March 02, 2009
The Future of EDA and the Semiconductor Industry, One Man’s View
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Given today’s economic picture, I am sure everyone in EDA is thinking about and perhaps worrying about the future of EDA.
The national economy for the last several years had been driven by the consumer segment. Consumers were very confident in their own financial positions buoyed by the rising value of their greatest asset, namely their home. Many took out home equity loans to fund purchases of non-essentials. Now that the housing market is in free fall and now that credit of all kinds has dried up, consumers have backed off their spending spree as reflected in the drop in retail and automotive sales. With large layoffs being announced frequently, people are justifiably concerned about their own job security and there is general uncertainty about the state of the economy.
In recent years the semiconductor industry also has been driven by the consumer electronic segment which includes products like cell phones, home entertainment systems, and computers. The drop in sales of these consumer items impacts the firms manufacturing chips and in turn the EDA firms who supply them tools.
A few data points:
Nokia the global leader in cell phones reported fourth quarter revenue down 19% year-over-year. Nokia CEO OLLI-PEKKA KALLASVUO said "In recent weeks, the macroeconomic environment has deteriorated rapidly, with even weaker consumer confidence, unprecedented currency volatility and credit tightness continuing to impact the mobile communications industry”.
On February 26th
Dell Inc. reported results for the fourth quarter and the entire year for fiscal 2009. Total revenue was $13.4 billion, down 16 from the fourth quarter of the year before. Revenue for the year at $61 billion was flat compared to fiscal 2008. Dell press release noted that “Dell first identified slowing IT-industry spending in the U.S. a year ago. Deferred spending has increased and spread worldwide, significantly affecting overall fourth quarter demand across all regions and customer segments.” The company had previously announced $3 billion in planned cost reductions by the end of fiscal 2011.
Intel reported fourth quarter revenue of $8.2 billion down 23% year-over-year and 19% sequentially. Die to economic uncertainty and limited visibility Intel did not provide a revenue outlook for the next quarter but for internal purposes is planning revenue in the vicinity of $7 billion compares to $9.7 billion in the first quarter of 2008.
TSMC reported fourth quarter revenue decreased 31% year-over-year and 30.6% sequentially. The firm expects revenue in the first quarter to be in the range of NT32 billion to NT35 billion compared to NT87 billion in the first quarter of 2008. January sales were down 59% from January 2008 and 5.5% from December. Lora Ho, VP and Chief Financial Officer of TSMC, said “The global economic recession continues to worsen. Fourth quarter end-market sell-through was much below the already conservative expectations, and consumer demand remains very weak. This has led to a rising DOI for our customers, who continue to pare their inventories aggressively, resulting in a further significant
cut back of wafer demand.”
On February 25th research firm Gartner forecast that the global semiconductor revenue would fall by 24% to $194.5 in 2009. In mid-December, the firm had predicted a 16% drop. Bryan Lewis, research vice president at Gartner, said in a statement "We believe that the financial crisis has reset the semiconductor market. After the 2001 recession, in which semiconductor sales plummeted by a record 32.5 percent, semiconductor sales took about four years to get back to 2000 levels." Gartner forecasts the semiconductor industry would return to growth in 2010, but reach its 2008 level only in 2013.
Despite this gloom and doom environment, several of the EDA executives that I have interviewed in recent months have expressed confidence that at least their companies were well positioned to capitalize on the situation. From the “glass is half full” perspective, they saw an opportunity to market and sell products that offered substantial increase in productivity to firms under pressure to reduce cost and accelerate time-to-market.
I had an opportunity to talk to a man who has held executive positions at three EDA firms including being the CEO of one of the Big Three. Today, he heads a fabless semiconductor company. From that position, he has a front row seat to view the EDA and semiconductor industries. I spoke with him about his company, his business model and the state and future of EDA and the semiconductor industries. The man is Jack Harding.
Jack, would you give us a brief biography?
I went to Drew University in Madison, New Jersey and majored in Chemistry and Economics. Then I went to Stern School at NYU. From there I went right in to intern at International Business Machine in a sales function. I sort of stumbled into technology and never left. I worked at IBM for several years as a sales guy. I had a distinguished career there: Rookie of the Year for the company. I did well there. Then I recognized that it was going to take me 25 years to become a vice president. I decided that this wasn’t for me. So I went to a startup called ZyCad in the EDA business, where a couple of ex-IBM’ers had been working in the sales organization. I was employee number 20
in that organization. That went public in the summer of ’84. I stayed there for 10 years. I went to Cooper & Chen Technology here in California as CEO. I took that firm public about a year later. I sold 10% of the company to Synopsys and then six months later sold the entire company to Cadence. I worked for Cadence for a year, organized the firm into business units that reported to me. After a year there I became CEO. I left there in ’99 after three years. I started eSilicon 9 years ago this coming March 1st.
How big a company was Cooper & Chen when Cadence took it over?
Interestingly enough there was a couple of metrics. We were doing only about $15 million but they bought the company for $500 million. Thanks to Synopsys, they got pushed into litigation by the FTC. While we were getting through the FTC, the Cadence stock had doubled over the seven months. We had no collar on the deal. That is there was no limitation on whether the stock went up or down. By the time the company was acquired, we received $1 billion in valuation for $15 million in revenue. What is amazing is that few people know about that. The employees owned 100% of the company. There were no venture capitalists involved. When we went public, we sold 15% of the company. So they got a
very good deal. But the other 85% was owned by the employees. So the deal while spectacular did not hit the radar of the financial community because you didn’t have VCs out there pounding their chest about how smart they were. Prior to the dot.com period, this was probably the grandest transaction ever heard of in Silicon Valley before the crazies of ’98 and ’99. It was good times for Cooper & Chen.
You were at Cadence for about one year, when you took over as CEO. Cooper & Chen was a $15 million company. How big was Cadence at the time?
When I got there, it was $1 billion. We had just crossed over the $1 billion under Joe Costello’s leadership. When I left there, I believe we did $1.5 billion. The proudest statistic to report is that the value of the company was never higher, prior or since. The market cap of Cadence was just under $10 billion. Of course, today it is $1 billion. It never came close to that again. We did very well there. We grew well. Profitability was outstanding and expanding. We were actually growing the pie as it were.
What was it like going from being the CEO of a $15 million firm to becoming the CEO of a $1 billion company following the legendary Joe Costello?
There are two pieces to that. One was the size and one was the Costello factor. Following Joe was a delight. I had known him for the previous 10 years. We had always compared notes about where EDA was, where it would be one day and what would it take to be successful. When I got into Cadence, he and I were seeing eye-to-eye on things. Not the least of which was that EDA had to be more than just a tool supplier, just a tax on the semiconductor supply chain. We both felt very strongly that what has now become the fabless ASIC model was the future of EDA. We had different perspectives as to what degree that would be the case. But we both agreed that EDA’s existence was going to run into the wall that it has hit for the last 10 years, zero growth. Since we had very complementary and symbiotic view of the future of EDA and what should be the strategy for Cadence, it was a delight working with him. I valued his creativity and enthusiasm greatly. On the dimension of size when I took over, in one sense - I am not trying to trivialize it – it was more of the same for me, because I have always done my best work thinking about these problems conceptually, in levels of abstraction. Cadence just gave me more opportunity to think about the EDA market on a long term, strategic basis and about where Cadence should be positioned. I greatly enjoyed having the resource at my disposal to execute those plans to change and evolve the business. For me it was not a different thought process which is the big risk and what it takes to go from small to large. You go from managing nickel and dimes one day to the strategy the next day. I always thought in strategic terms and had excellent people doing a lot of the execution for me, even in smaller firms. Cadence was just a better fit platform for
someone with my business style.
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-- Jack Horgan, EDACafe.com Contributing Editor.