February 17, 2003
Please note that contributed articles, blog entries, and comments posted on EDACafe.com are the views and opinion of the author and do not necessarily represent the views and opinions of the management and staff of Internet Business Systems and its subsidiary web-sites.
Peggy Aycinena - Contributing Editor

by Peggy Aycinena - Contributing Editor
Posted anew every four weeks or so, the EDA WEEKLY delivers to its readers information concerning the latest happenings in the EDA industry, covering vendors, products, finances and new developments. Frequently, feature articles on selected public or private EDA companies are presented. Brought to you by EDACafe.com. If we miss a story or subject that you feel deserves to be included, or you just want to suggest a future topic, please contact us! Questions? Feedback? Click here. Thank you!

Alice in Wonderland does a reality check

Sometimes it's just hard to get a grip on reality. Like when you're late to the annual EDAC CEO Forecast Panel meeting and all the time you're pushing through traffic to get there, the voice on the radio drones on and on about the duct tape you'll need to seal off your house in case of chemical or biological attack, or offers up some simple suggestions about how many days' supply of food and water you'll want to have stored in a safe place to keep your family alive until the normal infrastructures can be restored after a crisis.

So you finally arrive within a block of the meeting venue, park hurriedly, rush down the street, run into the large hall teeming with attendees, take a seat, lean back, take a deep breath, and try to focus for 90 minutes on the prognostications regarding EDA and the semiconductor food chain emanating from the six CEOs and one investment banker addressing the crowd from the front of the room.

After about 15 minutes, it hits you. You've actually fallen down the rabbit hole and this is Wonderland. None of this is real. None of it makes any sense. The panelists drone on and on telling you that now's a good time to buy EDA stock, that the next 6 months will be a little flat, but that overall EDA provides consistent growth, and 2004 shows all sorts of signs of recovery and renewal for the industry. They cheerfully tell you that EDA's doing pretty well - not great - but pretty well. Surely these people can't be real. Surely this is the Mad Hatter's Tea Party and they've all had too much tea. They don't know that there's a real world out there full of seething populations, gathering
storms, and factions splitting and reforming along unfamiliar lines. Why aren't they down at the hardware store buying duct tape?

But, then again, maybe the panelists are sane. Maybe they're real. The longer you study their carefully crafted PowerPoint foils, the more you start to wonder if maybe this is the actual reality. Maybe the rabbit hole goes the other way. Maybe the radio, the news, the cacophony of raised voices from around the globe - maybe that's the stuff of unreality. That place outside this elegant hall? Maybe that's where the Mad Hatter and the hookah-smoking Caterpillar live. Here in this room, with all these educated, nicely dressed people sipping their wine under rows of sparkling chandeliers, enjoying their h'or dourves, nodding sagely each time an important market axiom is enumerated by a
distinguished panel member - maybe this is reality. Right here in this hall in the heart of Silicon Valley. The leaders in electronic design automation are sharing their positive, uplifting message and their congregation has come to hear the sermon.

So you go with your hunch and decide you've established on which end of the rabbit hole reality resides. You focus even more intensely on what the panelists are saying and your concentration does not go unrewarded.

Garo Toomajanian from RBC Capital Markets - “The number of private EDA companies funded has been steadily dropping over the last several years. There were 70 in 2000, 59 in 2001, and only 34 in 2002. Meanwhile, the public stock valuations in EDA are down and the consolidation continues. We expect 2003 to be flat [from a revenue standpoint], and we're hoping - though not expecting - for improvement in 2004.”

Jacques Benkoski of Monterey Design Systems - “We're a private company, so we can be more candid [than publicly traded companies]. Our revenue for fiscal year 2002 was up 60% over fiscal year 2001, and our tape-out revenue was up by 300%. But EDA [in general] has been hurt by a decline in R&D dollars in our customers, and the number of design starts is down as well. Perhaps decisions made by those in the semiconductor industry have dug a deeper hole than just a cyclical one for the overall industry, this time around. We in the EDA industry will have to wait till they're out of that hole to be counter-cyclical once again [to the semiconductor industry]. Meanwhile, our
customers don't understand why, if they're not getting any revenue [in the current economy], why we [in EDA] should be getting any revenue. So everybody [in EDA] is trying to find a business model that aligns with the business models of their customers. Overall, EDA growth will be 10% this year.”

Ray Bingham of Cadence Design Systems - “Recall that, in earlier eras, disruptive technologies drove a recession into recovery - in 1970, it was the commercialization of the IC, in 1985 it was the PC, and in 1990 it was the world wide web. However, the current [business-technology] ecosystem is unfamiliar, particularly the chip-to-volume puzzle. Our customers have been stand-up citizens, though, and continue to invest in R&D. We're hearing a clarion call to our industry to think about our customers in a different way. We need to figure out a way to work together to scrub the unnecessary costs out of bringing product to market.”

“In an earlier era, if you were 6 months late getting your product to market, you lost 60% of the [potential] revenue. Now, if you're 3 months late, there is no market at all. 2002 was a difficult year and the forces that made it so are still at work. Our business is to address our customers' problems, and therefore help ourselves. This year, at the revenue and bookings line, our numbers will be flat - but we can still deliver technology that reduces risk, that addresses speed to market. We can change that even here in 2003! We're seeing the light at the end of the tunnel after a flat 2002, although the consensus [for growth this year] on this panel will be much lower that the
published numbers from the analysts.”

Aart de Geus of Synopsys, Inc. - “Synopsys is a publicly traded company and I cannot always speak freely because my lawyers and accountants are in the audience and monitoring what I say. But no eye twitch or strange hand motion should be misinterpreted with regards to our pending revenue announcements. There are massive economic changes underway [worldwide] in technology. And there is an obvious oversupply - in airline seats, in IS and IT teams, in high-tech equipment, in semiconductor fabs. So one could ask, 'Why isn't [the economic situation] even worse?' The answer is that there is, in fact, an increased demand for certain types of products - for example, wireless
products and digital cameras. Additionally, there are fundamental changes ahead in China and India. If the standard of living in those countries changes just slightly, for instance in the coastal regions of China, new markets will appear. There is no question that there will be wealth transfer to the Far East over the next 40 years.”

“And there will be non-linear changes in technology as well. Blame the massive IT spending on Y2K, but by 2004 the computers bought in 2000 will be way-old stuff. So to compete, our customers are having to execute designs keeping the three B's in mind. The Basics of cost versus risk. The Balance sheet - remember that companies may be managed by CFOs, but the CFOs know little about parasitic extraction. And the Breakthrough - a killer app like the PC or wireless or the Internet couldn't be predicted, but once here, everybody jumped in. The next killer app won't be visible till it's visible. EDA touches everybody. We're at the heart of the [design] communication system and offer our
customers trustworthy, stable partners. And we offer Moore's Law - it's still stable, and it's still there.”

Alan Naumann of CoWare, Inc. - “After 10 years at Cadence, I left EDA and went into the Bubble and now I'm back. I've been back in EDA for exactly a year and [with that perspective] I can see things about our industry. If you put a frog in water and slowly raise the heat, it won't know to jump out until it's too late. But if you drop a frog in boiling water, it will jump out right away and save itself. We're on a precipice in a number of geopolitical areas - will the U2's fly in daylight over Iraq, for instance. We're in a state where we're not in control of our own destiny. Look at Sun Microsystems. It's a great company that's suffering incredible pain. It
may not make it out alive because of Linux and other forces.”

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-- Peggy Aycinena, EDACafe.com Contributing Editor.


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