Ever resilient, EDA is growing

Ever resilient, EDA is growing

With 2002 now more than half over, the worldwide semiconductor industry has not demonstrated signs of a sustained recovery from the previous year's dismal performance. Though a few regions of the world have shown slightly more promise than is painted in the worldwide picture, overall growth remains stalled. Similarly, there has been some improvement for a few distinct segments of the semiconductor industry, but widespread recovery is still elusive.

Though common sense might dictate that all industries supplying semiconductor companies would nosedive when the semiconductor industry does, the electronic design-automation market actually defies such logic. Despite the state of the semiconductor industry in 2001 and 2002, the EDA sector has maintained positive growth and should continue to do so through the remainder of the year. It is true that EDA's 2001 growth and likely 2002 growth are a bit more depressed than might have been possible with a strong semiconductor industry. Nevertheless, revenue has clearly remained in positive territory and is expected to trend upward over each of the next several years.

This semiconductor recession has coincided with the industry's switchover to 0.13-micron manufacturing process geometries. This major step forward in design complexity has necessitated new EDA tools that handle the greater design challenges of increasingly smaller geometries. Even as companies have been grappling with evaporating demand for their semiconductor devices and slashing their expenditures wherever possible, they have still had to spend a considerable amount on new EDA tools for their next generation of designs.

As a result, in 2001 the EDA industry profited, largely because of the significant investment in IC implementation tools, the integrated RTL-to-GDSII tool suites required in the physical synthesis design methodologies needed for 0.13-micron design. Overall EDA industry growth in 2001 was 7.6 percent, while growth for the IC layout segment of the market that encompasses IC implementation tools spiked upwards of 45 percent last year. Industry growth in 2002 and 2003 will also be dominated by the continued proliferation of IC implementation tools.

But by 2004, the bulk of IC implementation tool investments will have been made and EDA growth will begin to transition to the next big advance in design techniques-the electronic-system-level tools. This next phase of EDA growth will center around a design methodology evolution that will bring design to a higher level of abstraction, moving from designing at the register-transfer level (RTL) to the electronic-system level. The silicon virtual prototype and intelligent testbench will become the critical tools enabling this shift.

The silicon virtual prototype will become the backbone for the design process, acting as the design cockpit in the future. Even more important, it will become the new RTL sign-off point in the design flow. The silicon virtual prototype will also tie in with the intelligent testbench, a tool that will serve to automate the verification flow. This linking of the design and verification cockpits will greatly streamline the whole design flow by making data handoffs far smoother. Once the silicon virtual prototype and intelligent testbench become an integral part of the design flow, customers will require fewer IC implementation tool seats. EDA industry growth will swing toward the computer-aided engineering market segment as the number of seats of the new silicon virtual prototype and intelligent testbench tools explodes.

At the top level, the EDA market is forecast to increase at a healthy compound annual growth rate of nearly 17 percent through 2006. Though 2002 growth is anticipated to come in at only about 12 percent, growth in subsequent years should reach closer to 20 percent. EDA product revenue is expected to top $3 billion in 2002 and surpass $4 billion by 2004.

Forecast risk factors
Over the short term, the biggest factor that might jeopardize the forecast for the EDA industry is the timing of a semiconductor rebound. The fact that the previously anticipated second-half semiconductor recovery is now in doubt is not good news for EDA. Rumors already abound of in-progress design projects being shelved before heading to production because of nonexistent demand for many new designs. Should semiconductor device demand continue to be this sparse throughout the rest of 2002 and even into 2003, EDA will unquestionably feel some effects.

Already several EDA vendors have lowered expectations for the second quarter and later in the year. Numerical Technologies Inc., for instance, has announced a second-quarter revenue shortfall of approximately 20 percent. LogicVision Inc. recently followed suit, significantly lowering its projected financials for the same quarter. Both of those vendors, though, offer products that come into play somewhat further downstream in the design process than classic EDA tools.

With fewer designs heading into production, EDA business models that are more closely tied to the manufacture of semiconductor devices are the most at risk for underperformance from now until the semiconductor recovery eventually emerges-whenever that may be.

Focus on front end

EDA market segments with tools focused on more front-end design problems, however, should fare much better through the rest of this year. Most of the industry weakness will continue to come from pc-board tools, while IC tools demonstrate far stronger performance.

Over the longer term, other concerns raise potential risks to the EDA forecast. IC implementation tools will drive EDA growth over the next two years and adoption of those tools is well under way. But EDA growth in later years is predicated on the introduction and acceptance of the still-immature silicon virtual prototype and intelligent-testbench technologies. If those tools are not ready by 2004, EDA growth will likely dip-without falling into negative territory-in the later years until the technologies are fully developed.

Yet even with some uncertainty in the short- and long-term prospects for the EDA industry, this truly stands out as a resilient sector in the extended breadth of industries spanning the semiconductor supply chain.

Throughout this semiconductor downturn, EDA has maintained its positive growth. The industry hasn't been subject to the wild growth swings experienced by other sectors of the high-tech landscape. The crucial importance of EDA design tools to the enduring success of the semiconductor industry makes electronic design automation an indispensable and more stable component of the high-tech marketplace.

Laurie Balch is Senior EDA analyst for Gartner Dataquest (San Jose, Calif.).