EDA historically has been innovating through merger and acquisitions to gain other companies' technologies. Will that continue? Yes it seems so.
EDA is $4574 million dollar industry. Gartner/Dataquest publishes information on 82 EDA companies. In DAC 2005 there were around 184 exhibitors. There are around 300 EDA companies plus many more niche & regional companies. In 1999 there were about 80 startups in EDA. Most of them were acquired. Since 2001 there has been no IPOs in EDA. Figure 1 shows the EDA companies' revenue share as per 2005 revenue.
Three of these EDA companies (Cadence, Mentor Graphics, and Synopsys) represent a dominant 90 percent of the total revenue in this grouping, and each of these three companies offers a wide array of software products and services. The Big Three have 75% of the market share.
Altium, Ansoft, Magma, and Synplicity - offer specialized software/services products in specific EDA niches. Combined, they generate the remaining 10 percent of the revenue. Not infrequently, some of these smaller companies partner with one or more of the Big Three (Cadence, Mentor, Synopsys) to provide end-customers with broader solution suites. (Of course, the possibility always remains that one or more of the remaining could become acquisition candidates for the Big Three as well). EDA industry always has had Three Large Companies, as shown in Table 1
From 1993, “BIG THREE” EDA companies are Cadence Design Systems, Synopsys and Mentor Graphics. They have about 75% percent of market share and about 90% of EDA revenue. These big companies have been able to sustain the Market share because of “Merger and Acquisitions”.
The Figure 2 shows what revenues from core and acquisitions of the Big Three.
Non-acquisition/Core revenue of these companies in 2005 was 78% of the 1998 level. This shows that the EDA companies have been able to sustain their market share through merger and acquisitions.
In DAC 2006 at the Dataquest event, it was indicated that in EDA there are 3 big water buffalo at the head, which stand shoulder to shoulder at the watering hole while everyone else waits in line. The emerging companies are indistinguishable from one another.
Mike Fisher, CEO of Cadence, in interview with Electronic News on Future of EDA, said “As a customer of EDA, it's very difficult to bet your next product cycles on very, very small companies, especially when you are ramping microprocessors, and that was my life. The financial stability that companies like Cadence offers, being globally diverse, those are things that are very difficult to do in the current environment. We've done things to demonstrate that companies the size of Cadence can persist and grow.” “I believe the most successful companies have that total goal in mind and then have a very big attitude that it's not just about owning something. We partner with companies, we collaborate, and ultimately maybe there are some that we choose to partner even more with and integrate together. There are all those elements to deal with. It's what the biggest and best companies in the world do and it's what we do.”
The circular dynamics between Big 3 and Start-Ups (2000-2005) is as shown in Figure 3
A “ Win -Win” situation
Merger and Acquisitions are win-win situations for both. Mostly the company that gets merged is a small company. It has niche technology, an innovation that adds a lot of value to customer in a specific area. They grow fast but after a certain threshold it's just too difficult for companies to really gain a lot of momentum. Customer's stakes are high. They want productivity, time to market and complexity managed. They can't afford to bet a lot of their success on very small entities. Also these tools often do not offer 'end-to-end' solution. So when small niche companies are merged/acquired often by the Big companies they not only get backing of company with financial stability but also their tools are integrated so as to offer an 'end-to-end' solution to customer.
Big Companies gain as they get a great technology, which they might not have, in their products. Thus they can offer a solution to their customer. Often if it's new technology they get a starting edge.
Lets look at Merger and Acquisitions of some of EDA companies to get a clearer picture.
Cadence came into existence by merger of ECAD and SDA Systems in 1987. Cadence has been involved with many mergers and acquisitions. Some of the examples of companies merged in or acquired are:
1989, acquisition of Tangent Systems, Inc., which brought advanced IC place-and-route technology to Cadence
1989, acquisition of Gateway Design Automation, the leading supplier of logic simulation technology with its Verilog® -XL product.
1991, Cadence merged with Valid Logic Systems, a leader in printed circuit board design tools.
1994, Cadence added Redwood Design Automation and Comdisco Systems, Inc., giving it the high-level technology necessary to design wireless communications, multimedia, and advanced computing systems.
1997, Cadence completed the acquisition of two companies focused on the emerging "system-on-a-chip" (SOC) market - High Level Design Systems (HLDS) and Cooper & Chyan Technology, Inc. (CCT). The two provided the critical technology for placing complete system-level functionality onto a single silicon chip.
1998, the acquisition of Ambit Design Systems, Inc. gave Cadence the industry's most comprehensive suite of tools and associated design flows required for SOC applications. Cadence also acquired Bell Labs Design Automation from Lucent Technologies, creating the world's largest EDA team focused on the verification issues associated with designing integrated circuits (ICs) and next-generation SOC.
1999, a merger with Quickturn Design Systems, Inc. combined critical technologies and methodologies to complete system design-through-prototyping flow for verifying the functionality of SOC. Cadence also acquired OrCAD, Inc. providing a platform for delivering complete PCB flows to the rapidly growing mainstream segment.
2002, merger with Simplex, to provide software and services for the design and verification of integrated circuits (ICs) for complex systems-on-chip.
2002, merger with Silicon Perspective and Plato. They provided Cadence with complementary best-in-class technology for 3D parasitic extracting and full-chip power-grid planning, electromigration and signal integrity solutions.
2003, acquired Get2Chip. Get2Chip, provider of the world's most advanced nanometer-scale synthesis technology to top chip and system design companies. Cadence planned to integrate Get2Chip's technology into its market-leading Cadence® Encounter platform.
2003 acquired Verplex Systems. It brought formal verification techniques to Cadence.
2005 it acquired Verisity, Ltd., a provider of verification process automation solutions.
Throughout its history, Synopsys has accelerated its technology strategy by adding to its internally developed products with technology gained from mergers and acquisitions. Its major mergers are as follows: 1997 acquired EPIC Design Technology Inc., USA, Viewlogic Systems, Inc., USA allows designers to integrate hardware and software and verify their interactions much earlier in the design process, 2002: merger with Avanti Corporation, USA. Its acquisition gives Synopsys most of the IC design flow for "power users”. In 2003, acquired Numerical Technologies, Inc. USA. Merging Numerical and Synopsys will help create technology and solutions that speed production of advanced, sub-wavelength ICs and improve yield by transparently embedding mask and lithography requirements into the EDA flow and into tools that designers are currently using.
In 2004: Accelerant Networks, USA, Analog Design Automation, Inc., USA, Monterey Design Systems, Inc., USA, Cascade Semiconductor Solutions Inc., USA, Integrated Systems Engineering AG (ISE), Switzerland, LEDA Design, Inc., USA, Nassda Corp., USA.
2005: HPL Technologies.
2006, announced expanding its presence in electronic system level (ESL) design by acquiring Virtio Corporation, creator of virtual platforms for embedded software development.