The EDA industry is coming off its strongest quarterly showing in five years.
PCB and multichip module design tool sales were up a robust 43% year-over-year in the fourth quarter, and overall electronic design automation industry revenue increased 19% to $2.46 billion, according to figures provided by the ESD Alliance. Every product category finished up by double-digits, and services were in the black as well. And every region saw growth of at least 15% over the previous year.
PCD&F editor in chief Mike Buetow spoke today with ESD Alliance spokesperson Wally Rhines, who is also CEO of Mentor Graphics, and his colleague Merlyn Brunken, Mentor’s director of market intelligence, regarding the latest numbers.
PCDF: The ESD Alliance just reported a staggering quarter, with revenues up across the board. Do the quarterly numbers reflect only Alliance members?
Wally Rhines (WR): No, it’s broader than that. We have companies that participate that aren’t members. ARM, for instance, participates because it’s a public company. The majority are ESD Alliance members. We cover a very large percentage of the total EDA industry by virtue of this. For the semiconductor IP industry, for instance, using the public numbers we cover a large percentage as well.
PCDF: In looking at the fourth quarter numbers, some of which are obscured because corporate reporting calendars don’t perfectly align, it is clear Mentor’s performance really boosted the EDA industry in the quarter.
WR: We had a strong quarter.
PCDF: A year ago you noted, for Mentor as a company, that “most forecasts for semiconductor industry growth in calendar 2016 don’t anticipate much improvement over the zero growth in 2015.” What changed?
WR: The semiconductor numbers came in better than forecast due to a strong second half. The secondary effect is, there is an increasing amount of semiconductor revenue that is shielded from the reporting and doesn’t pass through public sales but is part of the semiconductor industry. Companies like Apple and Samsung, which combined have about one-third of the cellphone industry. In both cases the revenue for application processors shows up in the companies’ internal sales, or as foundry revenue in the Samsung case, but doesn’t show up as a sale of a semiconductor. So if you add that in, it added about 3.5 points to semiconductors over what was reported as revenue in the past year. When the general forecast is at zero, the actuals are somewhat greater than that.
PCDF: In adding up the fourth quarter PCB software numbers for Mentor, Cadence, Zuken and Altium, I can account for roughly $196 million. Who are the other companies that are included in PCB?
Merlyn Brunken (MB): The official report that goes out to MSS (the ESDA Market Statistics Service) includes the list. Others would be Keysight, AWR, and Ansys Apache. The number of companies that report that are not part of ESDA is not substantial.
PCDF: Are the employment numbers reported solely by the workers assigned to EDA related jobs?
MB: It’s supposed to be.
PCDF: Is there a correlation you’ve seen between the release of a product and an uptick in revenues a few quarters later?
WR: For an EDA company, it’s very hard for a single product to have that kind of an impact. People only buy EDA software if they plan to design more product. We have correlated EDA revenue to semiconductor revenue. For a long time there was a predictable correlation; EDA would lag by about one year, so that when semiconductor went into recession, about one year later EDA would feel effects of that recession. EDA is smaller and not as volatile, of course. And when semiconductor came out of recession, about a year later the increase would show up in EDA. The problem with that is as EDA changed its revenue recognition policies, it’s become less predictable. Making them ratable spread the revenue model out three years.
PCDF: Anything else of note about this most recent quarter?
WR: It is unusual for everything to be so strong at once. All the numbers are in green. All the regions are strong, all the product categories are strong, even within the product categories all the numbers are strong.
PCDF: Does a quarter like the last one, where the revenue increases were the highest in five years and every category grew, worry you that you can’t top it?
WR: We’ll see, but it’s quite possible that it’s a reflection that more and more companies are getting into the IP design discipline. The Googles and Facebooks are doing more and more IC design. Automotive companies are increasing their semiconductor IP. What used to be a more narrow discipline is spreading. Part of it is IoT, where companies are designing devices or having devices designed for them, that are not traditionally in that business. We saw that both as an industry and with Mentor. We’ve just come through a pretty rapid transition from a stable 28nm node to 14nm, 10nm and 7nm, with 7nm now available from one foundry and others coming. People were just getting used to 14nm and 16nm and started 10nm designs, and now are already doing early design work on 7nm. All of that requires additional software and more complex software, which works to the advantage of the EDA industry.
MB: That same concept is true in cellphone manufacturers, and it’s not a small impact.
WR: You have six cellphone manufacturers doing semiconductor design but they sell to themselves, so you don’t see the numbers show up (in the semiconductor revenue statistics), even though they are buying design tools. Also, there are hundreds of new fabless semiconductor companies in China that aren’t reporting their revenue but need design tools as well. That number is growing rapidly due to the stimulus by the Chinese government.
PCDF: Wally, once the merger with Siemens is complete, will you stay on with the ESDA?
WR: We named Grant Pierce of Sonic the new chairman last month. I expect to remain a member of the board past the merger date. The ESDA rules are that the chair needs to be the head or no. two executive of an EDA company.