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Semiconductor Expert Forum

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Semiconductor IP Companies Still in Play

Semiconductor IP Companies Still in Play
by Daniel Nenni on 07-03-2009 at 12:05 am
Categories: IP

A recent EETimes article about memory IP vendors reminded me to follow up on my blogs about IP companies, which I believe are the best investments in semiconductor design today. It is a fluff piece, Mark LaPedus briefly mentions ARM, Synopsys, Virage Logic, and Denali, but his analysis is right on the mark. There is definitely money to be made in the semiconductor design enablement market, on companies with scalable (gain share) business models of course.

ARM has alienated the semiconductor foundries due to aggressive and sometimes questionable business practices. If and when there is a comparable product available, ARM will lose out, due to their arrogance more often than not. Intel is aggressively targeting the embedded processor business so I’m long term short on ARM. As I mentioned in “Wall Street Hates EDA” Synopsys is giving away IP, stifling innovation, and is treating the Semi IP market like a cat does a sandbox.

Memory interface innovation is driven by Virage Logic, Virage pioneered it and continues to do so. Denali’s strength is memory modeling, marketing and business relationships. Who here hasn’t been hung-over after the annual Denali DAC party at least once?

In additional to memory interfaces, Virage now offers connectivity interfaces such as DDR (acquired via Ingot), PCIe, HDMI, MIPI, with others to follow no doubt. Licensed from AMD and silicon proven at TSMC by the ATI graphics group, Virage will technically dominate the interface IP market at 40nm and below. With cash in the bank, a relentless executive staff, and a new hybrid direct/indirect sales strategy, Virage is poised for stellar growth when 40nm hits full production and will continue at 28nm and below. The gaping hole in the Virage strategy is Verification IP (VIP), the software used to validate not only the IP but the successful integration of that IP into a design. Both Denali and Synopsys have VIP, as does Cadence and Perfectus, but only Denali and Synopsys can do the total IP sell today.

Denali founded commercial memory modeling in 1996 and has evolved as one of the most successful privately held Semi IP companies of our time. The gaping hole in the Denali strategy is physical IP, SRAM, Logic, and IOs, the building blocks of modern semiconductor design. Foundries work closely with the physical IP companies on emerging nodes and silicon validation. This type of trusted partnership can be leveraged into the top semiconductor companies around the world, Virage Logic is TSMC’s 40nm early development partner. At a minimum Denali should aggressively OEM the TSMC physical IP to stay foundry close. Denali is also direct sales centric which will limit the active customer base and is not scalable in this ultra competitive market. A little inorganic growth wouldn’t hurt either, maybe pick up a fabless ASIC vendor? There are plenty of those around.

Semiconductor IP is being outsourced at an alarming rate and everybody is or has been a Virage Logic customer by some degree. Virage is currently trading under $5 per share, has a market cap of $100M, and has $2.432 total cash per share. Watch for a good quarter, a good advisory, and the upgrades will fly, believe it. This is easily a $10 stock after the economic recovery.

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EDA is DEAD

EDA is DEAD
by Daniel Nenni on 05-23-2009 at 12:12 am
Categories: EDA

Years ago I bought my ancestral home, the house where my beloved grandparents lived, the place in which I grew up. It was more an emotional investment than a financial one, much more. After completely renovating it with my keyboard hardened hands, reliving much of my childhood, I joined the ranks of the slum lords and rented the house out to complete strangers. Thanks to ungrateful renters, inconsiderate neighbors, and a vindictive housing inspector, there are no thrills left whatsoever, just tedium and frustration. Blogging about EDA is much the same, the roller coaster excitement is pretty much over, now it is more of a carousel ride, so yes the EDA I once knew is dead.

EDA really came into its own with the advent of the fabless semiconductor manufacturing model pioneered by companies like VLSI Technology and LSI Logic. Using excess Japanese manufacturing capacity and building its own fabs locally, they built Application Specific Integrated Circuits (ASICs) and offered ASIC services for emerging fables semiconductor companies. A few years later TSMC introduced the pure-play foundry model promoting manufacturing efficiencies and commercially available EDA software. At that time semiconductor manufacturing processes were very different and could be exploited for competitive gains, re-usable Semiconductor IP was in its infancy, so the value proposition of EDA software was clear and present. Today, unfortunately, that is no longer the case. Commercial Semiconductor IP dominates the area of an ASIC and designs can be moved to second and third source foundry partners with little or no change. The biggest design challenge now is adapting to the new process geometries which requires hands-on experience.

The fabless ASIC Services business re-emerged in the year 2000 starting with eSilicon, followed by VeriSilicon, Alchip, Open-Silicon and a whole host of others. It has been a long, hard road with fierce competition (even coming from the foundries themselves with Global Unichip and Faraday). Honestly I did not see the long term value proposition back in 2000 but clearly it is here today. ASIC services can cut total costs by one third and significantly reduce the internal risk of designing to a new geometry. You can also minimize front end expense (IP/NRE) and back load the cost on a per packaged chip pricing agreement.

So where does that leave EDA? Venture Capital has left the semiconductor, IP, and EDA market segments so budgets are a fraction of what they once were. ASIC design starts are rapidly declining, EDA innovation is stalled, and ASIC Services companies are multiplying like rabbits. What else are unemployed ASIC designers going to do, work at Starbucks? Not to mention a smattering of foundry created EDA tools now hitting designer’s desks, which is understandable. As manufacturing processes become commodity, foundries will use proprietary EDA software and design enablement services to support their wafer value proposition. Bottom line: the ASIC Services market is $1B+ today and projected to exceed $10B by 2015, EDA on the other hand is a flat $4B industry that is still living in the house it grew up in.

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Jim Cramer’s CNBC Mad Money on Cadence!

Jim Cramer’s CNBC Mad Money on Cadence!
by Daniel Nenni on 05-15-2009 at 6:10 pm
Categories: Cadence, EDA

For those of you who follow the market and play EDA stocks this will be a shocker! Jim Cramer, former Hedge Fund Manager, co-founder of TheStreet.com, and host of the CNBC’s Mad Money did a piece last week on Cadence. Apparently he did NOT read my piece on EDA being DEAD:


Cramer’s Wednesday “Tech Spec” pickswas Cadence Design Systems(CDNS Quote), which he said could follow Taiwan Semiconductor’s(TSM Quote) 27% rise since he’d last recommended that stock.

Cramer led off his show with stocks that have been“busted down to private, dishonorably discharged, beaten down stocks from some of the most tarnished companies”.

CADENCE!

Cramer said“Cadence doesn’t have much competition in its business of making tools that help create smaller, faster microchips.”

CADENCE?

Oh Jim, and you started off so well! EDA is one of the most competitive, cut throat industries known to man. In fact it’s a flat $4B market due to just that. Magma’s proverbial pricing pants are still around their ankles.

Cramer says” its management made big mistakes in 2008, but that’s all in the past, and the company has a new chairman and CFO who’s been buying shares.”

FISTER!

How about mistakes made 2004 through 2008! Good at collecting shoes, bad at running an EDA company, Michael J. Fister.

If you looked at the company’s 2008 performance. The exhaustive list of what went wrong would have been enough to scare off even the most daring of stock speculators. Investors would have seen tons of risk and virtually no chance for reward.

CADENCE!

Also, “companies tend to renew contracts with their EDA client of choice 99.9% of the time, so Cadence rarely has to worry about losing clients.”

CADENCE?

According to Synopsys and Mentor sales insiders they are picking off Cadence customers like Somalia pirates in a life boat! (Too soon for that?)

What about the bad stuff? Here’s one point: This is a $5 stock, and share prices don’t drop that low for no reason. Cadence fell from about $17 in early 2008 to $3.66 by year’s end. In between, the company’s 30.5% 2007 operating margins dropped to –3%, management was fired, the Nasdaq threatened a delisting for failure to file a 10-Q for the September quarter, and an accounting probe caused a delay in SEC filings. Worst of all, Cadence changed some of its own accounting procedures, and that made revenues look lower than they actually were.

CADENCE!

The next logical question then is, why on earth would anyone want to buy this stock? Well, because Cramer sees the beginnings of a turn. Cadence beat Street earnings estimates when it reported on April 29. And while the company is still losing money, execution improvements seem to indicate that next quarter’s revenue and operating margins will be up.

CADENCE?

Clearly Jim Cramer does not understand the EDA market but his short term financial analysis is fair at face value. I’m bullish on Cadence but for different reasons. For me there are (5) data points why Cadence will regain its value in the long term:

(1) Lip-Bu Tan, knows finance and EDA, has the golden touch, so confident that he bought CDN stock to augment his options for a total of 551k shares.
(2) Charlie Huang is definitely one of the top 10 executives this industry has ever seen. Charlie also bought CDN shares in December, his total is 344k.
(3) Chi-Ping Hsu , a pioneer of IC physical design (implementation) and customer relationships. Implementation has always been the jewel in the crown of EDA and the primary driver of semiconductor design methodologies.
(4) Jim Hogan, the God Father of EDA, rumor has it Jim Hogan will re-join Cadence. If so, look for some aggressive M&A activities in the near future, offers they can’t refuse.
(5) Cadence holds $2.20 of cash and equivalents per share so they have a decent bank roll to work with.

My personal opinion is that Jim Cramer is in fact an “infotainer” and prone to pump and dump groupies, in regards to CDN however he got lucky, for a long term play.