The Business of EDA:EDA User Return on Investment.

Introduction

This chapter describes the business side of EDA. We explore the financial and market features, and where and how EDA tools are developed.

The business models are significant for understanding the EDA customers and how EDA companies make money. A healthy EDA industry is essential to the electronics industry, and vice versa.

The developers try to anticipate the designer's needs, but typically they are two years behind. This is not too surprising since the chip complexity and density continue to increase rapidly. Imagine the problems that architects would have if building sizes doubled every few years. In addition, the new chip technology brings new problems to light. It takes the IC engineers a long time to identify the problems needing EDA help.

Leading chip designers lobby for certain features. If enough customers ask for the same feature, developers may eventually add it to the tool. Perhaps a new tool may be created.

Let us listen in as Nora talks to Frank, the chief financial officer (CFO) of Sandbox, Inc.

Nora:

Thanks for taking the time to meet with me. I am trying to understand the business side of EDA. Sanjay, my supervisor, suggested I talk with you. I talked to several engineers at the party yesterday and got some understanding of the EDA tools.

Frank:

So, what would you like to know?

Nora:

Well, to start with, how big is the EDA industry?

Frank:

It is much smaller than the traditional software industry. EDA's size is a small percentage of that of the semiconductor industry that we serve.

Nora:

How many EDA companies are there?

Frank:

There are about 200 companies and about 50 different kinds of tools. Interestingly, most are very small, like Sandbox. There are only a few large EDA companies with revenues over $500M and 3,000–5,000 employees.

Nora:

Why are there so many EDA companies, if it is such a small industry?

Frank:

The continuing semiconductor IC evolution drives the IC designers to need more EDA tools. This is because the number of transistors per chip has doubled about every 18 months. This has led to more capability and lower cost on a chip at the same time.

Nora:

So the ICs get steadily more complex?

Frank:

Yes, and that makes them harder to design. There are more functions on the chip, and the transistors number in the millions. This is where the EDA tools come in.

Nora:

How do they help?

Frank:

Well, the tools make the designers much more productive. ICs used to take two or more years to design. Now they are much more complex, yet the designers are asked to complete them in a few months. There is more capacity on the chips than the engineers can design in the needed time. Their productivity is measured by how much they can design over time. This has become a real issue in recent years. Let me draw you a quick sketch. (See Figure 2.1.)

Nora:

So the designers are not keeping up with the semiconductor technology?

Frank:

That's right. There has always been a gap, but it appears to be increasing. Part of the problem is that the needed timetomarket (TTM) has been shrinking. The only help the IC engineers have are the EDA tools. That is why the IC designers are always driving EDA development. There are many EDA companies because most are small startups responding to this demand for better and faster tools.

Nora:

Why are the EDA tools so important to our customers?

02fig01Did You Know?

In 2002, the worldwide EDA industry had a total revenue of about $4 billion dollars. It employed about 18,000 people. By comparison, the semiconductor industry revenue was about $140 billion, employing 270,000 people.

Did You Know?

The transistor density doubling every 18 months was observed by Intel's Gordon Moore in the 1960s and has continued for decades. This statement is commonly referred to as Moore's Law, and it represents the incredible semiconductor technology development.

EDA User Return on Investment

Frank:

Well, suppose an EDA tool can reduce product design time by a week or a month. The electronic product company can gain millions of dollars. This is due to four factors (in order of importance).

First, there will be a longer product life due to earlier TTM. Many electronic products generate millions of dollars per month during their lifespan. So any increase in the market window is significant.

Second, product manufacturers can get a much higher price for early products, as in most industries. With little or no competition, the vendor can set the price.

Third, the product may become the market leader simply by being early. The market leader gets the major share of the market.

Fourth, there is reduced product development cost. The shorter time the engineering team spends on the product, the less cost there is to recover.

EDA tools thus have a potentially huge return on investment (ROI) for the Original Equipment Manufacturer (OEM) electronics product companies. This is why semiconductor and OEM companies spend millions of dollars on them. Investing in EDA development can be a tremendous benefit. (But it can also be a large sinkhole into which you throw money!)

Nora:

Can you give me an example?

Frank:

Sure. I once did a quick estimate of EDA research value for a major semiconductor company. We were trying to reduce development time by several months. I looked at the value to them if a product got to market one month earlier.

Usually they would not design a chip unless the revenue expectation was about $1M/month. Since the price is higher in the beginning, extending the product life by early market entry is best. Let me summarize the assumptions and results on the whiteboard. (See Figure 2.2.)

Now, not every customer is a large semiconductor company. Electronic product companies may have only 1,000 sales per month. However, their product price is much higher (say, $100). So their potential ROI is only (!) $100,000 per additional month of sales life.

Nora:

So you are saying that EDA tools can create big revenue gains by increasing the life of electronic products and getting to market earlier.

Frank:

Yes, that's the biggest of the ROI gains for the EDA user.

Nora:

What is the ROI for us, Sandbox, as an EDA vendor?

02fig02

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