre-verified cell that is
  licensed or sold to be incorporated in a bigger
  design. IP may come in different forms, soft,
  firm or hard.
• MEMS
• Micro-Electro-Mechanical-Systems.