With the world's two largest economies embroiled in a trade war, it has caoe as a shock that EDA revenue had one of its strongest-ever growth quarters.
With the semiconductor industry mired in a downturn and the world’s two largest economies embroiled in a trade war, it came as a bit of a shock that EDA revenue had one of its strongest-ever growth quarters in the first quarter.
First-quarter EDA revenue came in at $2.6 billion, up 16.3% compared to the first quarter of 2018. The four-quarter moving average of EDA sales — which compares the most recent four quarters to the prior four quarters — increased by 6.1%, according to the Electronic System Design (ESD) Alliance.
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EDA revenue, of course, doesn’t track exactly in line with the semiconductor industry that it services. But in a year when semiconductor sales are on track to decline by more than 10%, such robust growth in EDA caught many people off guard — including Wally Rhines, CEO Emeritus of Mentor and a member of the ESD Alliance’s governing council.
“Growth was surprisingly strong,” Rhines said in an interview with EE Times after the ESD Alliance sales report was released earlier this year. “And there were a bunch of highlights that were sort of surprising.”
In fact, with the exception of services, all of the categories tracked by ESD Alliance — computer-aided engineering (CAE), IC physical design and verification, printed circuit board and multi-chip modules, and semiconductor intellectual property — grew by more than 10% compared to the first quarter of 2018. Every region except Japan grew on a year-to-year basis, and every region except North America grew on a quarter-to-quarter basis.
Intellectual property — now the largest category of the EDA industry — had first-quarter sales of $876.1 million, up 14.8% from the first quarter of 2018. CAE sales were $840.7 million, up 20.2% from the year-ago period.
“On the surface, this seems to be in conflict with everything we are hearing about in the semiconductor industry,” said Laurie Balch, Research Director at Pedestal Research.
According to Rhines, one of the most logical explanations for the strong growth in light of the semiconductor market’s woes is something that EDA execs have been clamoring about for several years: the increasing size of the pool of companies buying EDA tools. Not only are several high-profile system and cloud companies now designing their own chips, but more system designers are also using the tools to engage in system-level design.
“We have been highlighting the wave of people buying EDA tools,” said Rhines. “The fact that the numbers are strong is certainly evidence of this trend.”
Balch said that it is historically not that uncommon for EDA to grow while the semiconductor industry is in decline. Growth in EDA sales typically lags growth in chip sales. In recent years, an industry-wide move to a ratable revenue recognition model in EDA has tended to smooth out the rough edges, decreasing EDA cyclicality. And EDA has never been as prone to the “wild swings” in revenue as the semiconductor industry it serves, she said.
Balch added that she believes that EDA is still in for a slowdown late this year or early in 2020. But her five-year forecast for EDA revenue calls for growth in each year, even if that growth may slow down in the next couple of years.
The strong first-quarter numbers, she said, are a reminder that EDA remains a very solid business, even if it doesn’t get the attention that it deserves from Wall Street. “Times are good, times are bad, we still need EDA tools.”