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Will Synopsys rule the EDA world?

Posted: 25 Feb 2009 ?? ?Print Version ?Bookmark and Share

Keywords:EDA industry? design market? Synopsys takeover?

While its major competitors have been reporting losses for several consecutive quarters, EDA and IP vendor Synopsys Inc. says its relative strength will buttress trends that have been working in its favor, driving even more market share its way.

But does the semiconductor industry want an EDA market increasingly dominated by one player?

"Customers want to make sure there are at least two viable EDA vendors," said Rich Valera, an analyst with Needham & Co.

Synopsys earlier this week surprised analysts and just about everyone who has been paying attention to the electronics ecosystem by posting better-than-expected revenue and profit for the quarter ended Jan. 31. Synopsys posted a net income, based on generally accepted accounting principles (GAAP), of $52.4 million on revenue of $339.8 million. And the company expects to maintain revenue for the current quarter, even in the face of an ugly downturn, projecting sales of between $332 million and $340 million.

By contrast, Cadence Design Systems Inc. reported a GAAP net loss of $1.85 billion for fiscal 2008 and expects revenue to be down significantly this year. Mentor Graphics Corp., which reports quarterly earnings next week, expects to miss its revenue target by 10 percent and last year cut its revenue outlook for 2009 to $815 million from $915 million.

Magma Design Automation Inc., once following close behind the three biggest EDA players, has had two recent rounds of layoffs and is expecting revenue for its fiscal year ending May 3 of only $145 million.

Executives say Synopsys is weathering the economic storm that is decimating competitors and customers by virtue of its size, product portfolio and the trend toward EDA vendor consolidation.

Suppliers' pick
In a conference call with analysts Feb. 20, Synopsys chairman and CEO Aart de Geus made repeated references to the announcement that LSI Corp. had designated Synopsys as its primary EDA vendor. De Geus offered this as further proof that Synopsys would become an even more attractive partner during the downturn!that tough times would prompt customers to further streamline tool flows and look to vendors with a breadth of products who are going to be around for a while.

Synopsys has disclosed seven primary vendor relationships with customers, including Intel Corp., National Semiconductor Corp. and Renesas Technology Corp. The company also has several other similar relationships where it acts as a primary vendor but has not announced it publicly, he said, and "a slew of relationships that are progressing in that direction."

Considering the economic climate, de Geus said customers are reassessing their design flows with the goal of coming out of the recession streamlined, more efficient and recovery-ready.

"This trend plays well to Synopsys' strengths, and we fully intend to emerge as an even more vital partner to our customers," de Gues said. He said Synopsys is the safest bet for customers based on its broad product portfolio and financial strength relative to competitors.

De Geus has long spoken of the trend toward EDA tool vendor consolidation, where customers move to buying tools from fewer and fewer vendors and move away from what he calls "Frankenstein flows" cobbled together from various point tools toward the integrated design flows that Synopsys and other large EDA vendors are pushing. The argument says that vendor consolidation saves customers money and improves the integration of tool flows, with fewer issues around how the tools interface with each other.

Consolidation argument
Needham's Valera said the argument is essentially an incrementally different spin on what Synopsys has been saying for a long time: that vendor consolidation favors the company. Valera said the argument is a valid one, and that customers!many of which don't have the prettiest balance sheets right now!would logically be taking a close look at suppliers to make sure they are buying tools from companies that are going to survive the downturn.

Some have questioned to what degree EDA vendor consolidation is actually occurring. At the DesignCon tradeshow in Santa Clara, Calif. last month, Mentor Graphics Corp. Chairman and CEO Walden Rhines sought to dispel the notion that companies are moving to single-vendor tool flows, noting the existence of more than 500 EDA companies in 68 different product niches at the end of 2007.

Valera said there is also an argument for continued customer support of other EDA vendors, particularly Mentor and Cadence. While customers might appreciate the potential short-term cost savings of vendor consolidation, they certainly don't want Synopsys to end up with anything approaching a monopoly in the business, he said.

Cadence, long the leading EDA vendor, stumbled mightily last year and lost its status as the revenue leader to Synopsys. Now, Valera said, Cadence is hearing from customers that they are rooting for the company to right the ship so they won't have to become increasingly beholden to Synopsys.

"Certainly, at the margin, I give the advantage to Synopsys" because of its relative strength, Valera said. "But customers don't want to make it a self-fulfilling prophecy that the other EDA vendors will all go out of business."

Valera noted that Cadence still holds a dominant position in analog design tools. Despite rumblings by Synopsys in this area, switching analog EDA vendors is a major undertaking that customers aren't likely to tackle without compelling reasons, he said.

Weathering down the recession
Valera noted that some trends highlighted on the analyst call indicate that Synopsys is not immune to the current economic environment. Synopsys acknowledged that order bookings in the quarter were lighter than expected, and though executives stopped short of issuing revised bookings guidance, "it was pretty clear that they were moderating that bookings outlook," Valera said.

He added that Synopsys also acknowledged that business conditions had deteriorated further each month since last October.

"They are positioned to weather this downturn better than any other EDA company," Valera said. "But they are not immune."

De Geus said he had spoken with nearly 100 executives during travels to customers in the United States and Europe and at the World Economic Forum. Most of the executives he spoke with believe the recession will be deep and last well into 2010, de Gues said.

"It's fair to say that all customers are battening down the hatches and focusing on reducing risk and!even more importantly!reducing costs," de Geus said.

Most chip companies have cut expenses mainly on the manufacturing side and are continuing chip design work, although with caution, de Geus said.

"While we intend to weather the storm, and expect to come out of the recession in an even stronger position, we are very mindful of the economic uncertainty and of the challenges our customers are facing," de Gues said.

Echoing a comment he had made at the EDA Consortium Dinner last month, de Geus said managers should "never let a good crisis go unused." Crises, like the current recession, present opportunities for companies to make changes that should have been made previously, he said.

Discussing customers' EDA spending trends, de Gues said Synopsys is involved in high-level dialogues with customers to help them save money in the long run and build a stronger relationship with Synopsys at the same time.

- Dylan McGrath
EE Times





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