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What's in EDA crystal ball?

Posted: 05 Feb 2010 ?? ?Print Version ?Bookmark and Share

Keywords:EDA? market forecast? semiconductor industry?

2009 was quite a tumultuous year for the EDA industry. However, there are signs that there is some economic light at the end of the tunnel. Revenue improved on a sequential basis in Q3 09, ending the longest string of successive declines since at least 1997, according to the EDA Consortium (EDAC) trade group.

EDA revenue for Q3 09 totaled nearly $1.17 billion, up 3.8 percent compared to the second quarter of the year, according to EDAC's latest report. But revenue continued to decline on a year-to-year basis, down 7.2 percent compared to the third quarter of 2008. EDAC's four-quarter moving average also declined 13.1 percent.

EE Times presents a discussion with EDA pundits Walden Rhines, EDAC chair and chairman and CEO of Mentor Graphics Corp., Gary Smith, principal of Gary Smith EDA, and Joseph Borel, former executive VP in central R&D at STMicroelectronics NV and now of the JB-R&D consulting company.

Walden C. Rhines
EE Times:
Will the EDA market stabilize in 2010? What will be the positive trends and negative trends?
Rhines: I believe the market will stabilize. The last two quarters of EDAC results have shown decreasing declines. We are seeing positive forecasts for the overall electronics industry in the upper-single digits. IC Insights projects 7 percent electronics growth while VLSI Research is projecting nearly 9 percent growth in 2010. The markets with the highest semiconductor consumption, personal computers and cell phones, both seem to be recovering nicely and this is helping drive the overall demand for semiconductors into the mid-teens, according to many of the leading analysts. Semiconductor market watchers are projecting growth rates that will drive semiconductor consumption higher than the last peak in 2008. Fortunately for EDA, both the computer and wireless markets remain highly competitive and will continue to use design to enable both cost reduction and differentiation goals.

Beyond the macro-environment, a portion of the revenue shock in 2009 can be attributed to individual company business model changes. Those changes have been made, the industry has absorbed the impact of those decisions, and EDA can move forward.

Is it likely that the EDA pickup in revenues may not be until well in 2010, or even in 2011, when customers are certain that their markets have recovered?
EDA growth is most tightly correlated to semiconductor R&D investments. The strongest relationship tends to include a delay of about one year. Research and development investments were impacted in this downturn, but the decline in R&D expense was much milder than we experienced in 2001. While the data for 2009 is not yet available, we are starting to see companies adding to their R&D staff, with considerably fewer companies continuing to cut. TSMC's announcement on Jan. 14 that they plan to recruit 3,000 engineers is an encouraging sign.

The fabless companies continue to outpace the overall market with 15 of the top 50 fabless companies posting positive growth for the year. Even in 2009, during one of the worst recessions, a half-dozen leading semiconductor companies enjoyed positive growth rates.

It is reasonable for companies to remain somewhat cautious, but companies will need to balance caution with their own competitive environment. High technology companies are rarely known to "save" their way into prosperity - they invest, especially coming out of recessions so that they have the products in the pipeline to exploit during the next upturn.

Should we expect more consolidations this year?
Consolidation in EDA is something of a broadly accepted myth. The "big three" EDA companies (Synopsys, Mentor Graphics and Cadence) have a 73-percent combined market share as of Q3 2009. That market share is within a few percentage points from where it was in 1998. It is in fact the average share that the "big three" have enjoyed since that time a share that cycles slowly between 70-80 percent.

In most years, new EDA start-ups roughly offset companies that are acquired or exit the business. It is difficult to track exact numbers, but Mentor Graphics has identified 27 rounds of venture funding into EDA companies in 2008. And, as of Q3, we have already identified 15 rounds of funding into EDA start-ups in 2009. While the numbers of rounds and perhaps the dollars invested are down, they have not vanished. There are plenty of design problems looking for solutions and innovative engineers from both large and small companies with the opportunity to contribute.

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