EDA and the Big Short!

A funny thing happened while I was reading “The Big Short: Inside the Doomsday Machine”. The book explains the subprime mortgage crisis in painful detail by profiling several key players who predicted and profited from the bubble pop. As a home owner and faux slumlord I had a front row seat to this horror show so it was an interesting read, but I can’t imagine paying to see the movie.

During the introduction of one of the characters it listed an investment in “The alarmingly named Avant!” as one of his big “ick investment” wins. An ick investment is a stock that inspires a first reaction of ick! As a longtime semiconductor professional and former Avant! employee I found this part laugh out loud funny. This guy bought Avant! stock at $12 and watched it go down to $2 before the Synopsys buyout at $22. The best passage is: “Avant! still makes me feel I’m sleeping with the village slut. No matter how my needs are met I doubt I will ever brag about it”.

Here is a little known fact about the Avant! acquisition: Gerry Hsu had a handshake agreement to be acquired by Mentor for significantly less than the $830M Synopsys paid. But, Gerry being Gerry, he then went to Synopsys and not only got a higher price, he got a bigger exit package. Just think what EDA would look like today if Gerry honored his handshake and Mentor acquired Avant! instead of Synopsys?!?!?!?

Speaking of EDA, 2016 is shaping up to be a very interesting year. We are already seeing an EDA traffic surge on SemiWiki and I think it will continue. I also fielded a couple of Wall Street calls on EDA at the end of the year so let’s talk about that.

Yes, I believe semiconductor consolidation will continue in 2016 and no, I don’t think EDA will take a big hit as a result. I definitely see deals being pushed out during the acquisition period and there may be less seats to fill as a result of “expense optimization” but I do not see rampant discounting and those empty seats will be quickly filled by the system companies and the next wave of IoT design starts. Remember, the systems companies (Apple, Samsung, Amazon, Google, etc…) can write MUCH bigger checks to EDA companies than fabless semiconductor companies, just ask TSMC.

I do see however, an EDA landscape change evolving. Among the big three I see Cadence as the best situated for market share growth via the Synopsys IC Compilor monopoly. I have also heard VERY good things about the new Cadence emulator from Cupertino and San Diego. The Cadence AMS and the Mentor Calibre monopolies however seem safe for now. Maybe #53DAC will bring technological disruption in those areas but probably not.

The dark horse here of course is ANSYS if they acquire Mentor for example. That would certainly shake things up a bit. Not only would that take Mentor into a whole new level of exposure outside traditional EDA, it would get ANSYS securely inside the semiconductor ecosystem and give Synopsys and Cadence cause for concern, absolutely. In regards to the other small to medium EDA companies I see more squeezing by the big three, continued consolidation, and fewer emerging companies.