October 9th, 2009 Sean Murphy
Ed Lee and I have continued our conversation about the changing media landscape for EDA and addressed some issues that are relevant to getting back to growing the pie in EDA. What follows is an excerpts from Ed’s blog “What’s PR Got To Do With It?” with some hyperlinks added to provide more context, the original post was “Startups, Stories, and Press Releases”
Sean: In EDA in particular, how many reporters, editors, market researchers, and financial analysts are there compared to 5 or 10 years ago?
Ed: Well, 5 or 10 years ago, we’d have two dozen or so key targets in the U.S., Japan and other parts of Asia and western Europe.
Sean: Targets? You mean more than editors?
Ed: Yep. Maybe a dozen reporters and editors, several market researchers, maybe half a dozen financial analysts, all of whom had audiences that affected the well being of EDA companies and of the industry as a whole. Today? Geez…can I count the number or reporters or editors on one hand? YES! There’s one market researcher: Gary Smith. The financial analysts are more or less not watching EDA any longer, and they don’t exist as entities working for investment houses.
Sean: In a technologically dynamic landscape, financial analysts would want to be aware of emerging startups, wouldn’t they?
Ed: They would. Today, these analysts cover some of the big guys, and rarely, and in essence, no one follows the space. Of course, there was Jim Cramer recommending Cadence. Now whether or not he’s a business analyst is another question.
I did count of the number of analysts covering EDA for a blog post in December 2006 “Coffee Break With Gary Smith” which marked Dataquest’s exit from analyzing EDA as an inflection point in the industry. Here it is:
- ANST – Ansoft – 5 analysts
- ARMHY – ARM Holdings – 4 analysts
- CDNS – Cadence – 11 analysts
- LAVA – Magma Design Automation – 7 analysts
- LVGN – Logic Vision – No analyst coverage
- MENT – Mentor Graphics – 7 analysts
- MIPS – MIPS Technologies – 4 analysts
- PDFS – PDF Solutions – 6 analysts
- SNPS – Synopsys – 11 analysts
- SYNP – Synplicity Inc. – 3 analysts
- VIRL – Virage Logic – 5 analysts
There is a fair amount of overlap in coverage but it looks like there are perhaps 16-18 analysts covering at least one company in the industry and a core of about a dozen covering at least three. As a contrast, Xilinx has 27 analysts covering it and Altera has 30. These two FPGA players probably invest as much in CAD tools as many if not most of the companies listed above.
Updating that for today yields the following changes
- Ansoft was acquired by Ansys and is no longer a member of EDAC or an exhibitor at DAC.
- ARM Holdings is not a member of EDAC or an exhibitor at DAC
- LogicVision was acquired by Mentor
- Synplicity was acquired by Synopsys
And a comparable table:
- CDNS – Cadence – 6 analysts (down from 11)
- LAVA – Magma Design Automation – 2 analysts (down from 7)
- MENT – Mentor Graphics – 4 analysts (down from 7)
- MIPS – MIPS Technologies – 3 analysts (down from 4)
- PDFS – PDF Solutions – 3 analysts (down from 6)
- SNPS – Synopsys – 6 analysts (down from 11)
- VIRL – Virage Logic – 1 analyst (down from 5)
Xilinx has 20 analysts (down from 27) and Altera has 22 analysts (down from 30). This this time I am listing the analysts and which companies they cover (except that I am only listing where an “EDA analyst” also covers Xilinx or Altera, not the others who cover the two FPGA firms but none of the EDA firms).
- Canaccord Adams – Bobby Burleson: Magma, Mentor, PDF Solutions, Xilinx, Altera
- Craig-Hallum – Tony Stoss: MIPS
- Cowen & Co. – Raj Seth: Cadence, Synopsys, Xilinx, Altera
- DA Davidson – Matt Petkun: Cadence, Mentor, PDF Solutions, Synopsys
- Deutsche Bank – Tim Fox: Cadence, Synopsys, Xilinx
- JPMorgan – Sterling Auty: Cadence, Mentor, Synopsys, Xilinx, Altera
- Kaufman Brothers – Suji De Silva: MIPS
- Needham & Co. – Rich Valera: Cadence, Magma, Mentor, Synopsys, Virage
- Noble Financial – Gary Mobley: MIPS
- RBC Capital – Mahesh Sanganeria: Cadence, PDF Solutions, Synopsys, Xilinx, Altera
The three analysts for MIPS don’t cover anyone else in the industry so the more accurate figure may be 7: Ed’s answer checks out. Also at this time MIPS and PDF Solutions are not listed as exhibitors for DAC 47.
There is an interaction between poor financial performance and lack of analyst coverage, but in three years the number of analysts covering EDA has effectively been cut in half. There have been no new IPO’s and a number of notable VC-backed firms that simply ceased operations without being acquired: Athena Design, Golden Gate Technology, Liga, Silicon Design Systems, and Tera to name a few. Reshape raised $31M and sold assets to Magma but no employees were hired. Daniel Payne blogged about this last December as “Merry Mergers.”
Net net for startups: there are a number of factors that will make it hard to attract investment including six quarters of year of over year declines of total industry revenue and a loss of about half of the analyst community. The fact that investment will be harder to attract means that customers will be more concerned about long term viability and will be even harder to close than they have been historically. The “all you can eat” deals offered by the majors also make it harder to find a foothold unless you are well differentiated. The industry needs to re-think how it will cooperate and how it will compete so that we can start growing the pie again.
The last revolution in EDA was in the 1988-1994 timeframe. Vendors transitioned from selling turnkey systems (e.g. CALMA, Applicon) to workstations (e.g. Mentor, Daisy, Valid) to software (Cadence, Synopsys, Mentor). Customers transitioned from gate level design to RTL based design (e.g. widespread adoption of Verilog, VHDL, and RTL Synthesis).
The last revolution in EDA was led by startups: e.g. SDA, Gateway, Synopsys, Viewlogic. It’s time for another one.