Practical Chip Design

No, that's not a light at the end of the tunnel. The news on EDA revenues in the second quarter is dismal compared to the relative optimism after Q1. But at least the trends in EDA, IP, and design-services revenues are beginning to show some interesting, and possibly informative, patterns.

This morning the EDA Consortium Market Statistics Service reported revenue numbers for the second quarter of 2009, and the over-all picture is not a happy one. Total revenue for the sector is down almost 16 percent compared to the second quarter of 2008, with just over a 14 percent drop in EDA tool revenue, and a rather precipitous 28 percent drop in the much smaller category of services revenue. This drop was much more severe than the 10.7 percent annual fall in the first quarter, and nearly as bad as the 18 percent fall in Q4, 2008. That pretty well erases any hope that, contrary to history, the EDA industry was going to have a short, V-shaped recession.

Current EDAC chairman and Mentor Graphics chairman and CEO Walden Rhines did point out that the numbers are still being hampered by a revenue-accounting change at one of the major players in the industry, so the fall isn't entirely due to diminished demand. But the magnitude of this impact was not clear.

Also, there were a few bright, or at least less dark, spots in the detailed numbers. "Hardware-assisted verification, signal-integrity tools, and resolution-enhancement technologies all showed slight growth," Rhines pointed out. "These tools are all indicators of growing design complexity." So even if the broad market for new seats is declining, it appears that the organizations doing the most challenging designs and moving to newer process nodes are in fact starting to tool up for the task. There is also a correlate hint in the data: "The US was down the least of any region in the study," Rhines observed. And the US is generally where the early-adopter design teams are based.

In an indirect way, this apparent pattern could be good news, if you have managed your expectations properly. We are clearly not seeing a robust recovery. But we might be seeing the beginning of the end of the decline.

"Historically, EDA revenue lags the industry recovery," Rhines said. "Specifically, EDA revenue has a strong trailing correlation to semiconductor R/D spending—it's so strong you can almost infer a causal relationship just from the numbers." What we see in the data now appears to be a split in the industry: overall revenues, the regional pattern, and the sharp drop in services revenue—the latter a decent indicator of design activity among mainstream chip design teams—all suggest a semiconductor industry that is continuing to slow at a fairly rapid pace. But the growth in a few specific leading-edge tools and the moderation of the shrinkage in the US both point to renewed activity in advanced chip designs: that is, the beginning of a turn-around in semiconductor R/D. And semiconductor R/D has been, in more normal cyclic times, a leading indicator for EDA revenues.