Design Industry Revenues Should Rise 20 Percent

Electronic News, Jan 1, 2001 by Gale Morrison

Services are back in vogue and SLD is proliferating

RESEARCH TRIANGLE PARK, N.C.--The year 2001 will be a very good year for EDA. Unfortunately, that's so easy to say because the years 1998 and 1999 were so disappointing.

By the end of last fall, it became clear that EDA wasn't just talking about pulling itself up by its bootstraps, as it did for most of 2000. The pulling is done and 20 percent growth for 2001 is in sight.

Last year, Nos. 1 and 2 vendors, Cadence Design Systems Inc. in San Jose and Synopsys Inc., Mountain View, Calif., met very aggressive targets for switching customers to the more predictable and constant revenue stream that comes with time-based, or subscription, software licenses.

After about 20 years, EDA (and especially its investors) seem to have had it with the perpetual-licensing model that left them with so many support obligations and only fleeting memories of the up-front fees they had gathered for the software. New EDA companies such as Magma Design Automation Inc., Cupertino, Calif., and Monterey Design Systems Inc., Sunnyvale, Calif.,--both huge venture-capital winners this fall--didn't even entertain thoughts of perpetual licensing.

But there is controversy about subscription licenses. For smaller firms such as Monterey or the many players in verification, subscription licensing by Cadence and Synopsys means bundling--what got Microsoft into so much trouble--and that can be even harder to compete with.

"There is a significant amount of bundling going on," said Jacques Benkoski, president and chief executive officer of Monterey. His sales force's job of convincing design teams to switch out their IC implementation flow to Monterey's Dolphin register transfer level (RTL)-to-GDSII is all that much harder when Cadence and Synopsys can offer all of their competing tools at some discount as long as customers make a two- or three-year commitment. Benkoski urges customers to think of tying actual usage of the software to their payments, as they can through Monterey's global-access model.

"Any licensing model that does not tie to usage does not help and this includes subscription models," Benkoski said. "The industry has to move to paying for results."

In verification, the situation is worse. Gary Smith, chief analyst at GartnerGroup Inc.'s Dataquest unit in San Jose, counted 77 companies in the space in his annual preDesign Automation Conference tally. All of them face the issue of the bundling of many verification tools from the few vendors who can, such as Cadence, Synopsys and TransEDA Ltd. in Cambridge, England, which offers a verification suite called Navigator.

Smith says engineering managers tell him they have time to listen to, at most, four new vendor pitches a year; their time is consumed with making their current verification tools work for the Kilimanjaro-size task at hand. If one firm can offer them many tools accessible from one common interface for which they don't have to pay upfront, a sale is closer at hand.

With that in mind, verification should be a key area for consolidation in 2001. Those companies raising money now -- whether through an IPO or more venture funding -- hope to be the ones acquiring other firms and not being acquired themselves. TransEDA just went public. Verisity Design Inc., Mountain View, is in registration for an IPO. Verplex, Milpitas, Calif., last fall closed a second multimillion-dollar round of funding.

Innovation is Back

Observers might have griped in recent years about the lack of innovation in EDA, but that argument wouldn't hold water now. Physical synthesis is a production reality. Semiformal verification techniques that bring equivalency checking into HDL simulation are in use at all the top design groups. System-level design with C/C languages or other architectural-level tool suites is the structure behind platforms for design that promise great returns on IC creation resources. The list goes on.

"We're poised for growth in 2001 unlike any I have seen for the last three or four years," said Aart de Geus, chairman, president and CEO at Synopsys. Growth in orders should be 20 percent or better, he said confidently.

And investors are finally perking up. At year's end, Fidelity Investments, the Boston-based $1.6 trillion investment and mutual-fund company, was buying EDA shares in large blocks, and, through its venture-capital units, taking sizable stakes in pre-IPO EDA companies. With Fidelity's help, Mentor Graphics Corp., Beaverton, Ore., reached an all-time-high stock price and Cadence stayed well above its lows despite the beating many other tech companies were taking. Synopsys' stock price actually rose in late November when it reported a 34 cents-per-share loss, mainly because the Street had been warned and de Geus had many positive notes to give analysts.

Physical Synthesis

The stiffest competition in EDA in 2001 will be in physical synthesis, where logic synthesis leader Synopsys has the advantage of being the incumbent with its Design Compiler (DC) product in more than 90 percent of the design seats worldwide. The company has been selling the physical synthesis successor to DC, called Physical Compiler (PC), for more than a year and just rolled out version two in December.