Hello everyone – below is the latest detailed analysis of the EDA industry, based on the just-released EDA Consortium (EDAC) market statistics. The EDAC data disclose product category and geographic revenues, to which I add bookings, industry forecast, and industry profitability comments.

EDA industry overview

For 1Q10, EDA revenues were $1.047 billion, flat year/year (actually, -0.4%), the first such flat (non-negative) quarter in two years.
For the trailing-twelve months, revenues were $4.175 billion, down 7%. License & maintenance revenues declined 1% in 1Q10 to $842 million, and for the trailing twelve months declined by 6% to $3.42 billion. This is an improvement upon the mid-teens trailing twelve-month rates of decline from 4Q08-3Q09.

The 1Q10 combined revenues of Cadence Design, Mentor Graphics, and Synopsys of $741 million accounted for 71% of total revenues, in keeping with their typical proportion of industry revenues. Including Magma Design, the main group of publicly-held EDA companies accounted for $774 million, or 74% of the industry.

Based on my current estimates for the largest companies, we can estimate that EDA will be about $4.36 billion, ±$20 million, in 2010, or about up about 4% from 2009, which was down 10%. Besides underlying organic bookings (see below), Cadence’s license model transition will still have material effects on Cadence’s reported results, and therefore the industry’s. The industry’s peak was $5.15 billion in 2007.

EDA bookings

In 1Q10, the combined product bookings of the three largest suppliers were about $390-$395 million, compared with about $450-$455 million a year earlier. Synopsys accounted for about half of these combined bookings.
For the trailing twelve months, their combined product bookings appear to have been about $1.83 billion vs. $2.06 billion, not counting their recent acquisitions.

I foresee combined software bookings for the three largest EDA companies of $2.13 billion in 2010 (again, not counting the various recent acquisitions), vs. $1.89 billion in 2009 and, coincidentally, $2.13 billion in 2008.
The estimated software book/bill for Cadence this year is ≥1.2x, for Mentor ≈1.0x, and for Synopsys ≤1.0x. The combined book/bill would be ≈1.0x, continuing a trend of the last number of years where composite book/bill has been converging to parity. This signifies in the aggregate, unfortunately, little foreseeable total organic growth; as always, therefore, in order to enable some incremental growth, of the dozens of reported EDA product categories, the companies need to have and find (or acquire) some number of products or addressable categories where there will be some foreseeable growth, owing to specific technical needs of new ICs, new processes, perhaps capacity, and/or new methodologies.

EDA profitability: improving margins in 2010

The composite non-GAAP operating profitability of the top three companies was about $82 million, or about 11% of their combined revenues (with Synopsys accounting for almost all of those earnings), vs. $68 million a year before.
For the trailing twelve-months, non-GAAP operating income was about $404 million, or about 13.4% or revenues.
For the current year, combined non-GAAP operating profitability of the top three could be about $445-$450 million, about 14.4% of revenue, not counting recent acquisitions, vs. $390 million, or 13% of revenues, last year.

Vendor share
As for vendors’ share of total industry revenue, the results were as follows:

• Cadence Design had 21% of total industry revenues for the quarter, up slightly from 20% in 1Q09. The trailing twelve-month share was 22%;
• Magma had 3% share in 1Q10, and for the trailing twelve months, Magma’s share was also 3%;
• Mentor had 17% share in the quarter, down from 18% in the year ago quarter. Mentor’s share for the trailing twelve months was 18%, up slightly from the 17% it averaged from 2005-2008; and,
• Synopsys had 32% of industry revenues in the quarter, unchanged from a year ago. Its share for the trailing-twelve months was 31%.

Product mix still matters.
While product category revenues can easily vary quarter to quarter (owing to the timing, size and mix of contracts, not to mention license model transitions), it is still useful to gauge category revenues over a period of several quarters and years to see where design investments are trending. Ideally, an EDA vendor’s portfolio will be aligned as much as possible to where the growth in such spending is occurring or likely to occur.

Among the categories that appear to have been trending flat to higher in recent quarters
are:

• Analysis tools (8% of revenues). This category, which in turn consists of five sub-categories (such as transistor-level analysis, power, and static timing) was up 2% for the quarter and thus down 7% for the trailing twelve-months, an improvement over preceding rates of decline.
• Hardware/software co-design & co-verification, or ESL (6% of revenues). This category was up 25% for the quarter, its best growth in two years, leading to 4% growth for the trailing twelve months. ESL is important to MENT;
• RET EDA (6% of revenues). Down 39% year/year against an unusually strong 1Q09. For the trailing twelve months down 8% to $264 million. This category, which generally has to do with yield enhancement is of particular long-term importance to each of the four largest EDA suppliers (MENT especially with its Calibre franchise). Excluding the anomalous $100 million 1Q09, the most recent quarter and trailing twelve months are in line with the quarterly average over the four years 2005-2008;
• Analog/mixed-signal simulators (5% of industry revenues).This product category was up 8% for the quarter, leading to a trailing twelve month decline of “only” 5%, the smallest decline in two years. This category is important to both Cadence and Mentor;
  · Hardware-assisted verification (4%) was up 28% for the quarter and up 20% for the trailing twelve months. Cadence appears to have the majority of product revenues here.

Among the categories that appear to be trending lower in recent quarters are the following (cumulatively these are more or less offsetting for now the categories that are flat to up):

• IC implementation (i.e., place & route, et al), is one of the largest EDA categories, accounting for 10% of revenues. The category was down 7% for the quarter and down 14% for the trailing twelve months, an improvement however from the low-to-mid 20s rates of decline from 4Q08-3Q09 (coinciding with not only the recession but the initial quarters of Cadence’s model change);
• Printed circuit board (10% of industry revenues). Down 9% year/year and down 9% for the trailing twelve months as well. MENT and CDNS are the principal domestic suppliers. Cadence’s “system interconnect” business was apparently hit harder than the overall PCB category as reported by EDAC. MENT’s recently announced acquisition of Valor will bolster its share here, a key franchise for the company since inception in the 1908s;
• RTL simulation (8% of revenues). Down 3% for the quarter and 12% for the trailing twelve months. This category matters to each of the largest vendors;
• Synthesis (7% of revenues). The category – of particular importance to Synopsys - has generally lost share of total spending over the past decade. In the most recent quarter, synthesis was up 3% year/year, though still down 6% for the trailing twelve months.

The cumulative effect of the foregoing two categories is to more or less offset each other.

Regional results

North America declined by 2% year/year to $441 million. North America still accounts for the plurality, if not majority, of EDA spending. For the trailing twelve-months, North America EDA revenues were $1.884 billion, vs. $1.98 billion. Cadence accounted for the largest part of the reported trailing year decline, mostly because of its nearly on-third year/year decline in 2Q09.

License & maintenance revenues were down 2% year/year for the quarter to $359 million, and by 2% for the trailing year to $1.563 billion.

In terms of vendor share:

• Cadence’s revenues represented 20 % “share” in the quarter vs. 19% share in 1Q09 and 21% “share” in 2009;
• Magma’s revenues represented 4% of the North America market, down from 5% share in 1Q09;
• Mentor had 15% “share”, down from 17%. For the trailing twelve months, Mentor had 18% share in North America; and,
• Synopsys had 37% share in 1Q10, up from 36%. For the trailing twelve months, Synopsys’ share was 35%.

In Europe, EDA was flat at $200 million. This was the first non-negative comparison since 2Q08. For the trailing-twelve months, Europe contributed $806 million, vs. $933 million. Mentor accounted for the largest part of the trailing-year decline, mostly due to the declines in the second half of its FY10.

License and maintenance revenues were up 1% year/year to $160 million. For the trailing-twelve-months, license & maintenance revenue was $659 million, down 13%.
In terms of regional share by vendor

• Cadence had 25% share, up slightly year/year. For the trailing twelve months, Cadence had 24% share in Europe;
• Magma had 2% “share”, unchanged. For the trailing twelve months, Magma had 2% share;
• Mentor had 21% share, unchanged. For the trailing twelve months, Mentor’s share in Europe was 26%, a bit better than the average from 2005-2008. Mentor’s best market share has typically been in Europe.; and,
• Synopsys’ share was 24% share, down from 26% share in 1Q09. For the trailing twelve months, Synopsys had 23% share, as compared with the 22% 2005-2008 average.

In Japan, EDA revenues were $211 million, down 6% year/year. For the trailing-twelve months, revenue from Japan was $785 million, down 10%.

License & maintenance revenues in Japan decreased 5% year/year to $178 million. For the trailing year, license & maintenance revenues were $664 million (thus marginally larger than the European market), down 7%.

In terms of regional share by vendor

• Cadence had 24% share, up from 18% share a year before (its second lowest reported share in Japan to date). For the trailing twelve months Cadence had 21% share, as compared with an average of 32% from 2005-2008;
• Magma’s share was 1% share, unchanged;
• Mentor’s share was 15%, unchanged. The trailing twelve month share too was 15%. Mentor’s share in Japan is typically smaller than in the other regions; and,
• Synopsys held 29% share, slightly lower. For the trailing year, Synopsys’ share was 32%, as compared with the 22% average from 2005-2008.

Rest of World
Finally, the “rest of world” was up 9% year/year to $194 million, or almost a fifth of the industry.
For the trailing year RoW was $700 million, up fractionally. For much of the past decade to date, RoW has been the fastest growing region for EDA, though it has not avoided an occasional sharp deceleration or outright decline.

• Cadence had 17% share in RoW in 1Q10, down from 18% share in 1Q09. For the trailing year too its share here was also 17%;
• Magma’s share was 5% in the region, somewhat better than in the other regions. For the trailing year, its share was 3%, vs. the 2.5% average during 2005-2008
• Mentor’s share was 21 %, down from 24%. For the trailing year, its share was 19%, vs. the 17% average during 2005-2008; and,
• Synopsys had 34% share in RoW, unchanged. Share for the trailing year was 35%, vs. the 32% average during 2005-2008. Over the past half-decade, Synopsys’ best share on average has been in the RoW region.

Best regards,

Jay Vleeschhouwer
(editor's note: Jay can be reached at 917-459-0501)