Rajeev says there’ll only be 2 EDA companies in 5 years.
| Summary: Recently, Magma's Rajeev Madhavan gave an interview in which he said "I believe that within five years only two EDA companies will survive. We will therefore be one of these two big companies, or we will have been bought by one of them." Is he right, in either assertion? If so, why? Comments welcome. |
While at the Silicom Ventures international summit in Israel recently, Magma’s Rajeev Madhavan gave an interview to Globes Online, a local business magazine. In this interview, entitled Chip Design is for the rich, Rajeev stated
“I believe that within five years only two EDA companies will survive. We will therefore be one of these two big companies, or we will have been bought by one of them.”
Wow. That’s a staggering assertion, and enough to make this life-long EDA guy sit up and notice. It’s either incredibly bold and ballsy or a plea to be acquired, and you can read it how you wish.
I can’t believe it’s evidence for a plea to be acquired, given that Magma’s market cap is less than 40% what it was this time last year. Even worse, the 52 week forecast is for $10, still far beneath the high water mark of the last 12 months ($15.44). So if it’s not acquisition time, maybe it’s a bold statement of intent, laying down a challenge to the other three broadline EDA companies. Let’s consider the evidence; taking on perhaps the greatest EDA franchise of synthesis; kicking Synopsys (a company unafraid of using litigation to assert and protect their rights) in the behind, to start off an expensive and extremely hostile action; buying Mojave to attack the LVS market; entering analog & mixed-signal design and verification. The desire to become a broadline supplier is pulling them in many different directions, and while the field may be excited, the impact on AEs, financial resources, and management attention is significant, if difficult to quantify.
Of course, you have to buy into the statement that there’ll only be 2 EDA companies in 5 years time - down from over 250 at the time of writing. It’s no surprise that we’re coming in to a time of consolidation - growth in EDA has been sluggish at best. With the bigger fish looking at the smaller fish as ‘temporarily outsourced initial R&D’, that’s still a lot of chewing and swallowing for the bigger fish.
I don’t buy into the two company thesis. Maybe it’s just Rajeev being Rajeev. Or maybe, just maybe, he’s channeling Joe Costello - the spirit of EDA past.
Comment by Sean Murphy
It’s a provocative statement: I agree with your assessment that it won’t happen. I see just as many forces working to keep a large ecosystem of EDA firms, large, medium, and small. EDA firms sell to very large semiconductor firms and system houses who don’t need an intermediary to package and organize their offerings into flows or suites. And ever since they passed Moore’s Law it’s been hard to build an enduring franchise on a product, most are obsolete within three to five years without a level of R&D that essentially re-invents them. And the barriers to new firm formation, whether in the services, software, or IP market segments remain low. He clearly sees a time of market transition. This feels to me more like the transition of an era for example when Calma, Applicon, and Avera gave way to Daisy, Mentor, Valid, or when they in turn gave way to Mentor, Synopsys, and Cadence. If Cadence has it’s way and merges with Mentor I suspect they will fair as well as Daisy after the Cadnetix merger, leaving Synopsys and several “players to be named later” as the new leaders.
Comment by Lou Covey
This depends on your definition of an EDA firm. I think what Rajeev is referring to is the number of publicly traded firms, not the number of companies in the industry.
Most EDA companies are established with the goal of acquisition. I’ve talked to about 40 in the past year targeting either Mentor, Cadence, Synopsys or Magma as a potential buyer. At least that’s what was on their VC presentation. A very small number of companies consider themselves capable of Apache or Denali self sustainability and none were considering IPO.
So you can view the hundreds of small startup EDA companies as virtual R&D departments for the big four.
That’s where the change is really going to happen. When there are fewer buyers for the technology, the industry is going to shrink unless they can find a way to do real marketing and expand their options.
I’m talking to three stealth companies right now who have made the decision to NOT market in EDA, even though their technology could fit nicely into the description. They can’t get funding by targeting EDA so they are creating whole new markets in other niches.
So I think Rajeev has a point. The cheese has been moved.
Comment by Sean Murphy
Lou: is Denali any less a force in the industry for not being public? Fewer IPO’s is a structural issue that goes well beyond EDA. I think you will see firms like Springsoft and Carbon become more of a force as well.
Like your firm, we work with technology start-ups in EDA as well as other industries. We remain optimistic about the industry but believe that it’s in the midst of a transformation as significant as shift away from polygon based layout editors (e.g. CALMA, Applicon, Avera) or turnkey workstation based offerings (Daisy, Mentor, Valid). Electronic systems designers, whether working at the chip level, board level, or higher, are going to continue to require better tools, better IP, and innovative services. And whatever else larger firms are good at, it’s typically not the disruptive innovation that will continue to be required.