The Business of EDA:EDA Industry Growth

EDA Industry Growth

Relative Industry Sizes: EDA, IC, Electronics

Frank:

EDA is a critical part of the whole electronic product food chain. One might think it should represent a larger part of the electronics revenue. However, it is a very small part revenue-wise.

This question does indeed come up almost every year at EDA conferences. They often have a panel discussing why the EDA industry is not growing faster and larger. They ask why it does not receive a larger percentage of revenue from the semiconductor industry.

This is a little like comparing the price of a saw or screwdriver with the price of the house. The tools are certainly critical to the rapid building of the house and thus add great value. However, they are a small piece of the entire housing industry food chain.

The house food chain includes the costs of labor, material, land, foundation, and plumbing. There are contractors for electrical, frame, roof, walls, and painting. There are costs for permits, inspections, subcontractors, sales, and finally, the tools.

Like the house analogy, a long food chain contributes to the electronic product price. The chain includes product design, package design, product manufacturing, testing, and marketing. There are costs for sales, support, distribution, and inventory.

Further down the chain are the integrated circuits. They are one (small) part of the product manufacturing. The IC food chain includes chip design, verification, manufacture, assembly, and test. Add to that marketing, sales, support, distribution, and the EDA tools.

Thus, there is not a lot left over for the EDA tools. The EDA market is only a few percent of the semiconductor market. That market is itself only a small part of the ~ $1 trillion electronic products business. If I draw a comparison chart, you will see how small that is. (See Figure 2.4.)

Nora:

Yes, I see, it is tiny compared to the IC and the electronic product revenue. Aren't the EDA folks taking a lot of risk developing the tools?

02fig04

Relative Risk Factor

Frank:

Actually, they are not. Risk is a factor in the relationship of EDA tools to the overall product food chain. However, the company selling the end-user product has most of the risk and product costs.

The semiconductor company owns most of the risk and capital outlay developing the product ICs. (It builds wafer fabs which cost billions and take years to build. Then, the market may not need them.) In developing software tools, the EDA tool vendor incurs relatively little risk or cost.

Nora:

Thanks very much, Frank. I think I have a much better feel for the EDA industry now.

Frank:

Glad to help, Nora. Good luck in your new job.

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