Oz Levia, Vice President of Product Marketing at SpringSoft, Inc.

The consensus forecast for 2009 has been "low visibility" and this remains true even as the end of the year approaches. Despite recent reports of an uptick in semiconductor demand, EDA customers in Silicon Valley and in semiconductor strongholds around the world do not yet feel a strong recovery. But one thing seems crystal clear as we look forward to 2010: change is in the air. The EDA industry will need to adapt to some new realities brought about by the global recession, just as it has after previous bouts of semiconductor contraction.

With the global economy ever more dependent on semiconductor products in everything from toys to tanks, advances in automation of the electronic design process will remain critical. The need to address growing technical and business complexities will keep EDA a remarkably exciting and rewarding place to work as the applications evolve to be able to model and analyze entire systems, including software. But EDA suppliers must re-think exactly where they fit in the value chain and be prepared to embrace change in the way that value is monetized in the industry.

The coming changes are likely to be more profound than those driven by previous recessions because the semiconductor industry, which drives the EDA business, is maturing and consolidating rapidly. No longer can the industry count on the big profits that came as early generations of ASICs and SoCs replaced entire boards, saving systems manufacturers hundreds of dollars at a time. The new reality is that creating a new SoC costs tens of millions of dollars, and reduces the cost of a system by only a fraction. That means that to succeed, a new chip must be targeted and timed to hit a large and growing market so it can sell in the enormous quantities necessary to become profitable. It is a gamble that most VCs are simply not making anymore, so the days of new fabless EDA customers popping up all over the place are gone, probably forever. And since EDA sales are driven by design starts and not by chip volume, the lack of startups coupled with consolidation of existing customers puts a real squeeze on market opportunities.

Exactly how the EDA business model will change is not at all clear. It's possible that it will shift in the direction of the model for tools in the FPGA space, where the chip vendors supply most of the tools. TSMC is moving in this direction with its new "Integrated Signoff Flows," but it does not seem plausible that this will serve the high end of the market where EDA companies make their money. And it could be that we will see IDMs re-investing in more of their internal EDA developments, which have never completely gone away; but the number of companies prepared to do this is limited. Certainly there will be EDA startups, but will they build out global channels, or will we see new arrangements emerge?

With the semiconductor industry maturing, EDA companies will be forced to adopt more mature practices as well. This means focusing on value, delivering products that really work, and thinking creatively about how technology ultimately gets into the hands the customer. The bar will be raised: companies that need to "ship an AE in the box" with their tools will not survive; companies that commoditize tools by selling on price will not grow; smaller companies will need to collaborate more than ever, both in technology development and business practices. Everyone in the supply chain – small or large – must start thinking flexibly about partnerships and channels, in many cases creating what heretofore might have been considered strange bedfellows.

- Oz Levia is Vice President of Product Marketing at SpringSoft, Inc.