Rhines: EDAC’s Numbers as The World Turns

Once again EDAC’s Market Statistics Service has released quarterly results for the EDA and IP industries, and once again Mentor Graphics CEO Wally Rhines has taken time to debrief the press on the numbers. When we spoke by phone on July 15th, Rhines started with a qualitative eval of the financial situation in Q1_2014, and moved from there to answer several longer-range questions about autos and today’s troubled world.

“The first quarter of 2014 was good for the industry, but not great,” he said. “With overall growth of 4.6 percent, year over year, it was a good quarter with the highlight being logic design was up a solid 6.6 percent. Other than that, there was not a lot else [remarkable in EDA].”

“Steady, but not glamorous, for Q1?” I asked.

Rhines said, “Yes, steady as she goes in EDA. The IP business, however, was up strongly in Q1, driven up by results from the non-reporting companies, not members of EDAC. We collect public info from non-reporting IP companies such as ARM, Imagination Technologies, MIPS, Rambus [and Synopsys], and we can see overall that the IP business [exhibited] 10-percent growth, quarter over quarter, Q1_2013 to Q1_2014.”

He added, “The bigger trend [visible in] the current MSS report is that all of the world is showing strong [sales], except Japan which is very weak, down 19 percent in contrast to Asia Pacific, which is up 13.5 percent.

“You should also note that North America and Europe are quite strong, up 7 percent or more.  Japan is well below those regions as well. Japan used to be a big part of the total [numbers for the industry], substantially larger than the Asia Pacific Region, but now the Pac Rim is twice the size of the Japanese market.”

I asked if Rhines could have predicted, when he started in the industry, that the Pac Rim would be such an important part of the market?

He said, “I don’t think people thought China was be such a big factor, but Korea also is doing so well in the semiconductor industry.”

And the down-turn in EDA sales in Japan? Is that surprising?

He said, “No, it’s not surprising when you consider the amount of restructuring going on in Japan. Although companies there are currently emphasizing design over manufacturing, which would tend to shift resources into EDA-related things, the overall size of the Japanese semiconductor industry has diminished, so the absolute amount of spending on EDA is declining.”

How does Rhines see the next 5 years in Japan?

“It’s my observation that with this restructuring in their industry,” he said, “they are emphasizing doing business with Japanese companies involved in the automotive industry. Renesas Electronics, for instance, has said automotive will be its primary emphasis. And the automotive industry is quite healthy worldwide, even in Japan.”

And to what does Rhines attribute the strong North American and European markets?

He said, “Actually, North America and Europe were not stronger than the overall market for a number of years. When Japan was only growing slowly, and the Pacific Rim was the principal driver of growth from 2000 to 2010, the U.S. and Europe hardly grew at all.

“So these [current results are] are actually an encouraging up-tick, Now that both Europe and North American have strong demands for new design software, they are both [exhibiting] more than 7 percent growth, quarter over quarter. And for that, I would point to a specific reason.

“There are lots of consumer networking type companies based in the U.S. that are doing increased amounts of chip design, one large consumer product company I can think of [in particular]. But even the social networking people are getting into design. For instance, Microsoft, through their video games and now Nokia, is getting into chip design.

“Also, it was encouraging to see Europe was helped by its currency during the recovery [since 2008]. The current results presumably highlight that Europe is strong in system design. The overall system business includes automotive, as well as telecom, which are both doing okay. That part of the semiconductor industry is Europe is doing better, NXP, Infineon, etc., adding to a general view of health in both North America and Europe.”

I asked Rhines about his Pavilion Panel at DAC in June in San Francisco. Was it surprising to find himself interviewing Ford Fellow James Buczkowski, following the Ford/MathWorks keynote on the big stage at DAC in the previous hour.

Rhines said, “Actually, the surprise for people at Mentor has been just how long it has taken for interest in the automotive industry to [ramp up] in the EDA industry. At Mentor, we started selling EDA for automotive design as early as 1992.”

He chuckled and added, “I started highlighting the automotive market as a major growth area at Mentor in 2000. Even so, automotive’s still been far slower than we could have anticipated to emerge [as a focus in EDA]. Nonetheless, we have known for quite a while that electronic complexity [in automotive] was increasing rapidly, and we knew the technology could not move forward without sophisticated automated design tools.

“At the same time, we could have anticipated that the EDA tools would not be adopted by the automotive industry until they absolutely had to be. The various automobile manufacturers have often said: Just one more model cycle can be developed without the tools! But then finally, they hit a wall, [change their tune], and insist they cannot move forward without the tools.

“Historically, automobile systems have been [the focus] of mechanical engineering — the engine, transmission, and a mush of logic was all done mechanically. How to push rods riding on the cam shaft and allow injection of the fuel, these were mechanical issues.

“Today, however, that is all being replaced by electronic systems. Transmissions today are now complex [hybrid] systems of mechanical and electronic design. Today, the shift is such that over 40 percent of the automotive system is electronic. The mechanical engineering dominated approach to automotive design is no longer the norm.

“Instead, the differentiator in the automotive industry is the experience. Today, you let your family choose their favorite car based on the display, the electronic communication, the interface to the iPhone, etc. A large share of the product differentiation in the automotive industry is in these things. [In fact], some time ago, BMW had a switch in their sales numbers between their 5 and 7 series, because one had an iPod interface and one did not.”

Beyond the entertainment aspects, aren’t self-driving cars so much safer a concept than having humans at the wheel, I asked Rhines.

He laughed and said, “Humans are a very diverse group, with both good and bad drivers. However, computers are much more uniform and far safer in their ability to analyze what’s going on around them. So, as you say, cars will eventually evolve to the point of simply being a node in an electronic network.”

In closing our conversation, I asked for permission to ask about a far thornier issue than self-driving cars: How to do business in countries where civil unrest and/or war is part of the landscape.

I mentioned I had driven by Cadence offices in Hertzelia on a trip to Israel earlier this year, and I noted the Mentor has offices in Lahore and Cairo. Given the hostilities and outright warfare that has characterized these places, among others worldwide, I asked Dr. Rhines how companies like those in EDA continue to do business under such circumstances.

He answered straightaway, with both sincerity and optimism: “Yes, these places are experiencing troubled times today, and have in the past as well. But people continue on. For instance, I was at TI for many years before I came to Mentor Graphics, and while I was there we continued to operate our business in El Salvador, even through the civil war there.

“In Egypt over the last few years, there have clearly been disruptions, but people have continued to do their work there and do it well. And in Israel, it is such a power house of startups and innovation, the employees there seem to continue to work around so many threats.

“No one can know what will happen in any one country, but I am constantly impressed by our operations throughout the world. In countries like Pakistan, Egypt, Israel, and so many other places, technology workers seem to be able to work on despite the strife around them.

“And one of the biggest things I’ve noticed is that when there are civil wars or international wars, it’s never in anyone’s interests to destroy economic growth or jobs for the future. In general, both sides want to win the war, but neither side wants to be the owner of a decimated economy. It’s not in the interests of either side to directly take out their anger on the job creators.”

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Editor’s Note …

Since our conversation on Tuesday, three major stories have captured headlines worldwide: Microsoft has announced they’re laying off 18,000 people, including 12,000 associated with the Nokia acquisition; Israel has launched a ground offensive into Gaza; and MH17 was shot down over Eastern Ukraine.

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Tags: ARM, Cadence, DAC, EDAC, Egypt, El Salvador, Ford, Imagination Technologies, Infineon, Israel, James Buczkowski, MathWorks, Mentor Graphics, Microsoft, MIPS, MSS, Nokia, NXP, Pakistan, Rambus, Renesas Electronics, Synopsys, TI, Wally Rhines

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