Winning by design - Business & Finance

Electronic News, Feb 4, 2002 by Richard Ball

The semiconductor industry as a whole may have had a poor year, but the design automation companies have bucked the trend.

Despite a catastrophic year for the chip industry, design automation companies have continued to prosper, a fact underlined by Cadence Design Systems Inc.'s announcement of record revenues in 200l. Cadence, the largest of the EDA companies, posted revenues of $1.43 billion for last year, up 12 percent on 2000, despite the year's woes for Cadence's customers. Earnings for the 12-month period were $141 million.

"I was very pleased with the results," said Ray Bingham, CEO of Cadence. "The big wins for us came in the synthesis, place and route (SP&R) area, with many competitive successes."

These high-end tools that integrate the SP&R grew well through 2001, up 54 percent to $170 million in revenue.

It is largely irrelevant if the semiconductor companies that are Cadence's customers do well or badly, Bingham said, since the effect on the EDA market is heavily attenuated. "Customer results are driven by manufacturing volumes. Whether a new product sells a single copy or a billion copies, it still has to be designed," he said.

Other factors in the industry affect product revenue, Bingham said. "The other big area was continued strength in custom IC layout tools for analog and mixed signal."

The shift to more advanced processes remains one of the largest drivers for new software. Layout tools for analog and mixed signal chips grew at 40 percent during the year, driven by demand for voice and multimedia, Bingham said. "Our physical verification business also turned in a good year," he added.

Other EDA companies echo Cadence's positive results. For Synopsys Inc.'s financial year, which ended on Nov. 3, the company reported revenue of $680 million and income of $71 million. These figures are down on the previous year, but the company remains profitable. Mentor Graphics saw slight growth in 2001, ending the year with $600 million in revenues and a net income of $76 million.

However, not all parts of Cadence's business look rosy. While product revenue keeps on growing--up 11 percent in the fourth quarter-- design services is in a downward slump. Bingham expects the trends outlined in Cadence's financial figures--good product growth, poor services--to continue during 2002. High growth in synthesis, layout and physical verification tools is led by retooling of chip companies for smaller process technology. "The move to 0.13 micron is just beginning. Following right on the heels of that is 0.10 micron and below, and I believe that will lead to another round of retooling," Bingham said.

Wally Rhines, CEO and chairman of Mentor Graphics, agreed with Bingham's assessment of the market. "We now believe the EDA market as a whole will rebound in the first half of 2002. Furthermore, we see a strong and continuing demand for EDA tools in this recovery cycle, driven by the availability of leading-edge capacity, which should last at least through 2003," he said.

Richard Ball is an editor for Electronics Weekly, a sister publication of Electronic News.