The most commonly asked question during conference calls with Wall Street of late is in regards to the massive consolidation the semiconductor industry is experiencing. How will the consolidation affect the Foundries? How will the consolidation affect EDA and IP? How will the consolidation affect the semiconductor industry in general? Good questions of course so let me share my opinions, observations, and experiences.
For me it is déjà vu 1980s all over again. Massive consolidation amongst the IDMs shocked the industry putting thousands of semiconductor professionals out of work. The result of course is the fabless semiconductor ecosystem we have today with hundreds of thousands of people driving the silicon based innovation that brought us all our clever mobile devices we have today. We really were like U.S. Marines back then: “Improvise, Adapt (and) Overcome!”
Yes, thousands of semiconductor people will leave their jobs this year and next but they will again do it for bigger and better things. You will not see us serving coffee at your local Starbucks. Some will go to systems companies like Apple or internet companies like Google, Amazon, or FaceBook. The automotive companies are stocking up on semiconductor people as well. Others will start new companies and continue to innovate even faster than before. It really will be like the Tortoise and the Hare fable except there will be a dozen tortoises against hundreds of hares and some of the hares will win.
Yes, the foundries will have 10% of their customers buying 90% of their wafers but that will allow much deeper collaboration which will be required moving down to 10nm and below. TSMC knows all too well how much money it takes to stay on the leading edge and the new fabless semiconductor giants will have no choice but to write some very big checks if they want to stay competitive. Apple is leading the way as they have already written some very big checks and the rest have no choice but to follow. The same thing goes for EDA and IP, there will be much closer collaboration with the foundries and the semiconductor giants amongst the chosen few suppliers.
The hardest hit in my opinion will be EDA. Not the overall EDA busines but the little EDA companies, ones that are not well positioned within the ecosystem and not accretive enough for acquisition. Back in the day, the venture community, the foundries, and the fabless companies were in full support of emerging EDA companies. As we all know this is no longer the case. If Big EDA (Synopsys, Cadence, Mentor) can do anything close to what Little EDA can do then you are a likely candidate for the 2016 EDA Dead Pool.
Place and Route is an easy example. In fact, I would be very concerned if I were a point tool in any part of the flow for 16nm and below. FinFETs are hard and unless you have a VERY close relationship with the foundries and top fabless companies you are as good as dead. You have to wonder if Synopsys saw this coming since they have been the most active with EDA consolidation. Take a look at the EDA Merger and Acquisition Wiki, it grew quite a bit this year. 28nm and above is a different story all together and we can talk about that another time. We should also talk about the ASIC business because I see huge upside there.
Bottom line: Synopsys, Cadence, and Mentor will thrive during the semiconductor industry consolidation cycle. Moving forward, much more intimate relationships amongst the big fabless companies, foundries, and EDA will be required and that means fewer companies will be able to participate. Purchases may be delayed during the acquisition process but overall Big EDA will be in a stronger position to get a bigger piece of the semiconductor pie, absolutely.
Create your 5 company 2016 EDA Dead Pool list in the comments section. Whoever picks the most acquired EDA companies in 2016 will win a new iPad Air 3!