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Uncertainty clouds EDA industry outlook for '03

Posted: 18 Feb 2003 ?? ?Print Version ?Bookmark and Share

Keywords:electronic design automation industry? eda consortium? ceo forecast panel? soc? coware?

The electronic design automation industry faces an uncertain 2003, when annual sales could shrink 2 percent or grow as much as 10 percent, according to CEOs assembled for the EDA Consortium's CEO forecast panel.

A number of issues - possible war against Iraq; terrorist threats; lower customer R&D budgets; and overcapacity of everything from "airline seats to fabs" - cloud the industry's horizon for the next six months and likely for the rest of the year, panelists said. All six CEOs said they are looking forward to better times in 2004.

The EDA industry began feeling the ill-effects of the semiconductor industry's slump last year after posting 6 percent revenue gains in 2001, when EDA startups claimed three of the year's five most profitable IPOs. "There were no EDA IPOs in 2002 and the EDA industry saw three quarters of year-over-year decline," said panel moderator Garo Toomajanian, an analyst with RBC Capital Markets.

The EDA Consortium (EDAC), an industry group, has not yet reported industry revenue figures for Q4 of 2002, but EDAC's current chairman, Mentor Graphics Corp. chairman Walden Rhines, said industry revenues will decline a few percentage points in 2002.

"[Synplicity Inc. chief executive] Bernie Aronson was right last year when he predicted 2002 will suck," said Rhines, noting that his own prediction at last year's CEO forecast panel for 10 percent industry growth was well off the mark.

Toomajanian said that he believes public EDA companies will post 6 percent revenue growth for 2003 as customers buy the tools they need to design in the latest silicon processes.

But the CEOs for the panel's publically-held EDA companies were cautious about predicting revenue growth at that high a level. Rhines predicted 5 percent growth for the industry, but 10 percent revenue growth and 20 percent booking growth for Mentor. Ray Bingham, CEO of Cadence Design Systems Inc., predicted flat revenues for the year. Sang Wang, CEO of Nassda Corp., predicted a range for industry revenues from a decline of 2 percent to an increase of 5 percent. Meanwhile, Synopsys Inc.'s chairman Aart de Geus refrained from making any predictions, stating that his company must observe a quiet period for a week before it reports quarterly revenues.

CEOs of privately-held companies - Alan Naumann of CoWare Inc. and Jacques Benkoski of Monterey Design Automation - predicted that their respective companies would see marked growth in 2003 and said the EDA industry could post revenue growth as high as 10 percent.

Naumann said he expects CoWare to double its bookings this year but predicted "a tough year" for the industry as a whole. Benkoski said he expects around 60 percent growth for Monterey's revenues and 10 percent growth for the industry.

"The cost of building a SoC is becoming so high that very few have the ability to take on new projects," Benkoski said. Customers have made such profound cuts to their R&D budgets that the EDA industry's cyclical trend, which used to run counter to the semiconductor industry's down cycle, is now cyclical with the semiconductor industry downturn and will remain so until a significant semiconductor upswing occurs, Benkoski said.

In today's tough times, customers are restricting their budgets and are only buying tools that will give them a 90 percent improvement over their current tools, Benkoski said. Companies that offer tools giving a 10 percent improvement will continue to struggle, he said.

Massive recasting

A massive recasting of the electronics industry is under way, and an overcapacity of everything from airline seats to fabs has prolonged the industry's downturn, de Geus said.

But consumers will likely need to upgrade their current electronic products in the next couple of years, spurring sales of IT equipment and PCs, which should in turn help EDA industry sales, de Geus said. Many are awaiting the next killer app that will lead an upswing, but de Geus said that an application won't be recognized until it "kills something."

Bingham said that EDA companies need to work together and align with the needs of mutual customers to put the electronics industry back on a growth path. "Our challenge is to address what our customers are trying to accomplish," he said. "By making them successful, we help ourselves."

But while the electronics industry as a whole is slumping, Nassda's Wang said there are still niches that are growing, including wireless LANs, DVD players, and digital cameras. In the EDA industry, place and route tools and verification will be growth areas over the next year, he said.

Opportunity to expand

Naumann of CoWare said the EDA industry has an opportunity to expand into new areas, such as system-level design, because upfront architecture design and verification will become imperative for large SoC designs. Also, the increased use of processor cores will increase demand for tools that facilitate software design, Naumann said.

"To serve our customers needs we are going to have to be doing processor-based design where the building block is not a standard cell or a gate in a gate array but a building block that is used by everybody," Naumann said.

Such expansion brings stability to the EDA market, Rhines said.

The EDA industry has maintained relative stability in comparison to the industry's customers because many vendors own a leading market position in at least one niche. "We have 300 small companies co-existing with three large companies, where the smallest of the large companies is an order of magnitude larger than the largest small companies, and yet it is stable," he said.

- Michael Santarini

EE Times

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