LONDON — Chip design outsourcing growth fell to 6.5 percent last year, down from nearly 34 percent the year earlier, and the number of chip design starts are expected to fall another 18 percent this year, analysts at Gartner have warned.

"While the recession has spelled doom for many small design service providers, for large and midsize vendors, it has brought to the fore three key challenges that will impact their growth substantially," said Ganesh Ramamoorthy, senior analyst at Gartner.

These are: a shrinking available market for chip design outsourcing; lagging design productivity growth; and a growing shortage and rising cost of a skilled high-end workforce.

"Chip design service providers, which will be under increased pressure to add value to their clients, should consider preparing their response to the challenges and the unfolding trends, as that response will be the key to retaining existing clients and gaining new ones," notes Ramamoorthy.

Gartner has identified several key elements that chip design service providers may consider, either stand-alone or in combination — depending on the challenges they face, their market position and the size of the operation — while preparing their response to the challenges and the unfolding competition.

The key points are: aligning the sales and marketing strategy with the prevailing design start trends; broadening the service portfolio to include product engineering services and other design support services; exploring opportunities for mergers and acquisitions to widen service offerings, skill-set capabilities and geographical reach; and understanding and analyzing regional design start trends while examining prospects and opportunities.