Executive Briefing: Aart de Geus

By Ann Steffora Mutschler
EDA, IP, semiconductors, electronics…actually every industry is woven into the tapestry of a global macroeconomic system. Running a business successfully within this environment requires a unique skillset; at once entrepreneurial as well as wise and discerning. System-Level Design sat down with Aart de Geus, chairman and co-CEO of Synopsys, to discuss these issues and the ones that keep him awake at night. What follows are key points from that interview.

SLD: How does global economics impact your decision-making?
de Geus: There are 15 different layers one can go at with this question. From my perspective at the top layer the world-level problem is that the standard of living in the present way is unsustainable and therefore is being reset and redistributed. And those are not the same thing. The redistribution is when other parts of the world suddenly emerge and do better. In the last decade we can certainly see that for many hundreds of millions of people in the Far East and India, whereas resetting is what you see whenever an economy suddenly is under hyper stress—and that happened in ’08 visibly so in the United States and some other parts of the world. It may or may not be happening in Europe with ramifications in other parts of the world, as that part of the financial system may become unstable. And so right now, a system is stable by definition until it is not stable, but that doesn’t mean it’s not changing. And of course, the center issue here is that standard of living growth has been supported by debt, and that works wonderfully well until somebody calls in the chits. And given that the chits were sort of circular, nobody calls in the chits until somebody calls in the chits. And then everybody calls in their chits from the next guy, and before you know it you have a lockup. Because everything is intertwined these issues are not localized, they are global, and that takes time to readjust even when there’s consciousness because you have to gradually balance your inputs and your outputs and your debt. We see that happening real time.

Simultaneously though on a super macro scale there are other issues that are just as big, such as the aging of population. The aging of population, by definition, brings about a different productivity. And the benefits of modern medicine—I’ll call modern everything since 1900, when a few vaccines made a big difference—the benefits are of course that one has a longer life. But there’s a cost attached to it, and that cost by definition has to be borne by the people who are still working. So many countries are approaching that change of balance.

You can put something else on top of that, which is the utilization of resources, be it from energy, water, and then also let’s call air a resource, and the impact of climate changes as having potentially very big economic impact. I was just talking to somebody from the Netherlands about the projects of increasing the size of the dikes. Those are big projects. Or you can look at the recent statistics on tornadoes in the United States. The patterns are not explainable by randomness. What is very clearly visible is the tornado cost comes in billion dollar increments, so it adds up very quickly. I think the worst challenge is actually going to be clean water because the horizon for that is the shortest. We’ll have energy for a long time, but water is becoming a big issue in many places. These are all very big worldwide challenges.

I think you’re starting to see another imbalance, too. People used to call it the digital divide. I don’t think it’s the digital divide. It’s really which professions are in the center of dealing with massive productivity increases and which ones are not. That’s a big issue. And for the United States, underneath that you can certainly put also the whole question of education, which has been in a 20+ year sharp decline compared to the rest of the world. It’s not that education solves everything, but non-education creates a lot of issues. From that perspective, there’s a lot of change that’s not new change, but it is just now becoming visible because it’s reaching limits that before looked far away.

SLD: How does that impact what you do?
de Geus: We clearly plan the company so that we have some degree of resistance to big fluctuations. We saw the benefit of doing that in ’08 where we were one of the very few companies that essentially came through with a slight bit of growth due to both the business model that we have but also the fact that we had paid attention to who do we do business with in the first place. We focused on the people that we thought would be the survivors, and that’s important. Today, that’s not any different because now we can see a certain degree of consolidation happening in semiconductor industry and, by the way, therefore also in the EDA industry. We obviously have been fortunate to be able to execute reasonably well against that picture and therefore were in a relatively strong position. But this requires constant watchfulness, and there are many moving parts. We haven’t even talked about the many moving parts on the technology side, where there are just as many that are in movement there, as well.

“…the singular most important thing is an alignment between world politics and technology because unless we go whole hog about a number of the ecology challenges, those challenges will bring more societal pain than people realize that. I’ve always felt that that is not a cost, it’s an opportunity that has some cost.” – Aart de Geus

SLD: When you are looking at your business, how do you bring in the knowledge from the different geographies in terms of making big business decisions? How does that process work?
de Geus: For starters, you go there. I live in all the geographies. So does our staff. And so do many of our people that literally live there. What we try to do is integrate the insights of the management on an ongoing basis. It’s not like you do that three times a day. And when you’re at DAC, you walk around, you talk to somebody, you talk to somebody, you continually readjust, but normally you have a more steady-state process. We do our own, ‘What do we think of the economy?’ tests and realizing that part of it is very educated because you can read a lot of things, part of it is at the end it’s still a judgment call because there is no hard method that says, ‘Because of this data, this is going to happen tomorrow.’

SLD: Does anything keep you awake at night worrying about the business?
de Geus: I’ve not slept in 25 years. I’m not kidding. I have never had a day without worry about Synopsys. I’m an entrepreneur and I’m paranoid. And as we know, only the paranoid survive. The book says so. Therefore it must be true. But there’s some truth to it. It’s not my job, I guess it’s just part of the role to always worry about what could go wrong and if you don’t hear anything, you must be really worried because that means you don’t see it. I think somebody was saying just because you’re not paranoid doesn’t mean they’re not there to get you. It is the reality for entrepreneurial management.

SLD: How much of EDA is truly entrepreneurial?
de Geus: When people say ‘entrepreneurial’ invariably they tend to think small and the start of something. When I think entrepreneurial I think as much start as restart and restart and restart. I think the second skill is actually different than the first one because, of course, if you start something, you only get remembered if you’re actually still around. Many people start, and then start, and then start, and then start until finally they have something that they’re lucky with or that they did better, and so on. Once you have something that’s successful, you have different problems: A) to not screw it up, and B) and now what do you do? And now what you do is just as entrepreneurial but different—positive but with constraint.

SLD: How do you keep that balance? It seems like it would be easy to lose?
de Geus: Yes, it is easy to lose, partially because success is such a demanding mistress. Success wants to never go away. Let’s say there’s this brilliant idea to do something completely different but there’s 1.75 billion other ideas that say, ‘Pay attention to me first.’ And yet, if you only pay attention to the one and three-quarter billion that we do today, there’s a danger that you never do anything else. So, the challenge for an entrepreneur over time is actually a live evolution—keeping a company alive, not just in a retirement home—and that is richer entrepreneurial. It’s more seasoned and it’s more experienced. It’s also hard to do the second well if you haven’t done the first well.

SLD: What is EDA going to look like in 5 or 10 ? Won’t 3D change everything?
de Geus: I think it’s no change whatsoever, meaning that it is just more complications of the type we have managed for 40 years. It’s a little bit like saying, ‘Now we can do more than 500 gates and that’s going to change the complete game.’ On one hand of course that’s true because it’s all on an exponential, so you don’t do the same things. On the other hand it’s just, ‘We’ll deal with that too.’ The number of times that we’ve heard ‘end of Moore’s Law’… my favorite story was when I was in school in 1978 in Switzerland and the top semiconductor guys in the world came for a conference that happened to be held at our school. I was a young student, so I was watching with eyes this big all these guys that I had read some papers about—the gods—and the gods all agreed on two things. One was that electronics was going to be big and important. And two, one micron was the physical limit beyond which we would never get. Many years later, I had the opportunity to give out the Kaufman Award to one of those gods: Bob Dutton. Of course, I reminded him that as a god he was really a god in my mind, but he was really dead wrong at that time. Still, I admired him greatly because the very people who had predicted it was impossible then found a way to still make it happen. I think that is entrepreneurial or engineering ingenuity. That is ingenuity. We are a field of ingenuity and there have been many times that things will stop and then we work around it.

Having said that let me know propose precisely the opposite perspective: I also know exponentials and exponentials have a weird way that there’s always one that dominates, even though there are many other ones. One to another, one crosses over with another, and then you forget about the first one because it’s completely irrelevant because the difference between two exponentials is also an exponential. It’s just five minutes that they’re equally important and then the next one dominates completely. We see those crossovers today in a number of places in terms of the economics involved, in terms of the number of players that can build the next fab and so on. The conclusion out of that is the industry is evolving from a constituency point of view, from the ‘who can play,’ and that gradual consolidation is an absolute economic necessity in order to drive the technology forward. It’s not by accident that Synopsys is both investing and doing M&A. It is because I’m a firm believer that we must maintain critical mass to be able to provide the leading technology to our customers. This is a line of understanding that really started for us around 1997/1998.

SLD: Why then?
de Geus: Because we understood at that point in time that we had a very big challenge coming, which is that Synopsys didn’t have a physical presence. I concluded that both technically and economically we needed to be able to not only provide a complete flow but that technically the pieces of the flow needed to work together. Economically, we needed to have a complete flow at that time because otherwise we would run the risk that Cadence, which had a reasonably complete flow, could go in an economic downturn to customers and say, ‘Why don’t you just work with me?’ We bought EPIC, which most people didn’t understand at that time, but it was actually a very deep footprint in the physical side and then later Avant! That solved that problem nicely.

SLD: What would you like to see happen in your lifetime in terms of technology?
de Geus: From my perspective, the singular most important thing is an alignment between world politics and technology because unless we go whole hog about a number of the ecology challenges, those challenges will bring more societal pain than people realize that. I’ve always felt that that is not a cost, it’s an opportunity that has some cost. If there was a massive amount of focus on that investment, that investment would bring jobs and it’s a stimulus for schools. It is really very, very unfortunate that Obama got saddled with the ’08 downturn at the moment he came in because he started a little bit on education and it just fell off and I don’t think he had quite the leadership to say, ‘We need to do a 1960s go-to-the-moon focus project.’ But the world needs that badly.