moschip semiconductor technology ltd Management discussions

Company Overview:

MosChip Technologies Limited is a publicly traded semiconductor and system design services company headquartered in Hyderabad, India, with 1300+ engineers located in Silicon Valley-USA, Hyderabad, Bangalore, Ahmedabad and Pune. MosChip provides turn-key digital and mixed-signal ASICs, design services, SerDes IP, and embedded system design solutions. Over the past 2 decades, MosChip has developed and shipped millions of connectivity ICs. For more information, visit www.moschip.com.

Business units and expertise

Moschip is currently focused on Semiconductor design services, Mixed Signal IP, Turn-key ASIC solutions and Embedded product design services.

Performance Review:

1. On consolidated basis, the income from operations grew to Rs.19,835.54 lakhs from Rs.14,764.40 lakhs registering a growth of 34.35 % year on year. The increased growth is predominately attributed to the growth of Turnkey ASICS and IP services revenue. The Profit before Interest, Depreciation and Tax stood at Rs.3,128.45 lakhs while that of previous year stood at Rs.2,770.56 lakhs. The Consolidated results showed a Net profit for the year at Rs. 617.77 lakhs as against a Net profit of Rs. 645.30 lakhs in the previous year.
2. On a standalone basis, income from operations for the year stood at Rs.17,120.28 lakhs as against Rs. 12,070.32 lakhs for the preceding year. Standalone Net profit for the FY 2022-23 was Rs.526.99 lakhs as against Net profit of Rs.537.10 lakhs for the FY 2021-22.

This performance was possible due to the proper vision and strategy of leadership team, efficient execution of operational team and with the support of dedicated employees, which is paving way for the long term sustainable growth. The Company is poised to be part of emerging opportunities by continuing to focus on its inherent strengths in services, turnkey solutions, IP & Training.

The key financial ratios for the FY 2022-2023 in comparison with FY 2021-2022 are mentioned in "Annexure A of Standalone financials" forming part of standalone financials.

Some of the key developments are:

• Acquisition of Softnautics Inc to strengthen Leadership in Product Engineering Solutions in Embedded, FPGA and VLSI.
• Member of Design Center Alliance (DCA) of TSMC, this enables us to have access to leading technology at TSMC.
• Established state of art training & innovation center to upscale the skill set of engineers.
• Significant progress with high speed SerDes IP portfolio.
• Acquisition of new customers in North America.
• New strategic initiatives into
• Artificial Intelligence
• Application Specific Standard Products (ASSP)
• RISC V platform
• other emerging areas
• Consolidation of office spaces resulting in office spaces in Hyderabad, Bangalore, Ahmedabad and Pune.

Semi-conductor Industry:

Semiconductors are the key components in every electronic system that includes smartphones, personal computers, Laptops, Communication and networking systems, Medical equipment and Automobiles. Emerging technologies and applications in the areas of 5G communications and Artificial intelligence are further fuelling the growth. Semiconductor industry will benefit from the ongoing innovation and development in connectivity, data centres, communications, automotive, safety & security, infotainment, navigation, home automation, wearable devices, etc. and will continue to see growth in the coming decades.

The global semiconductor market is predicted to experience a downturn of 10.3% in 2023. However, this is anticipated to be followed by a robust recovery, with an estimated growth of 11.9% in 2024.

After observing a modest growth of 3.3% in the year 2022, World Semiconductor Trade Statistics (WSTS) has adjusted its forecast to reflect a more substantial, double-digit decrease in the worldwide semiconductor market for 2023. The estimated market size is projected to reach $515 billion, indicating a decrease of 10.3%.

WSTS has adjusted its growth projections downwards in response to increasing inflation and weakening demand in end markets, particularly those relying on consumer spending. Although two primary categories, discrete and optoelectronics, are predicted to sustain single-digit year-over-year growth in 2023, at 5.6% and 4.6% respectively, other categories are anticipated to shift into negative growth. This includes Memory, which is forecasted to decline by approximately 35% year over year.

For the year 2023, the European and Japanese markets are projected to experience growth, with respective increases of 6.3 and 1.2%. Conversely, the remaining regions are anticipated to face a downturn, with the Americas expected to decline by 9.1% and the Asia Pacific region by 15.1%.

WSTS Forecast summary
Spring 2023	Amounts in US $ M			Year on year growth in %
	2022	2023	2024	2022	2023	2024
Americas	1,41,136	1,28,236	1,50,989	16.20	-9.10	17.70
Europe	53,853	57,253	61,637	12.80	6.30	7.70
Japan	48,158	48,724	52,534	10.20	1.20	7.80
Asia Pacific	3,30,937	2,80,881	3,10,838	-3.50	-15.10	10.70
Total world - $ M	5,74,085	5,15,095	5,75,997	3.30	-10.30	11.80
Discrete Semiconductors	33,993	35,904	38,192	12.00	5.60	6.40
Optoelectronics	43,908	45,949	45,881	1.20	4.60	-0.10
Sensors	21,782	20,410	21,575	13.70	-6.30	5.70
Integrated circuits	4,74,402	4,12,832	470349	2.50	-13.00	13.90
Analog	88,983	83,907	88902	20.10	-5.70	6.00
Micro	79,073	71,470	75855	-1.40	-9.60	6.10
Logic	1,76,578	1,73,413	185266	14.00	-1.80	6.80
Memory	1,29,767	84,041	120326	-15.60	-35.20	43.20
Total Products $ M	5,74,085	5,15,095	5,75,997	3.30	-10.30	11.80

Note: numbers in the table are rounded of to whole millions of dollars, which may cause totals by region and totals by product group to differ slightly

Source: https://www.electronicspecifier.com/news/analysis/wsts-publishes-latest-semiconductor-market-forecast

DLI Scheme by Govt of India:

Semiconductors are at the heart of all electronic products and constitute a significant share in the Bill of Material (BOM). The National Policy on Electronics 2019 aims to position India as a global hub for Electronics System Design and Manufacturing (ESDM) and envisions creation of a vibrant semiconductor chip design ecosystem in the country. With an exceptional talent pool of 20% of worlds semiconductor design engineers and thousands of chips designed by them every year in the country, India is poised for growth to achieve self-reliance and technology leadership in semiconductor design sector.

Ministry of Electronics and Information technology has announced the Design Linked Incentive (DLI) Scheme to offset the disabilities in the domestic industry involved in semiconductor design in order to not only move up in value-chain but also strengthen the semiconductor chip design ecosystem in the country. CDAC is responsible for implementation of the DLI Scheme as Nodal Agency.

The Design Linked Incentive (DLI) Scheme aims to offer financial incentives as well as design infrastructure support across various stages of development and deployment of semiconductor design(s) for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores and semiconductor linked design(s) over a period of 5 years.

Objectives

• Nurturing and facilitating the growth of the domestic companies, startups and MSMEs.
• Achieving significant indigenization in semiconductor content and IPs involved in the electronic products deployed in the country, thereby facilitating import substitution and value addition in electronics sector.
• Strengthening and facilitating access to semiconductor design infrastructure for the startups and MSMEs.

During the year the Company has made an application to participate in DLI Scheme, the application is presently under review with CDAC.

SerDes

The SerDes market is expected to reach USD 2540.0 million (source IP Next Market survey report) by 2025 and is projected to capture a healthy compound annual growth rate of 21.7%. SerDes combines the Serializer and De- serializer which are required for high-speed communication to convert the serial data and parallel data while reducing the data lines. Several applications involve huge data transmission operations which require efficiency and speed.

The automotive industry, the demand for the SerDes is rapidly increasing, owing to the deployment of driver safety protocols and cameras to monitor various factors such as monitoring the circumstances during the drive, monitoring the health parameters during the drivers, and so on.

The SerDes IP 5 years forecast is very aggressive: this segment should increase from $114million in 2020 up to $328 million in 2025, with 24% CAGR! (source IP Next Market Survey report) The reasons for such high growth are well-known, linked with the booming demand for more bandwidth in data center and all along the data flow: computing, storage and network.

The overall Indian economy size reaching USD 3.1 trillion and with a target of reaching USD 5.0 trillion by FY26. This growth will be predominantly dominated by manufacturing through reengineering by adopting cutting edge technology, these necessarily calls for a high demand for PAM4 SerDes technology.

We consider a SerDes to be Very High Speed (VHS) when the data rate is equal to 56 Gbps, or more (112 G). Up to 28 Gbps, a SerDes design is following NRZ or PAM2 signaling, when at 56 Gbps and above the signaling is expected to be PAM4 (4 Level Pulse Amplitude Modulation) where every 2 bits are mapped to one symbol.

In summary, the semiconductor industry is on a solid growth path fueled by growth in multiple segments.

Company centric Highlights and Key developments in IoT Segment

MosChips refined focus on Semiconductor design services, Semiconductor IP for connectivity, Turn-key ASIC solutions, Embedded system and software design services, has been yielding steady and consistent growth for the last few quarters.

MosChips concrete efforts to strengthen its technology expertise and broaden its solutions and product engineering services offerings continue to help acquire new customers and additional business with existing customers.

Moschip continues to invest in semiconductor IP for connectivity solutions that includes 16G to 64G for PCIE applications, Ethernet connectivity and high speed data converters. Moschip has been refocusing on turn-key ASIC solutions, leveraging its IP portfolio, design capabilities and established relationships with semiconductor fabs and manufacturing houses.

For and on behalf of the Board of Directors

Place: Hyderabad Date: 21st August, 2023

K. Pradeep Chandra Director and Chairman

DIN: 05345536

Annexure ‘B to the Directors Report Form AOC-1

Statement containing salient features of the financial statement of subsidiaries / associate companies/ joint ventures

(Pursuant to first proviso to sub-section (3) of Section 129 read with Rule 5 of Companies (Accounts) Rules, 2014)

Part "A": Subsidiaries

(Rs. in Lakhs)

		Name of the Subsidiary
		MosChip Technologies, USA	MosChip Institute of Silicon Systems Private Limited	*MosChip Technologies W.L.L
01	Reporting period	31 March 2023	31 March 2023	31 March 2023
02	Functional Currency	USD	INR	BHD
03	Exchange Rate	82.16	NA	216.55
04	Equity Share Capital	1,397.62	1.00	2.15
05	Reserves & Surplus	(898.84)	(174.42)	(1.78)
06	Total Assets	2,694.62	684.63	0.36
07	Total Liabilities (excluding Equity Share Capital and Reserves & Surplus)	2,195.82	858.05	-
08	Investments	-	-	-
09	Turnover (Total Revenue)	8,047.75	392.37	-
10	Profit / (Loss) Before Taxation	408.49	(74.85)	(1.80)
11	Tax Expenses	6.13	-	-
12	Profit / (Loss) After Taxation	402.36	(74.85)	-
13	Proposed Dividend	-	-	-
14	% of Shareholding	100%	100%	100%

* MosChip Technologies W.L.L., the wholly owned subsidiary of the Company is incorporated in September, 2022.

Names of Subsidiaries which are yet to commence operations: MosChip Technologies W.L.L. Names of Subsidiaries which have been liquidated or sold during the Year: Nil.

Part "B": Associates and Joint Ventures

Statement pursuant to Section 129(3) of the Companies Act, 2013 related to Associate Companies and Joint ventures

There are no associate companies and joint ventures during the current financial year. Names of Associates, which are yet to commence operations: NIL

Names of Associates or joint ventures, which have been liquidated or sold during the year: NIL

For and on behalf of the Board of Directors

Place: Hyderabad Date: 21st August, 2023

K. Pradeep Chandra Director and Chairman

DIN: 05345536

Annexure ‘C to the Directors Report

Disclosure of Remuneration under Section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

1. The percentage increase in remuneration of each Director, Chief Financial Officer and Company Secretary during the Financial Year 2022-23 and ratio of the remuneration of each Director to the median remuneration of the employees of the Company for the Financial Year 2022-23 are as under:

S.	Name	Designation	Ratio of	Percentage
No.			Remuneration of	increase in
			each Director to	Remuneration
			Median	during FY
			Remuneration of	2022-2023
			Employees
1	Mr. Venkata Sudhakar Simhadri	Managing Director & CEO	40	43%
2	Mr. K. Ramachandra Reddy *	Non-Executive Director	NA	NA
3	Mr. D. G. Prasad	Independent Director	NA	NA
4	Mr. Raja Praturi *	Independent Director	NA	NA
5	Mrs. Madhurika Nalluri Venkat	Independent Director	NA	NA
6	Mr. Damodar Rao Gummadapu	Non-Executive Director	NA	NA
7	Mr. K. Pradeep Chandra	Independent Director	NA	NA
8	Mr. Rajeev Krishnamoorthy	Independent Director	NA	NA
9	Mr. Jayaram Susarla	Chief Financial Officer	9.94	14 %
10	Mr. Suresh Bachalakura	Company Secretary	2.89	12 %

1. The remuneration of Directors does not include Sitting Fee, Gratuity and retirement benefits.
2. The remuneration of KMP does not include perquisite from ESOP.
3. Independent Directors are paid only sitting fee which is not included in Remuneration.

* Mr. K. Ramachandra Reddy ceased to be a Director w.e.f 1st May 2023 and Mr. Raja Praturi ceased to be a Director w.e.f.12th July, 2022.

2. The percentage increase in the Median Remuneration of the Employees of the Company for the Financial Year 2022-23 & the number of permanent employees on the rolls of the Company:

The Median Remuneration of the Employees was Rs 8,00,000 and Rs 8,53,400 in the Financial Year 2022- 23 & 2021-22 respectively. Employee head count increased to 926 from 727 as on 31 March 2023 & 31

March 2022.

3. Average percentage increase already made in the salaries of employees other than the managerial personnel in the last Financial Year i.e. 2022-23 with the percentage increase in the managerial remuneration:

The average increase in the remuneration of employees excluding KMPs during FY 2022-23 was 14 % and the average increase in the remuneration of Key Managerial Personnel 34 %

** The average increase in remuneration of employees is calculated based on net employee benefit expenses disclosed in P&L statement.

4. The key parameters for the variable component of remuneration availed by the directors:

Based on the recommendations of the Nomination and Remuneration Committee and as per the Remuneration Policy of the Company.

5. Affirmation that the remuneration is as per the remuneration policy of the Company:

The remuneration of Directors was as per the Remuneration Policy of the Company.

For and on behalf of the Board of Directors

K. Pradeep Chandra

Place: Hyderabad Director and Chairman

Date: 21st August, 2023 DIN: 05345536

Annexure ‘D to the Directors report

Disclosure of Employee Stock options pursuant to Regulation 14 of SEBI (Share Based Employee Benefits & Sweat Equity) Regulations, 2021

1. The Employee Option Plans are designed to provide incentives to employees to deliver long-term returns. Participation in the plan is at the boards discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits.
2. The Company has seven schemes under Employee Stock Option Plans in operation during the year as mentioned in below table:

S. No.	Name of ESOP Scheme	No. of ESOPs	Date of shareholders approval
01	MosChip Stock Option Plan 2005 (MI)	5,00,000	30th September, 2005
02	MosChip Stock Option Plan 2005 (WoS)	5,00,000	30th September, 2005
03	MosChip Stock Option Plan 2008	30,00,000	29th August, 2008
04	MosChip Stock Option Plan 2008 (ALR)	10,00,000	29th August, 2008
05	MosChip Stock Option Plan 2008 (DIR)	10,00,000	29th August, 2008
06	MosChip Stock Option Plan 2018	1,00,00,000	17th January, 2019
07	MosChip Stock Option Plan 2022	1,00,00,000	27th June, 2022

3. Each option granted to eligible employees shall entitle such employees to one equity share of the nominal value of Rs.2 /- each at a price to be determined by the Board of Directors or Nomination & Remuneration Committee or the market price. However, subject to the regulations or guidelines of the SEBI in regard to the pricing of the Options, as applicable from time to time. The equity shares issued upon exercise of the Options shall rank pari passu in all respects with the existing equity shares.
4. Each option shall be vested after a minimum period of 12 months from the date of grant of the Option or at such times as may be determined by the Board or Nomination & Remuneration Committee from time to time.
5. The Options shall be valid and exercisable for such periods as may be determined by the Board or Nomination & Remuneration Committee, from time to time. Options not exercised within the specified period will lapse. All options that are lapsed will be added back to the pool and are eligible for future grants to the employees.
6. Out of above plans the Company has granted options during the year ended 31 March 2023 in Moschip Stock Option Plan 2005 (WOS), Moschip Stock Option Plan 2008, Moschip Stock Option Plan 2018 and Moschip Stock Option Plan 2022.

Particulars	MosChip Stock Option Plan 2008	Moschip Stock Option Plan 2005 (MI)	Moschip Stock Option Plan 2005 (WOS)	Moschip Stock Option Plan 2008 (ALR)	Moschip Stock Option Plan 2008 (Director)	MosChip Stock Option Plan 2018	MosChip Stock Option Plan 2022
Options outstanding at the beginning of the year	10,55,089	1,31,619	2,86,250	6,05,334	10,00,000	79,20,449	0
Granted during the year	1,56,500	-	45,070	-	-	18,66,975	67,68,092
Forfeited during the year	76,250	-	12,000	38,585	-	13,03,233	3,46,420
Exercised during the year	2,85,872	31,666	13,750	1,98,288	-	10,79,014	-
Options outstanding at the end of the year	8,49,467	99,953	3,05,570	3,68,461	10,00,000	74,05,177	64,21,672

7. Share options outstanding at the end of the year have the following expiry date and exercise prices.

31st March, 2023
Grant Date	Vesting Period	Exercise price	Share options outstanding
26-Oct-18	4 Years	18.00	12,80,000
20-Jul-20	3 Years	16.00	34,85,348
25-Jan-21	4 Years	16.00	3,00,000
27-Apr-21	4 Years	18.00	1,12,500
20-Jul-21	4 Years	24.00	14,06,125
20-Oct-21	4 Years	31.28	1,07,500
17-Jan-22	4 Years	40.00	13,70,000
28-Apr-22	4 Years	40.00	2,30,575
14-Jul-22	4 Years	40.00	4,47,010
25-Oct-22	4 Years	40.00	70,21,030
25-Jan-23	4 Years	40.00	6,90,212

8. The fair value of each option is estimated on the date of grant using Black-Scholes-Merton model with the following assumptions:

The model inputs for options granted during the year ended 31 March 2023 included:

Grant Date	Vesting Period	Expiry Date	Excise Price	Share Price at Grant date	Expected price volatility of the companys shares	Expected dividend yield	Risk free interest rate
26-Oct-18	4 Years	26-Oct-25	18.00	23.50	53%	-	8.04%
20-Jul-20	3 Years	20-Jul-26	16.00	14.80	55%	-	4.55%
25-Jan-21	4 Years	25-Jan-28	16.00	15.00	61%	-	4.58%
27-Apr-21	4 Years	27-Apr-28	18.00	30.85	60%	-	4.58%
20-Jul-21	4 Years	20-Jul-28	24.00	44.96	68%	-	4.58%
20-Oct-21	4 Years	20-Oct-28	31.28	47.55	66%	-	4.58%
17-Jan-22	4 Years	17-Jan-29	40.00	81.05	68%	-	5.21%
28-Apr-22	4 Years	28-Apr-29	40.00	62.60	66%	-	5.31%
14-Jul-22	4 Years	14-Jul-29	40.00	54.35	67%	-	5.37%
25-Oct-22	4 Years	25-Oct-29	40.00	67.50	58%	-	7.13%
25-Jan-23	4 Years	25-Jan-30	40.00	66.33	55%	-	7.06%

9. Exercise of Options during the year:

Number of options exercised during the year	16,08,590
Number of shares arising as a result of exercise of options	16,08,590
Money realized by exercise of options (INR), if scheme is implemented directly by the company.	Rs. 2,87,98,140

10. Employee wise details of options granted to
1. Senior Managerial Personnel and KMP:

Mr. Jayaram Susarla : 5,00,000 Mr. Venkata Sudhakar Simhadri : Nil

Mr. A J N Rao : 3,00,000

Mr. Suresh Varma : 3,00,000 Mr. Srinivasa Rao Kakamanu : 7,00,000 Mr. Giri Babu Kondaveeti : 3,00,000

Mr. Suresh Bachalakura : 42,000

2. Employees who received grant in any one year of options amounting to 5% or more of options granted during the year;

Mr. Jayaram Susarla : 5,00,000 Mr. Srinivasa Rao Kakamanu : 7,00,000

3. Identified employees who were granted options, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant: Nil

The Board of Directors hereby confirms that there are no material change(s) in any of the seven schemes under Employee Stock Option Plans in operation during the year and all the scheme(s) are in compliance with SEBI (Share Based Employee Benefits & Sweat Equity) Regulations, 2021. The disclosures as required under Regulation 14 of SEBI (Share Based Employee Benefits & Sweat Equity) Regulations, 2021 has been uploaded on the website of the Company at www.moschip.com.

For and on behalf of the Board of Directors

Place: Hyderabad Date: 21st August, 2023

K. Pradeep Chandra Director and Chairman

DIN: 05345536