Supply & Demand: May 2010 Archives

Cadence Design Systems has decided that semiconductor intellectual property (IP) is important to the chip design and so has bet fairly big on its $300m cash acquisition of Denali together with a plan to pre-integrate IP from other suppliers.

Let’s have a look at the rationale. Design costs keep going up - in proportion to the number of gates you can squeeze onto an integrated circuit (IC).

“The only thing that scales is IP. You can’t move to the stratosphere in terms of abstraction. You have to use IP…The SoC battle is won or lost over the quality of IP…IP reuse will go up to and beyond 90 per cent of the die. But having multiple IP vendors for one chip design brings challenges, so you will qualify IP vendors rather than individual IP cores. Everything points to consolidation.”

Oh no, wait. That wasn’t Cadence. Those were the words of Raul Camposano in mid-2004, who was then Synopsys CTO. Sounds a lot like the Cadence rationale doesn’t it? But it doesn’t say a lot for Cadence’s new found strategy rewriting the rules of EDA. It’s easy to see how an EDA-plus-IP strategy can develop because you only have to look at what has happened at Synopsys, the only major EDA vendor so far to have made a living at IP. Mentor Graphics had a go but that did not turn out so well and the company got out of the business.

Since the Internet bubble, the share of Synopsys’s revenues from IP has hovered around 6 to 8 per cent according to a succession of 10K annual-report filings. The share was as high as 10 per cent in 2001 but this was before the company acquired Avant, when the IP share slid to 5 per cent.

Synopsys’s 2003 revenues totalled $1.2bn. In 2009, they came to $1.4bn. IP revenues averaged about 7 per cent of the total in 2003, providing Synopsys with $84m just before Camposano made his prediction about the rise of IP. Now, they amount to $140m. That’s about 9 per cent per year, about the same as the semiconductor industry’s long-term average growth. It’s not transformative growth by any means. This wasn’t because Camposano was wrong - far from it - just that the increased use of IP does not necessarily translate into massive sales.

As chip capacity increases - which pulls in more third-party IP - design starts go down, slowing down the growth of the IP suppliers. You could argue that maybe Cadence has entered the market at just the right time. But it takes time to establish a reputation as a stable, reliable IP supplier as Synopsys chairman and CEO Aart de Geus pointed out in the company’s most recent results conference call. Buying Denali gives Cadence greater credibility in the market than simply bootstrapping its own operation but it will take time for the company to see a return on its $300m, if it sticks at it.