Will Service Companies Eat Up EDA?

Big Fish Eats Little Fish

http://www.flickr.com/photos/stinkiepinkie_infinity/ / CC BY 2.0

In case you missed it, there was a fascinating thread on Olivier Coudert’s Blog over the last month or so. Olivier struck a chord with his post entitled “Why Service Companies Will Eat Up EDA“, which put forward the case that the design services industry would soon emerge as the primary implementers of complex SoC designs.

Olivier’s vision is that SoC design will become a commodity to systems companies whose differentiation would be in their system-level design and algorithms. Implementation from RTL or netlist to GDSII would be performed by these design services companies that know the methodologies, tools, and target technologies better. These design services companies could also leverage economies of scale by sharing licenses among multiple projects and selecting from a large pool of accessible IP. Olivier pointed out that even today, the design services industry is twice the size of EDA and that is likely to grow.

According to some of the comments, competition to pure design services companies could come from the EDA companies or the foundries. The large EDA companies have the advantage of free tools at their disposal and so can gain a price advantage over independent companies. Their intimate knowledge of the tools and flows and access to tools experts in R&D also enhance their attractiveness. Meanwhile, foundries could step into this space as well, amortizing the cost of design with the revenue from production volume. UMC has been doing this for quite some time with Faraday Technology Corporation and TSMC with Global Unichip.

There is a third set of players that is worth watching as well. Last week, OpenSilicon, a “fabless ASIC vendor” acquired Silicon Logic Engineering, a “front-end design house”. Together, they can potentially offer “spec to parts” services, a much broader offering than most other players.

As a coincidence, I had a conversation this week with someone whose been in the semiconductor biz for close to 3 decades. He’s got an idea, and also some technology already developed, that would enable companies to design SoCs at a very high-level and very quickly. Although the key to this capability would be some nifty tool, perhaps he’s better off using the capability to do design services rather than enter the EDA space. It seems Olivier would give him that advice as well.

What do I think?

When the automobile first came out, you had to be a mechanic to own one. There were no auto mechanic shops or service centers. If something went wrong or if you wanted to tune the performance, you had to be able to lift the hood, take out your tools chest and get to work. Over time, the auto service industry emerged until today when only the true automobile enthusiast or race car driver does much more than change his own oil. For almost all of us, we get much better service at a lower price than if we did the work ourselves.

Of course, chip design is not the same as car servicing, but I think the same principles apply. For the majority of the market, they will be able to get better results with less cost using a design services company. After all, how much do you really need to optimize your design and silicon when silicon is so abundant. For the rest that absolutely need the highest performance and only trust themselves, they will continue to buy the tools and do the work. What will be the split and how long it will take to get there is anybody’s guess. And when we get there, will there be enough business to support an EDA industry? We’ll see.

harry the ASIC guy

11 Responses to “Will Service Companies Eat Up EDA?”

  1. Hi Harry: Thanks for incorporating my prior comments. One more aspect to consider is IP protection. There are major concerns with IP protection and also there are 3rd party IP’s included in most designs. These IP barriers prevent customers from releasing their design data to any 3rd party. They are more likely to trust foundries or large EDA than xyz brand offshore design consulting. The car analogy is good, but this is not a consumer market, and consolidating more to fewer players for complex SOC’s. So the cost of ownership and control is small relative to the risk of not getting it right. There is probably more opportunity in the larger FPGA design market.

  2. Roberto says:

    The car analogy was correct for EDA but may not be true for chip design. Chip design houses had their own EDA tools but soon they found it was more economical to buy from the companies that specialize in it and the internal tools in each design company started disappearing.

    The value for designer is in his IP. The current semiconductor companies already share their designs with foundries and EDA vendors (for bug fixing). The foundries make chips for a bunch of companies and are well positioned in terms of economics of scale. EDA companies have the control over licensing. In a scenario where chip implementation is getting outsourced, the foundries are very well positioned. It is likely that only 3-4 foundries will survive in the long run. Each of these foundries can buy existing EDA vendors to get a complete flow. In that case all economic indicators point to a dominance of foundries. Third party chip designing does not seem to have any economic advantage. (Foundries can build presence in low cost regions through EDA vendor acquisition).

  3. Sean Murphy says:

    Still trying to track down the numbers but it’s possible that it’ already happened. If you include the companies Coudert identifies in the blog post you reference EDA revenues are already more than half services. One trick would be to account for “reselling” since the service company is paying for the license (one hopes) which is counted in the current EDAC figures so you would have to back out the fraction of EDA licenses sold to pure services companies on the theory that that cost is embedded in their service offering.

    Peggy Aycinena in a 2006 article about the Kaufmann awards entitled “Cal vs. Stanford: EDAC vs. Itself” http://www10.edacafe.com/nbc/articles/view_weekly.php?section=Magazine&articleid=321147 predicted that the center of gravity for design would shift away from Silicon Valley; here are her concluding paragraphs.

    “The center of gravity for the entire universe of high-tech is moving. Profoundly, steadily, and undeniably. Ten years from now, twenty years from now, 30 years from now — when all of the very well dressed (even those from Cal), very well fed, very well paid people who were in the Marriott tonight have either retired or gone to their great reward – this whole event will be happening somewhere else. Where that will be, is anybody’s guess.

    It won’t be in Northern California. It may not even be in North America. But it will happen. Because people who are real, authentic, hard working, and don’t come from money today are working hard to see that their children are well fed and well paid tomorrow. Those people are going to beat tonight’s crowd at their own game. Creating CAD tools that serve their local markets, and then serve global markets. It’s inevitable. And they’ll give awards to those who are most successful at contributing to the game.”

    It’s also interesting to note that the EDAC voting membership count has shrunk from more than a hundred a few years ago to about fifty today, see http://www.edac.org/about_members.jsp At some point they are going to need to reach out to the companies that Mr. Coudert mentioned on his list:

    “More numbers? Let us only look at the VLSI service companies in India, i.e., in no specific order: HCL Technologies, KPIT Cummins Infosystems Ltd, MindTree Ltd, Sasken Communication Technologies, Tata Consultancy Services, Wipro Technologies. According to the India Semiconductor Association, VLSI design service revenues in India could hit $1.13 billion in 2009, while hardware and board design could reach $560 million and embedded design and services about $7.29 billion. Yes, that’s nearly $9 billion overall, nearly twice the EDA market, and China is not even in the picture yet. Despite the dramatic downturn in 2009, some of these services companies did quite well, and most expect an uptick with a recovery in the semi industry next year.”

  4. Lou Covey says:

    Gary Smith started calling the EDA industry a service industry five-years ago. The only thing that has kept it from happening is the industry’s own view that it’s making products. But most of the product is so buggy and requires so much support that a significant amount of the price has to include the service. Synopsys, Mentor, Cadence and to a certain degree, Magma try to push customers to look at each of them as one-stop suppliers, which essentially makes them design-consulting firms. If there was real interaction between the companies, it would boost sales for everyone, but as long as the competitive paradigm pushes buggy, proprietary and complex products over customer service, it’s going to struggle. Time to make a decision what kind of company you are going to be.

  5. Gary Dare says:

    Harry, I posted this on Olivier’s blog first (sorry, spur of the moment, etc.) but Magillem of France has latched onto such a model. Granted, they are small but what is interesting is that a) while projecting a loss in Spring of 2009, they ended up with a modest profit and b) they successfully executed an IPO and have been trading on EuroNext since 11/30, 2009!

    Given the IPO drought (as well as for venture capital) in EDA, that should have been smashing news … but with the loss of journalists in this field, one wonders if that was the only piece of major news that was missed?

    Then again, maybe they aren’t an EDA company any more but rather, a services firm since their official name is Magillem Design Services!

  6. Lou Covey says:

    Gary, Magillem is a service organization that has systematized it’s offering to companies needing to outsource design. Their IPO was on an unregulated market exchange because their revenue wouldn’t qualify then for the Paris Bourse and VCs won’t invest in a service organization. It’s kinda the French version of the LSE’s AIM.

  7. I saw your blog bookmarked on StumbleUpon. I love your site and articles. Keep up the good work.

  8. Dear Lou Covey,

    When you speak about a company ….”Magillem is…”…please could you refer to the official web site magillem.com, a minimum is to look at the company activity before announcing your “vision”…of what we are supposed to do!!!
    Gary is right on the activity, we are not a service organization, we provide eda tools and xml content assembly software, and are profitable and public.

    Twitter and blogs sometimes are not enough…to understand things, Lou, i hope that all your actions are not done in the same way.

    When you say”has systematized it’s offering to companies needing to outsource design.” : where did you get this ???? Please verify your sources as a journalist, with talent as usual.

  9. Lou Covey says:

    Hi Cyril,
    Since I haven’t seen any news on Magillem in months, other than the one release last February, I based my assumptions on two things: What I hear around the industry, and about 30 minutes I spent with your team at DAC in Anaheim in 2008. What I was told by your team is you are a service company. Everything I could find on Magillem on the ‘net says the same thing.
    Yes, you do have tools, that you provide to your customers that you are providing design services to. My understanding of your recent (and very long) announcement Rev.Enge, is that it is not something to be bought from Magillem, but a value add to your services.
    The point of this post by Harry was that services companies are, essentially, the new EDA industry, because the EDA tool vendor business is flat, but services are rising. What I was pointing out to Gary Dare is that just because a company goes IPO — anywhere — is not necessarily an indication of how well a company is doing. From my discussions with investment bankers in Europe, many companies go to the regional, second-level stock markets when no other form of investment is available. The fact that Magillem is now profitable is a very good thing, but your success proves, rather than argues against Harry’s assertion.
    So why you would want to be associated with the flat part of the industry, rather than the growth sector is beyond me.

  10. Lou Covey says:

    Oh, Cyril. One more thing. I did go you your website to get more info on you when I wrote that response in January. But your site is all in French and I could find no English alternative. So I could not see how you describe yourself now, since I don’t speak French.

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