BANGALORE, India — Based on recent market data, leading edge fabs may have little or no excess capacity by the end of 2009, a sign that the semiconductor industry is recovering, according to the CEO of Mentor Graphics.

Mentor CEO Walden Rhines added during a visit here this week that optimism in the IC industry is spreading to the EDA sector, though most design companies are still limiting new spending.

"The market will recover to a level where [EDA companies] will be profitable, but they do not know to what level" of profitability, Rhines said.

Rhines echoed sentiments from other industry executives visiting here, including Freescale Semiconductor CEO Rich Beyer and other Mentor executives. Hanns Windele, Mentor's vice president for Europe and India said during an earlier tour of India that the seeds of IC recovery were being sown.

Recent foundry capacity data indicates an IC recovery is underway, experts said. "In the first quarter, the fabs were without hope, but leading-edge demand grew so fast in Q2 that [fabs] started thinking of when the capacity would fill up. In 3Q they see demand growing, and while they expected it to level off, it has not," Rhines said. "That is why I conclude that at the rate they are growing, showing current loadings, 45 nanometer is already approaching 90 percent of capacity, while 65 nanometer is about 80 percent in June."

Rhines remains cautious however about an EDA recovery. "Even when the semiconductor industry turns up, it takes awhile for EDA to turn up as well." Chip makers "have had a hard decline, and they will not initiate a lot of new, incremental spending until there is more stability," he said.

Rhines disputed assertions that the overall chip industry is consolidating, "We know that manufacturing capacity has consolidated into foundries. Now, a third of the total manufacturing capacity is owned by independent foundries. So there has been consolidation of manufacturing, but not consolidation of semiconductor revenue," he said.

He also downplayed assertions that rising design costs mean fewer design starts. "Sure, the number of design starts for semi-custom and custom has declined, but it has declined very slowly. Most designs do not cost $50 million as most of these are derivatives of existing designs," the Mentor CEO said.

Mentor has acquired several companies this year while continuing to invest in R&D. "We have initiated new programs in [place and route] and emulation," Rhinese noted.

—K.C. Krishnadas is site editor of TechOnline India