SemiWiki.com - Podcast EP270: A tour of the Q3 2024 Semi Electronic Design Market Data Report with Wally Rhines

Episode Date: January 17, 2025

Dan is joined by Dr. Walden Rhines. Wally is a lot of things, CEO of Cornami, board member, advisor to many and friend to all. Today he is the Executive Sponsor of the SEMI Electronic Design Market Data report. Dan explores the recently published report with Wally. Overall growth was 8.8%, a strong number but not as large as prior quarters.… Read More

Hello, my name is Daniel Nenny, founder of SemiWiki, the open forum for semiconductor professionals. Welcome to the Semiconductor Insiders podcast series. My guest today is Dr. Walden Rines. Wally is a lot of things. He's CEO of Kornami, board member, advisor to many, and friend to all. He is the executive sponsor of the Semi-Electronic Design Market Data Report. Good morning, Wally. Good morning, Dan. Today we're talking about the Electronic Design Market Data Report that was just released. Semi and the Electronic System Design Alliance collect data from almost all of the electronic design automation companies in the world

and compile it by product category and region of the world where the sales occurred. It's the most reliable data for the EDA industry and provides insight into what design tools and IP are in highest demand around the world. Wally, what do the results say for the third quarter of 2024. Well thanks, Stan. It was a good quarter at 8.8 percent, but that's lighter than the past year or so when we've seen mid-double-digit growth. That said, the growth has taken the EDA market to a new level with a run rate of over 20 billion dollars for the first time in history. Looking back over the last four quarters, the growth rate has averaged 13.5%.

That's somewhat higher than Q3 of 2024. But this most recent period marks a very strong period of growth for our industry. It's not very long ago that we could depend upon the annual EDA revenue being about 2% of the worldwide semiconductor revenue. Not so anymore. By that metric, the semiconductor industry would have to achieve annual revenue of a trillion dollars-semiconductor companies like Google, Facebook, Amazon, and others, and to a lesser extent, to the growth of EDA purchases for the purpose of system design,

which has clearly increased. For both of these trends, no semiconductor revenue is produced as a result of the EDA design sales, so they're missed in the survey. As we previously discussed, the double-digit growth rates in recent years were probably not sustainable for EDA, but this report is still a very healthy rate of growth. How did it break out by geographic region? Well, it was strong everywhere except the Asia-Pacific region and Japan. PACRIM has been the leader for growth through most of the recent boom in EDA, but now it's dragging down the overall EDA growth rate. This third quarter 2024 data showed a minus 0.7% growth rate for the region

and a four-quarter moving average of 10.6%, which is also below normal. Japan was minus 3.5%. Is the weakness in the Pacific Rim a China effect? Well, partially. China decreased 4.4%, all in EDA tools rather than in IT. But Korea was the big drag on EDA tools rather than in IP. But Korea was the big drag on EDA revenue growth this time with an overall decrease of 30.5% all due to EDA tools rather than IP. India at 63.5% growth and Taiwan at 20.1% helped to offset the weakness in China and Korea.

That's interesting. Is India a significant contributor to EDA revenue now? Well, it's not inconsequential. At $480 million the last 12 months. It's about 10% of the PACRIM's total annual EDA revenue at $4.8 billion last year. Korea, on the other hand, is $1.3 billion of revenue by itself, and Taiwan was $850 million. But we've seen this weakness in China for the last four quarters, you know, although it seems to have moderated some, what could have caused the Korea weakness, which is more significant this time? Now, the EDMD survey data doesn't give us the answer. Certainly, memory design is a big part of the EDA usage in Korea, so it's possible that we're seeing something meaningful in that. But remember, this is just one quarter of data. Overall, Theria sales were about flat over the last year. And what happened in the other regions of the world where you said growth was generally positive? North America and Europe

led the way at just over 17% in overall EDA sales. Strong growth in Europe and the U.S., offset by weakness in Japan and the PACRIM, produced the overall EDA growth of 8.8% in the third quarter of 2024. And what about the categories of EDA tools and IP? What did users favor in Q3 of 2024? Computer-aided engineering, that's CAE, or front-end tools to most of us, that was significantly stronger than other tool areas. Overall CAE revenue grew 16%, which is more than two times the growth rate of printed circuit board design and overall ip revenue i see physical design was weak at minus 5.5 percent and the ip growth rate of seven percent was somewhat balanced between the reporting companies and the non-reporting companies such

as arm and you haven't mentioned services as a category. Oh, thanks for reminding me, Dan. I've only talked about design tools and IP. Services actually showed a remarkable 45% growth, well ahead of the 31% average growth over the last year. Wow, those are really strong numbers. What could be causing that strength? We normally use services as a leading indicator for the EDA industry. Strong growth in EDA services traditionally has meant that companies can't hire enough engineers to handle a large number of designs they're undertaking, so they use outside services. Strong services can also be reflective of a need for lots of EDA design training, which also accompanies growth in design activity. At the very least, I'd say that 45% growth in services indicates that companies are not anticipating a downturn in demand for new designs. When market weakness emerges, it's usual to see services revenue

growth decrease as companies pull their design work in-house. There's certainly no sign of that in the third quarter of 2024. I should note that overall employment worldwide by EDA companies grew 4.5% in the third quarter versus one year ago, but that was down 1.2% from the previous quarter. Right. You know, while there are some real positives in this report, the numbers are still somewhat below the average growth of the last four quarters. So how does that play out by category and geography? Well, the 8.8% versus 13.7% overall worldwide growth difference between the third quarter and the moving average of the last four quarters is certainly a difference. The biggest category differences are in printed circuit board, IC physical design, IP, and services. All of these, except services, reflect Q3 2024 growth that's

slower than the trailing four quarters. The EDMD report is useful to a lot of entities, including the participating companies that want to know how they're doing versus their competition, but the likelihood of an ANSYS merger into Synopsys seemed to have increased since the last quarter. Are we approaching a potential confusion discontinuity if Synopsys acquires ANSYS and the data reporting changes? I don't think so. Although ANSYS doesn't report directly to the EDMD service, the numbers for their power analysis tools that came from their acquisition of Apache are included by an estimation process. There are just a few categories where this is done.

For example, the RM SIP numbers are based upon their public reporting and analyzed in line with previous trends. ANSYS is treated similarly. Right. You know, ANSYS does have tools other than RedHawk and power analysis tools, right? Oh, yes, they do. They participate in package design, so some of their thermal and EMI analysis tools may end up being reported to us by Synopsys if the merger is completed. Overall, that's good. It brings in additional useful information about the EDA industry and then the trends involved in tool usage. I doubt that the numbers will be big enough to impact our industry totals significantly, but it certainly won't hurt. So let's talk about

China, Wally. You know, there are a lot of EDA companies springing up in China. Are they reporting to the EDMD data service yet? In general, no. That's a limitation of our total market numbers. There hasn't been much attention given to attracting them to report their data, and that should probably change. Yeah. Yeah, you know, I do track China EDA companies and they're doing very well inside of China, but maybe not as well in the rest of the world, you know, outside of China. And to make things worse, the U.S. has recently blacklisted the largest China EDA company. This just happened recently, so I'm not sure how it's all going to play out. But, you know, it'll be interesting to see what happens in 2025.

Yeah, very interesting. Another interesting dynamic that we discussed in previous interviews is the increasing role that systems companies are playing in the design of integrated circuits. About 25 percent of all foundry wafers are purchased by companies like Apple, Meta, Google, and others, and they have large and growing design teams. It seems like every company wants to get into the action of designing their own integrated circuits. It's a large part of what's propelled the growth of the EDA industry in the last 10 to 15 years, and that may continue in the future. Oh, I absolutely agree. You know, I've been working on some of the projects with these systems companies. And one thing I can tell you, Wally, is they spend money differently.

They spend a lot more money on EDA tools than traditional fabless companies. So the chips are going to be different and the EDA spend is different. And it's kind of raising, you know, the water for all of the boats. So I hope it does continue. Do you think this enthusiasm for designing custom circuits is spreading to other types of systems companies, you know, equipment companies? Probably so. We're hearing a lot about robotics design, for example, from people like Jensen Wong and Elon Musk. I suspect that the companies that provide the hardware will need lots of custom silicon and there are other possibilities too.

Yeah, speaking of Jensen and NVIDIA, Jensen's CES keynote highlighted the move of AI needs beyond the data center. So is it likely to stimulate additional IC design activity? Yes, I'd say that's very likely. Much of the AI-driven acceleration in chip design is focused on the data center and all the associated data management and communications that go with it. But AI processing, certainly for inference, could require many types of embedded designs that differ greatly from what we use for AI in the data center. Jensen even alluded to pending and future designs at NVIDIA to handle this type of growth. Yeah, times have certainly changed, Wally.

You know, there are a lot of interesting things to follow. Worldwide attention has shifted to semiconductors. You know, we're front page news now and it makes reports like EDMD's market statistics report more important to a broader audience than in the past. So this is really important stuff. So thanks, Wally, again, for going through all this information with us. And I look forward to the next quarter. Thanks for the opportunity, Dan. That concludes our podcast. Thank you all

for listening and have a great day.