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Steps toward a better EDA industry

Posted: 01 Feb 2005 ?? ?Print Version ?Bookmark and Share

Keywords:eda? rtl? industry? ip? tools?

Lippe: The EDA industry is designed for the world that existed in 1994, not the world that exists in 2004.

I had the pleasure to see Joe Costello receive the Kaufman award at the recent EDAC dinner. Being at the EDAC event was probably no different than being at the Duquesne Club in Pittsburgh for the big Steel Industry dinner in 1957.

Lots of very smart, very able, very hardworking people trying to understand why things weren't as good as they used to be. A willingness to acknowledge that we can't "party like it's 1999," but not so much to acknowledge that we can't party like it's 1994 either.

In 1999, revenues were $4 billion. Today, revenues are $4 billion, and I offered to bet anyone I talked to at dinner that revenues in 2009 would be $4 billion. The EDA industry is designed for the world that existed in 1994, not the world that exists in 2004.

Profitability is not about value-add; it's about industry structure. There are too many startups and not enough consolidation. EDA folks' favorite catechism is "we invest a lot, we innovate a lot, we add a lot of value, so we should get paid a lot." But the reality is there are too many EDA companies, and all that competition, combined with a slow-growing, highly concentrated customer base, means slow or no revenue growth.

When Synopsys got started, there were three companies going after the synthesis opportunity, which allowed one dominant player to emerge. Now you have 30 or more players going after the next big thing: design-for-manufacturing.

No one can emerge as a dominant leader with strong profitability. As long as EDA continues to have low barriers to entry and lots of competitors willing to discount for the incremental order, revenues will be flat and profitability will decline.

EDA has innovated in technology, but not in business models and processes. Basically nothing has changedsame customers, same leaders, same business models, same issues.

Sales forces are the death of EDA players. EDA companies have designed their distribution models around expensive direct sales forces. But in 2004, there are no new accounts. Most sales people make their numbers selling the same products to the same accounts. EDA companies need to re-think their sales organizations and quota systems.

The capital structure is wrong. EDA companies don't consume capital, so why are they public? EDA companies expend enormous resources to contort themselves into the expectations of public investors. Lots of great software companies are private, and lots of new funds are emerging to take companies private.

It is time to "think out of the bun." The EDA industry needs to figure out how to move upstream into ICs or downstream into manufacturing.

- Paul Lippe
Founder
Quality Automated Legal Systems




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