In 2012, we’ll see tablets and smartphones changing the world.  That’s another way of saying Apple’s moves will have huge implications in semiconductors, foundries and EDA.

Apple’s use of the Samsung foundry has started an arms race between Samsung, TSMC and Global Foundries.  Samsung is ramping up to meet the capabilities and capacity of TSMC.  Intel is being pushed to stay ahead technologically and to consider new business models. Global Foundries continues to work to ramp its yields.

This situation will be good for semiconductor equipment and EDA vendors as well.  Their tools will facilitate the new processes and the link between design and manufacturing.

Another element: in 2012, we’ll see the supply chain continue to consolidate. Why?  The cost to design a complex SoC requires a big budget and a big market opportunity.  Only the largest of semiconductor companies can tackle these designs.  This increasing cost helps the FPGA vendors.

The foundries face increasing technology and capital requirements to move to new process nodes.  Only a few will make it.

The public markets have been closed to EDA companies for a number of years making acquisition the most likely exit for EDA startups.  Apache chose to be acquired by Ansys in 2011.  It has been difficult for a new, large EDA competitor to emerge.  This bodes well for Big EDA in its negotiations with Big Foundry and Big Semiconductor.  In 2012 I believe there are several EDA companies poised to go public.

Who will be the beneficiary of these changes in 2012?  Apple.  Consumers should also benefit as new, leading edge fab capacity will be used to make exciting new devices.

John Barr
Portfolio Manager
Needham Aggressive Growth Fund
Needham Growth Fund
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New York, NY  10022
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