EDA Chiefs Hazard No Guesses on 2010 Market

I covered the EDAC CEO Panel last Thursday for EETimes, what follows is a copy of the article I wrote for them “EDA Chiefs Hazard No Guesses on 2010 Market (02/19/2010 7:12 PM EST)” It differs from the version on-line at EET only in that I have added some links for context.

SAN JOSE, Calif.—With the EDA industry stuck in negative growth, leaders of its three largest firms struck a somber note Thursday (Feb. 18) during a panel discussion at the EDA Consortium (EDAC)’s Annual CEO Forecast and Industry Vision event.Panelists addressed trends affecting industry growth, but left forecasts for the upcoming year to Jay Vleeschhouwer, a senior software analyst with Ticonderoga Securities, who chaired the panel.

Vleeschhouwer predicted “mid-single-digit growth for the year” and was the only one to offer a prediction. Also on the panel were Aart de Geus, Chairman and CEO of Synopsys Inc., Lip-Bu Tan, president and CEO of Cadence Design Systems Inc., Walden Rhines, chairman and CEO of Mentor Graphics Corp, and John Kibarian, president and CEO of PDF Solutions Inc.

Robert Gardner, executive director of EDAC, pointed out that in spite of seven quarters of declining industry revenue, buying a market basket of EDA stocks in Jan. 1, 2009. and holding them for a year would have been a good investment.

While the EDA executives did not speculate on future industry growth, they did offer recipes for growth for their own firms. Tan characterized Cadence as a sales-driven company that is listening to its customers and their need for productivity and profitability. De Geus identified Synopsys as an R&D company that would continue to innovate to maintain leadership. Rhines suggested that Mentor excels at identifying niche applications to allow it to be the leader for those segments. Kibarian positioned PDF as key to semiconductor industry plans to transition to new process nodes at 45 nanometer and below.

Rhines pointed out that engineering headcount growth was 4 percent a year, which might be a constraining upper bound on industry growth unless new market segments can be opened. The panel agreed with the need to explore new market segments, but cautioned that new segments require sustained effort and considerable patience.

In response to question by Vleeschhouwer on whether EDA firms should further consolidate in response to consolidation in semiconductor industry, Rhines said he rejected the premise of the question. He said that in spite of many high-profile mergers and acquisitions in the semiconductor industry it had been on a consistent path of de-consolidation for the past 35 years. He supported this by noting that the market share for the top firm, the combined share of the top five, and the combined share of the top 10 firms had been constant or decreasing over the last 35 years. He added that every decade or so another major technology was driven by a new entrant, allowing them to become a top 10 player. He cited Qualcomm Inc.’s breakthrough in 2008 as the first fabless chip vendor to crack the semiconductor industry’s top 10 as the most recent example of this trend.

When asked by Vleeschhouwer to speculate on growth in the second half of 2010, all of the executives demurred, citing a lack visibility and uncertainty both in the electronics industry and the national economy.

The audience was equally subdued and did not have any questions for the panel.

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