One of the most intriguing trends to watch these days is in the area of diversification and differentiation. As we emerge from the worst downturn in the history of semiconductor design—in fact, the only time EDA has ever shown negative numbers other than accounting changes—companies are looking for new avenues of revenue growth that are significantly different than where they drew their revenue going into the downturn.

There are five very good reasons for this:

1. The downturn has shown many companies they need to be hedged across multiple markets if they want to continue showing growth in future years. Because of the convoluted supply chain, which is spread across continents and across different design cycles, not all parts of the design chain feel the pinch at the same time. As a result, we’re seeing moves into a variety of areas such as Mentor pushing into Android devices and Synopsys moving into software prototyping.
2. Not all parts of the industry are poised for significant growth in the future. There will jam-up of competitors in some areas because there are far fewer design starts. While the design starts that do happen will be bigger and more complex, there will be fewer companies developing them because of the cost. In addition, there will be less creativity in other areas that were consistent revenue sources because rising complexity coupled with a lag in lithography technology is forcing more restrictive rules on designers. Just to get chips out the door at 32nm and beyond will require more regular shapes and layouts, which doesn’t bode well for a slew of players fighting for a shrinking place and route market.
3. The value has shifted from just hardware or software to hardware and software. Co-verification, software modeling and prototyping and even operating system and some application development is being done by chipmakers. Companies that can bridge these two worlds effectively will reap bigger rewards than those doing the same thing they were doing two years ago.
4. The pain points are getting more granular. While SoC design is moving to a higher level of abstraction, verification has more things to test. The models work great for blocks, but now those blocks have to be tested, as well. And they have to be integrated and share resources, particularly in multicore chips. Add in various power modes and power islands and complexity goes straight up and off the charts. That also has created new opportunities for startups to gain entry into the industry, and the big guys are struggling to either absorb them or compete against them.
5. There is growth in tangential markets, and far better security in reaching beyond the classic EDA world. Mentor’s push into DFM and test, mechanical analysis and wiring harnesses is a case in point. Synopsys’ push into IP and high-level synthesis are well beyond its normal flow. Even Magma has pushed into analog and mixed signal place and route.

As we emerge from this downturn—and we are still not fully emerged—these moves are likely to become even more pronounced. What is uncertain is just how the industry will look when these changes take root.

–Ed Sperling

The EDA world is either doing better than most segments of the economy or coming apart at the seams, depending upon your perspective and your definition of exactly what an EDA company is. But at least one trend seems clear: As we push into the world of system-level design from chip design and SoCs instead of ASICs, the high-level trend is broader companies with more complete integrated packages rather than lots of little pieces.

While this may cause all sorts of gyrations and lots of discomfort in the interim, the industry around system-level design tools ultimately will emerge significantly stronger if not overtly different. It has no choice. Either it begins eliminating pain for engineers developing incredibly complex chips or they’ll lose market share to companies like IBM and Toshiba, which already have their own proprietary tools, and the foundries, which easily could cobble together a suite of tools on their own.

To no small extent, Mentor Graphics and Synopsys are well along the path of creating much more integrated flows that reach well beyond the bounds of where they used to be. Cadence clearly sees the need to change, as well, which accounts for the board’s recent actions to boot all upper management—including longtime CTO Ted Vucurevich this week. He mysteriously has disappeared from the management roster, even though the company never announced his departure.

Cadence’s new CEO, Lip-Bu Tan, has more experience on the finance side than anyone since former CEO Ray Bingham, but he also has one other benefit. According to company insiders, he has very strong ties inside China, which Cadence’s board clearly sees as a growth opportunity.

Magma, meanwhile, has gone under a cloak of secrecy in recent months to develop its new strategy. Sources say the company is working on automating parts of the analog flow, but exactly what and how successful Magma will be in that space remains to be seen.

What happens to a number of startups along the way is another question. Our guess is that consolidation will begin in earnest when the economy hits bottom and begins climbing back from the depths of despair. The bigger question is where do the next startups get going. Silicon Valley will still be strong, but not all the VC money will end up there.

What do you think will happen next?