EDA Strong, M&A Activity Up

The EDA industry is faring well in an era of COVID-19 and global uncertainty, and the numbers prove it.

But the question being asked privately by a number of executives across the industry is whether growth will hold up beyond the first quarter of next year if a vaccine or treatment isn’t ready. There are a lot of financial models based upon a variety of developments, and so far there is little agreement.

For now, at least, there appears to be no reason for panic. Across the EDA industry, revenue increased 3.5% in Q1 to $2.70 billion, up from $2.61 billion in the same period in 2019. On a company-by-company basis, Synopsys, for its fiscal Q2 ended April 30, reported revenue of $861.3 million, up from $836.2 million for the same period in 2019. Cadence, meanwhile, reported Q1 revenue of $618 million, up from $577 million in the same quarter. Those are very good growth numbers in light of a shrinking global economy and widespread unemployment.

On top of that, companies are on a buying spree, fueled by low interest rates and companies beefing up their line cards for new developments such as the edge, AI, the rollout of 5G and a surge in interest around advanced packaging, security and a growing demand for reliability. This year, Siemens (Mentor) bought UltraSoC and Avatar. Synopsys bought Qualtera, Tinfoil Security, Terrain Technologies and INVECAS’ IP. Dialog bought Adesto Technologies. NI bought OptimalPlus. In numerous presentations this year, financial analysts predicted that M&A activity is just getting started in the chip industry.

For the EDA industry, productivity is up across the board. Top executives say their employees are working more hours than ever before, turning commute time, and often late nights and early mornings, into productive meetings with customers and partners around the globe.

“What’s clear is that EDA is something you can do at home,” said Wally Rhines, CEO Emeritus of Mentor, a Siemens Business. “And designing electrical products can be done remotely.”

This is evident in PCB/MCM revenue in Q1, which was up 12%. Rhines said this typically has been driven by cars, planes and trains in the past. “Some of that is the continued automotive boom, but auto sales are down 22%,” he said. “PCB sales continue to knock the cover off the ball.”

What’s also helping EDA is that systems companies are now designing their own chips, and they are buying or licensing lots of tools for the first time. “EDA has grown 3 points faster than the semiconductor industry,” he said. “There are big new customers like Google, Facebook and Alibaba, which were non-participants in EDA in the past. If you look at who buys foundry wafers, 22% of the wafers are being purchased by systems companies.”

By category, CAE — the largest segment tracked by the Electronic System Design Alliance Market Statistics Service — was up 1.7% to $854.9 million compared to the same period in 2019. IC physical design and verification grew 8.9% to $507.9 million, and IP grew 12.5% to $985.6 million. Services revenue dropped 8.6%, a sign that much of the work that was being outsourced has been taken in-house.

By region, the Americas grew 0.5% to $1.118 billion. Europe, the Middle East and Africa grew 13.4% to $392 million; Japan incrased 9.8% to $268.6 million, and APAC grew 1.8% to $918.9 million.

Fig. 1: Q1 revenue by segment and region. Source: ESDA MSS