Study says EDA’s Cadence tops all electronics co’s in R&D spending (what about the other EDA firms?)

Electronic Business, our sister pub in the EDN network just posted an article/study that indicates Cadence Design Systems ranked #1 in fiscal year 2006 in R&D spending (see Electronic Business’ Top R&D Spenders).

According to the study, Cadence spent $460 million of its $1,483.9 billion dollars on R&D in 2006. That’s 31% of its overall revenue for the year! And the list is not just EDA or even semiconductor companies: it appears to be all publicly held electronics and software companies. Cadence is followed in top 10 R&D spenders by Broadcom (30.5%), Dassault Systems (28.3%), Maxim Integrated Products (25.9%), Electronic Arts (25.7%), AMD (21.3%), Adobe Systems (21.0%), Analog Devices (20.9%) and LSI Logic (20.9%).

It’s interesting to note, that there are not any other EDA companies on the list. It is likely a flaw in the study, as other EDA companies such as Magma, Synopsys and Mentor, make R&D spending a point of pride. Still it is impressive to see that Cadence tops this list of companies and R&D spending, especially because Cadence has traditionally grown by acquisition.

Indeed, over its history Cadence has acquired dozens of EDA companies to build its product portfolio. But a couple of years back, when Mike Fister joined Cadence from Intel, and subsequently brought several of his friends from Intel to Cadence, the company started emphasizing internal tool development over M&A.

Wall Street has criticized EDA firms for relying too heavily on growth by acquisition strategy rather than growth via internal tool development. It has indeed been very common that employees of a large EDA firm would leave that firm, create a startup and then would end up selling their technology back to their former employer at a premium. Of course, it would be much more beneficial for the big EDA firms to hold onto those entrepreneur type employees and have them develop new tools in house. Cadence has been doing just that keeping folks like Chi-Ping Hsu (formerly Avanti and Get2Chip) to stay within its ranks.

Shortly after Fisters group joined Cadence, Cadence started touting internal development as Cadence’s new direction (see "Sounding a new Cadence").  However, at the same time the company was still acquiring companies but doing it on the down low. The company acquired Praesagus and then CommandCAD and maybe a few more without even officially announcing the companies. However, Cadence appears to be acknowledging that growth by acquisition, or at least tempered growth by acquisition, is not something to be ashamed of, as it did officially announce its recent acquisition of patterning synthesis tool vendor Invarium (see “Cadence buys litho pattern synthesis provider Invarium”. 

Still, Cadence has yet to show the first fruits of its renewed R&D spending in the form of new tools, however. The company last year did announce a new full custom router, but development of that tool began under the watch of Fister’s predecessor at Cadence, Ray Bingham. Early last year, the company also released a new DRC/LVS tool to compete with Mentor’s Calibre, which came to prominence at Cadence’s expense, beating out Dracula, Vampire and all other Cadence derivatives. Cadence’s new DRC/LVS tool, Cadence PVS (Physical Verification System), has yet to make a significant impact on the market.

Still, over the last few years, Cadence has done a great deal of tool integration work and has released several “Design Kits,” which may account for a large chunk of that $460 million. Retaining entrepreneurial type employees may also account for some of that number too.

Yet, with $460 million in spending, one would think we should start seeing some new tools from Cadence in the coming months or years. We’ll see…