Focus on the fundamentals

Perhaps being in a fast-growing company within the electronic design-automation market, a sector that appears to be the new darling of Wall Street, might tend to skew my opinions toward confidence. But even for the overly skeptical, there should be ample reason to believe that a recovery is soon likely either late this year or early the next.

While electronics companies appear to be doing better, and spending on research and development and on capital expenditures is up, on closer inspection we see that they've cut expenses elsewhere and are focusing on business fundamentals. This news suggests that the electronics industry has lowered its expectations for 2002, while more hopefully looking to 2003.

Why prepare for a delayed recovery? In part, the industry appears to be trying to find the next big driver, or the PC replacement. The consumer electronics sector is still strong, but it may not be able to drive the upturn because it's not a large enough market. The telecommunications and wireless sectors have suffered long enough that a recovery appears imminent, but it's too soon to tell if either is the next driver.

As a result of this uncertainty, the next economic boom may take a little longer to arrive than everyone had hoped, but it is definitely still in sight.

The renewed focus on business fundamentals is good news. With focus comes attention to a company's core competencies. Interestingly enough, core competency was the mantra of the 1990s, but it was rarely put into practice. Today, it's become a business-strategy necessity. Although some larger electronics companies may have cut design projects, they are moving forward on other projects that would be considered part of their core competency.

With a renewed emphasis on core competency comes stronger and better-managed companies. I've also noticed some creative approaches and new business models. In Taiwan, for example, companies have sprung up that offer design infrastructure services. That is, an electronics company would hand off a design at the register-transfer level to a design infrastructure firm to complete. These specialized design service houses are experts in the implementation of a chip design. This creativity opens up a whole new market segment.

And finally, there's the EDA sector, which has certainly not taken its share of lumps in this economic decline. Times of decline in the electronics industry almost always translate into increased R&D spending, which often includes new EDA tools. This has made EDA historically immune to downturns. Certainly the growth rate of EDA has been curbed somewhat, but it is still continuing to grow.