EDA Revenue Up 6.6% For Q2

Highlighted by double digit growth in semiconductor IP and the Asia/Pacific region, EDA industry revenue increased 6.6% for Q2 2019 to $2,472.1 million, compared to $2,318.5 million in Q2 2018, according to the ESD Alliance Market Statistics Service.

The four-quarters moving average, which compares the most recent four quarters to the prior four quarters, increased by 6%, which represented an increase in all categories except services.

Companies that were tracked employed 44,342 professionals in Q2 2019, an increase of 6.3% compared to the 41,706 employed in Q2 2018, and up 1.9% compared to Q1 2019.

By product category, Computer Aided Engineering (CAE) generated revenue of $793.8 million in Q2 2019, which represents a 3.2% decrease compared with Q2 2018 with the four-quarters moving average for CAE increased 5.7%; IC Physical Design & Verification revenue was $500.1 million in Q2 2019, a 7.1% increase compared to Q2 2018, and the four-quarters moving average increased 3.6%; Printed Circuit Board and Multi-Chip Module (PCB & MCM) revenue of $224.3 million for Q2 2019 represents an increase of 5.6% compared to Q2 2018, and the four-quarters moving average for PCB & MCM increased 7.1%; Semiconductor Intellectual Property (SIP) revenue totaled $835 million in Q2 2019, a 19.7% increase compared to Q2 2018, and the four-quarters moving average increased 8.5%; Services revenue was $98.9 million in Q2 2019, a decrease of 4% compared to Q2 2018, and the four-quarters moving average decreased 2%.

By region, the Americas, EDA’s largest region, purchased $1,037.4 million of EDA products and services in Q2 2019, a decrease of 5.5% compared to Q2 2018 with the four-quarters moving average for the Americas increased 0.2%. Revenue in Europe, the Middle East, and Africa (EMEA) increased 0.9% in Q2 2019 compared to Q2 2018 on revenues of $358.9 million. The EMEA four-quarters moving average decreased 1.1%. Second quarter 2019 revenue from Japan decreased 10.1% to $220.7 million compared to Q2 2018. The four-quarters moving average for Japan decreased 2.3%. The Asia/Pacific (APAC) region revenue increased to $855.1 million in Q2 2019, an increase of 23.7% compared to the second quarter of 2018. The four-quarters moving average increased 13.9% for the Asia/Pacific region.

During a call to discuss the results, along with other issues relevant to the semiconductor and EDA industries, Walden C. Rhines, CEO Emeritus of Mentor, a Siemens Business said in regard to the tariffs against Huawei, “Certainly there have been announcements by a lot of U.S. companies as to how much the Huawei blacklist impact is on them. And it’s noticeable. One would think that’s revenue that won’t come back.”

However, he pointed out that industry observer Handel Jones believes this impact goes until the end of the year. “It’s a $20 billion loss in semiconductor revenue,” Rhines said, “but Jones says it looks like a strong second half. TSMC is looking at very strong bookings so the numbers for the year will probably not get worse. He’s saying we’re looking at a down year that’s mostly caused by memory pricing maybe minus 12% or so, but a stronger second half than first half.”

As far as the tariffs specifically impacting EDA, Rhines said he has no reason to believe EDA has been affected. “It was a credible quarter here, although it probably precedes some of the [trade war] actions but we came off a very strong quarter last quarter and we’re looking at 6.5% this quarter. That’s very strong, and if you look at where the strength is, the Pacific Rim is really the strongest part of the world.”

As for concerns about a global recession, Rhines said there have been a lot of announcements that say semiconductor companies are affected so there’s no question that it affects the semiconductor companies. “The MSS data we provide is a lagging indicator; it goes through second quarter, and it’s positive, so it’s hard to make any forward predictions based upon it. But it is actual numbers. It says that at least through the second quarter, the growth is good for the semiconductor industry. It’s good for IP, good for China, good for Asia. If you just looked at these numbers, you’d say there’s not much effect but once again, these numbers are looking backwards. The second quarter was over three months ago.”

Also, Rhines reminded that design software tends to lag semiconductor — both on the downturn and the upturn — so that would argue that there could be some more good growth.

“Another thing is the trade wars, if anything, would cause accelerated design activity, and reduced dependence upon U.S. suppliers, for example,” he continued. “In the U.S., the U.S. based companies generate about 95% of the worldwide EDA revenue, and because of that, regardless of where in the world design occurs, EDA tends to follow worldwide trends. So if it’s down in one region and up at another, EDA tends to average it all out.”

To Rhines, the strength in the PCB and Packaging segment, specifically for schematic capture and physical layout, is a good sign of an industry that historically has grown at slow rates, and now is doing much better.

Growth drivers
AI, and automotive applications continue to drive growth across the industry, along with a bigger overall trend of systems companies now doing their own IC designs. “It’s not just the Googles, Facebooks and Amazons, it’s the automotive companies, and a whole variety of systems companies. Bosch Automotive is strong, but so is Bosch Appliance. This says that across the industry, a bunch of people who didn’t do their own integrated circuit design before are now doing it.”

In fact, a recent analysis by Mentor showed that the percent of wafers bought from foundries by systems companies has been growing 70% per year compounded between 2012 and 2018, based on data from IC Insights. “At the same time, wafers bought by fabless semiconductor companies, as a percentage of the total, has decreased from about 80% down to about two thirds,” Rhines noted. “Most of that has gone to systems companies. automotive is included in that; the cell phone companies are included in that, in many cases for their own application processors. Basically, the good news for EDA is there are a lot more participants in the world of design, and in general, that’s not bad for the semiconductor industry either. But it does mean that those people are buying their own wafers so standard product revenue doesn’t grow as fast as it would of those people were not doing their own design.”

“For the EDA industry, the more designers you have the better, and systems companies have a lot of money so they can afford to design at leading edge nodes. That requires new tools so overall, it’s helped everybody,” he added.