Brazil treads tough terrain in quest to become IC design hub

There is a saying among suppliers of semiconductors and other electronic products to the booming Brazilian market: "Miami is Brazil."

The reference is to the percentage of foreign-made chips and other products that are shipped from Miami into Peru and then illegally smuggled into Brazil. Smuggling, of course, is a way to avoid import duties, which for products like semiconductors can range from 5 percent to 10 percent in Brazil, according to analysts.

Even as Brazilian law enforcement has cracked down on smugglers, the government has embraced the idea that the world's fifth most populous nation must develop a domestic IC industry. There is a budding realization that meeting Brazil's growing demand for ICs by developing them within its own borders could both stem the tide of illegal chips and bolster the country's competitiveness.

Toward those ends, the Brazilian government has launched several programs to establish IC design centers, fabs and assembly plants. In June, the government unveiled a set of tax and other incentives to attract multinational chip makers.

The South American country's ambitious chip quest has been a series of steps forward and steps back. One major fab project, Companhia Brasileira de Semiconductores, has been delayed, reportedly after IBM Corp. withdrew its support, sources said. Another fab project, reportedly backed by Japanese in- vestors, remains a question mark. And the Brazilian government so far has been unable to attract multinational chip makers to build large-scale fabs in the nation.

But Brazil finally may have found the right IC blueprint. A government-backed entity, the Excellence Center for Advanced Electronic Technology (Ceitec), has launched seven IC design centers in the country and claims to have taped out Brazil's first "homegrown" chips.

Ceitec is also putting the finishing touches on what could be the nation's first semiconductor front-end wafer fab. The group is building a small-scale, 6-inch prototype fab in Porto Alegre, the capital of the state of Rio Grande do Sul. The fab is expected to begin production in 2008.

IC Brazil Program under way

The design centers and fab are part of the IC Brazil Program, a strategic effort funded by the Ministry of Science and Technology, a Brazilian government agency. The IC Brazil Program, in turn, is part of the National Microelectronics Program, launched by the government in 2001. The stated goal of that program is to develop a domestic microelectronics industry.

Nearly every multinational cell phone and PC vendor has a production base in Brazil. But thus far, the country's domestic IC industry remains far behind those of such other emerging electronics centers as China and India, said Bill McClean, president of IC Insights Inc. (Scottsdale, Ariz.).

Given the capital requirements and barriers to entry, there is little or no hope that a Brazilian-backed entity--or a even multinational--will ever build fabs in that nation, McClean said. So Brazil should look elsewhere for its place in the semiconductor landscape. "Design is not a bad way to go for Brazil," he said.

Simply put, Brazil's IC industry is in its infancy. Brazil lacks capital and IC design talent, but the nation does boast low labor costs, comparable to those in China. On the downside, Brazil also still has the reputation of having little or no intellectual-property (IP) laws, and it demands import duties for chips and raw materials.