The Future of EDA and the Semiconductor Industry, One Man’s View

I do not know if the right term is a paradox but you seem to be saying that customers in a trillion dollar industry are bitching and moaning that they are paying a” $4 billion tax”.
Exactly right! I think it is irrational but it is not the value that EDA delivers. I am EDA’s strongest supporter when it comes to the output of the R&D teams in EDA. I would put those people up against any other segment in the world in terms of the ubiquity of the tools they make multiplied by the complexity of the problems they solve. No one solves a bigger universe of problems than EDA. The problem is this though, they want to be paid upfront regardless of whether the product is a success or failure. That is not the climate in the semiconductor world. It is not a question of fairness. That is a religious concept. It is a question of the marketplace and what semiconductor companies are willing or not willing to do. They are not willing to pay EDA top dollar upfront for a project that is super high risk and may never see the light of day.

What percentage of design starts never sees the light of day?
I would say that it is in the area that 90% of designs are never manufactured at all, yet alone with any volume. In our business about 50% of the chips we work on go to production which is huge and we work hard to pick the winners. On average it might be 15% go to production but I doubt it.

If I heard you right, EDA’s pricing model should be more like IP where there is some upfront payment, reduced compared to current pricing, but there is some royalty payments (pennies per chip).
Absolutely right! It is some version of that. If you think about what my business model does, I buy EDA tools like everybody else, work hard to negotiate the possible price I can, then I monetize that without which I could not have a company into participating in the semiconductor part of the business bit the EDA part. eSilicon draws its value, create its value, in a $250 billion semiconductor segment, whereas EDA tries to extract value from the $4 billion EDA segment. I would rather be sharing a $250 billion pie than a $4 billion pie. One way they could do that as you suggest is by having an upfront fee and going to a royalty basis like IP which would be a half-step. My personal view is that EDA companies need to be shipping silicon and participating on that. The simple fact is that there are probably 10 companies in the world that will own fabs in the next couple of years. It might be less already. Anybody can baby sit the supply chain. They are poised to do as good a job as anybody else but they elect not to do it because of some misguided motions of what the semiconductor model would do to their gross margins or their balance sheets. It does not have to be that way but they have not stopped to take a look. If you are thinking right now that I am arguing for them to compete with me, I am trying to extract myself from my company and talk about the industry at large and as someone who has spent is career here EDA could come up with a better business model than they have.

Soliciting free advice on behalf of the EDA industry, other than the model I described which you described as a half-step, what would you advise?
Besides the half-step, what else could they do?

My view is that the large EDA companies should be delivering their value in silicon with the customer’s name on it. That’s what the customers want. That’s with the supply chain is set up to do. It is a way to share in the upside and the downside. The EDA tools have been relegated for one reason or another and we can go back into the history of EDA to a non-valued participant in the overall semiconductor industry. While it is not right, the way to transcend that is to really participate in the thing that the people who buy EDA tools really want which is silicon that works with their names on it. I an arguing that EDA companies should in fact be delivering silicon, not unlike what the fabless semiconductor companies are doing today.

Would you still say that if someone waved a magic wand and the global recession ended tomorrow?
This is a problem that is not due to but only exacerbated by the current economic condition. It is still a $4 billion industry with no growth potential. Absolutely! It has been flat for 10 years, in the best of times (I don’t want to sound too Dickenesque) and in the worst of times. It is only shrinking now. Cadence is struggling. Magma is struggling. Synopsys is temporarily enjoying the fruits of their downfall but it is an ebb and flow process going back and forth for a decade. They are not creating new markets but taking market share in the short term. But that market is shrinking. There are just fewer people to buy EDA tools, period. The recession exacerbates that but ironically it doesn’t exacerbate it to the same degree as for other industries because design continues. The big costs are masks, the tapeouts, and the productization. Design will continue. They don’t feel the same pressure as the rest of the world. But when this corrects and comes back, EDA is not going to come back. EDA will be worse off in two years that it is today, regardless of what the economy does.

Thank you.


More about the state of the EDA industry will appear soon in the upcoming fourth quarter and 2008 commentary on this website

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Review Article
  • Great interview. Very insightful.... March 05, 2009
    Reviewed by 'EDA Observer'
    Thank you Mr Horgan for this insightful interview. I remember when Cadence acquired CCT.
    Paying $1 billion for a comapany with just $15 million in revenues shows how Cadence-Synopsys rivalry and their legal battles in the context of an "irrationally exuberant" stock (and M&A) market fueled decisions by Cadence exectives that explain partially why Cadence is where it is today.

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  • Full circle or Half circle?? March 04, 2009
    Reviewed by 'Anil Nadig'
    We started the semiconductor industry with one company coming up with the architecture, write the RTL, do the layout with thier in-house tools and fabricate in their own fab (AKA IDMs). Then we shed the fabrication saying its too costly to maintain and invest in RnD (The Foundary company?), and then the in-house tools sayings its cumbersome to develop (EDA vendors?) and spawned off the layout-ing to a third party saying too much overhead because of fixed costs (Esilicon?). But the future seems to be "specalized" "Value chain producers" with access to foundry to be able to have insight into nanometer issues (DFM?) and in-house developed tools with the knowledge gained from foundry to have edge over competitors. Which means the future seems to be putting back atleast half (in-house foundry and in-house tools) of the things, that we shed for various reasons into, one company. Half circle?? May be a day will come when you may want to integrate these "specialized" "value chain producers" back to the architucture and RTL team for some reason thats not yet foreseen. That would be the full circle!!!. At least the near to middle term seems to be the half circle for sure.

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  • The Future of EDA March 03, 2009
    Reviewed by 'Jeff Liu'
    The Future of EDA and the Semiconductor Industry, One Man’s View

      One person of 3 found this review helpful.

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