If a recession is indeed ahead, Wally Rhines thinks the PCB design software industry is a “great place to hide.”
The figure tells the story: sales of printed circuit board design software set yet another record in the fourth quarter. The data, tracked by the ESD Alliance (part of Semiconductor Equipment and Materials International), tell a remarkable tale of growth. The industry has experienced just three year-over-year down quarters over the past decade.
Wally Rhines, retired chief executive of Mentor Graphics, joins PCEA on the PCB Chat podcast each quarter to share the latest electronic design automation data. The latest podcast was recorded in mid-April and remarks here are edited for length and clarity.
Figure 1. PCB/MCM design software sales, 2015 to present. (Source: ESD Alliance)
Mike Buetow: The fourth quarter, which ended Dec. 31, brought more good news, but I have a feeling things are about to get interesting. Let’s talk about the macro results, then we can get into the various segments. The market closed 2024 on a really good note, didn’t it?
Wally Rhines: It did. The final quarter of 2024 showed 11% growth overall for electronic design automation and even stronger growth for the printed circuit board design tool world. So, a very strong close to the year.
MB: PCB and MCM design tool sales in the third quarter set an all-time single-quarter record and that certainly didn’t last long. The fourth quarter blew right by it.
WR: It did, Mike, and relative to a year ago, it was almost 16% growth year to year. That’s a great number for printed circuit boards. And I think to some extent there were geographical surprises too in that PCB had incredibly strong growth in the Asia-Pacific region, unlike many other categories in EDA, and the relative weakness, I guess I’d say in Europe and Japan.
MB: And it was up 5.6% or so sequentially, I think, so more than $25 million quarter on quarter. By my count, that is 16 straight quarters of year-over-year PCB tool growth. That’s a nice, long recovery. How are some of the subcategories looking, for example, library tools?
WR: Library tools were good, right near the top at 13% growth, but there were ones that were even better. Analysis tools were at 27%, and that’s a very big category, with annual revenue of $430 million. That 27% growth has had quite an impact on this part of the industry. And the other thing that grew substantially was package design, at 72% growth. Once again, it’s not as big a category. It’s about $85 million a year because a lot of people report package design revenue or sales in the category of PCB layout, so it’s sort of mixed. I think this reflects that package design is becoming a much more important part of why people buy tools for printed circuit board layout.
MB: So inside of that PCB and MCM design tool category, we have layout tools, analysis, packages, libraries … anything else?
WR: Physical design is both for multichip modules and for printed circuit boards, but you covered them all.
MB: The market surge was broad-based. Each of the four major product categories, plus the services category, all showed healthy gains in the quarter.
WR: It really did. In fact, there was double-digit growth in everything except semiconductor IP, the intellectual property for designing integrated circuits. So it’s very broad, including services. And employment was up almost 3% as well.
MB: Employment was up year-over-year, but I did note it was down sequentially in the fourth quarter.
WR: That’s right. It was down almost a percent sequentially.
MB: Do you track employment by region as well?
WR: No, we don’t. We have a total number. The problem is that reporting companies have operations in many parts of the world, so the total number is more meaningful than trying to break it down as to whether they hired people in one region and didn’t hire in another.
MB: That’s fair. I think sequential employment was really the only little nick in the armor. Every major region grew at different rates, but they all were up as well.
WR: They were. The one thing I would note was China was weak, but not weak enough to offset the tremendous strength in the other regions of the Asia-Pacific. China overall was down at 17%, but the strong growth in other countries more than offset that.
MB: We are entering a new era, I think, of trade that’s unprecedented in our lifetimes. To your knowledge, is software included in the products being tariffed?
WR: I believe it is. I don’t actually know. I’m not an expert in this area, but it appears that it would be, and certainly software that’s embedded in other products is, of course, included as well. So, I think we’re in a period of major uncertainty – or possibly even certainty, since tariffs do not help anybody, they do raise unemployment and they raise prices. They’re nothing but bad for the world economy, as you’ve been seeing over the last few days.
MB: Forecasts are turning a little down right now. Let’s just separate tariffs for a moment. We’ve had several years of growth. If things really do start to slow a bit, are there any steps that you recommend businesses do?
WR: EDA is one of the interesting parts of the economic cycle because all other aspects of the semiconductor, electronics and electrical equipment industry are very sensitive to the economy. If the GDP or GNP decreases, so do they.
EDA is the outlier. EDA is relatively constant. And the reason it’s relatively constant is you can’t turn your R&D on and off indiscriminately. It takes a long time to find employees and projects take multiple years. You can skinny up a little, you can reduce spending on some of the more speculative programs, but in general, EDA spending stays relatively strong through a recession and increases as a percent of total revenue substantially because all the other expenses are being cut.
Then, when the recovery comes, that goes back to a more normal percentage. Plus, there are other phenomena you can see in the cycle as the downturn begins, even before it begins. You see an uptick in EDA sales because the engineers know that a recession is coming, and they want to stock up on the tools. And as you come out of it, it’s a delayed recovery because the management is trying to get their EDA and R&D spending back in line as a percentage of revenue, so they’re resisting all the requests for new purchases. But, in general, it’s a great place to hide in a recession because volatility is far less than the semiconductor industry or other systems industries.
MB: That’s a great headline: “EDA, a great place to hide.” Well, I am anxiously awaiting how the next several quarters play out. And if I look at some of the markets bigger than PCB – semiconductor and semiconductor equipment – both show a lot of strength. AI servers also still show a lot of strength. Automotive clearly is going to be in for a bumpy ride, but I think there might still be some underlying infrastructure that could support continued growth if I’m looking at this with the glass half full.
WR: Well, if we go back to prior experience, we may see some strength in the next quarter or two, because people move quickly to buy the product that was shipped before the tariffs took effect. So, car lots are weaned of all the pre-tariff vehicles that are still at low prices and the same thing goes for technical software semiconductors. The things that were shipped before the tariffs are still in inventory and can be sold at more competitive prices. It tends to stimulate a lot of demand in the short term. And then, of course, recession or worse in the long term.
MB: Anything else jump out at you from the current report?
WR: No, I think you’ve covered most of them. I’m impressed by the breadth of the strength. I’m impressed by the fact that the rest of Asia-Pacific is so strong despite China’s weakness. And you know the US has been the bastion of strength through the cycles. I hope that continues, but of course we’re all worried about what effect this worldwide economic disruption from tariffs might lead to.
Mike Buetow is president of PCEA (pcea.net); This email address is being protected from spambots. You need JavaScript enabled to view it..
