Gary Smith: Should EDA Companies Look to Mechanical Design?

By Pete Singer, Editor-in-Chief

At the 2015 Design Automation Conference (DAC), analyst Gary Smith give his annual forecast and then made what might seem like a surprising suggestion. That the best way for EDA companies to grow might by acquiring mechanical design companies.  The market for mechanical design tools is $6.67B and includes companies such as Ansys, AutoDesk, Dassault, MSC and PTC. “Mechanical was always larger than EDA,” said Smith, but “we’re actually catching up with the mechanical market in size. In fact, Synopsys and Cadence are larger than PTC and Siemens; and Mentor is about the same size as PTC. There’s a lot of opportunity that we may be able to take advantage of,” he said.

Smith said he expects the EDA market to grow to about $9 billion by 2019. “We’re a significant market now. The EDA market is large enough now to make explosive growth difficult. We just have to face up to it.” Smith said the elder generation wants something that they “don’t have to have heart attacks over. They just want to see the number go up and to the right. But for the rest of Wall Street, we’re boring, let’s face it. If you look at 2010 on, it’s a nice, safe, growing market.”

Smith’s projection for EDA market size and growth in billions of dollars, with corresponding growth rate is as follows:

  • 2007       4.867     10.3%
  • 2008       4.319     -11.2%
  • 2009       4.091     -5.3%
  • 2010       4.454     8.9%
  • 2011       5.155     15.8%
  • 2012       5.597     8.6%
  • 2013       4.984     6.9%
  • 2014       6.277     4.9%
  • 2015       6.823     8.7%
  • 2016       7.585     11.2%
  • 2017       8.143     7.4%
  • 2018       8.478     4.1%
  • 2019       9.005     10.6%

In order to grow, Smith said the industry has been looking at IP. Including IP, EDA market size grows slightly to $9.017B in 2015, $10.128B in 2016, $10.78B in 2017, $11.145B in 2018 and $12.157B in 2019.

“But IP isn’t going to be enough to get Wall Street’s attention,” Smith said. In addition, EDA companies are exploring new markets.

Smith recalled talking about system level design back in 1996 and showed a “broad brush graphic” from 1996 noting that System Level Design included Mechanical CAD and Application Software, in addition to Electronic System Level design, which included EDA and Embedded Software. “Embedded Software is one that Mentor Graphics is especially interested in, and one that I think we really need to look at,” he said.

Today, the market for embedded software design tools totals $2.674B, including companies such as Cadvium, Codeplay, Green Hills, Lauterbach, National Instruments, Polycore Software and QNX (he did not include Mentor Graphics in this total). “It’s not a large market, but it’s a good market to take a look at. The players are pretty much smaller than we are. That’s an easy growth market for us, almost as easy as acquisitions are. It’s a pretty sure shot for us if we’re willing to take advantage of it,” he said.

But the big play may be in the mechanical market, which said he’s talking about on and off for quite a while. “I once predicted that by 2020, either the mechanical guys were going to buy us or we were going to buy the mechanical guys,” he said. “And it looks like it’s coming on a lot faster than 2020. It’s something we have to take a look at and figure out how we’re going to deal with it.”

He noted that many of the major mechanical/CAD companies have already been involved in EDA. “Some say Ansys is already an EDA player. AutoDesk has had their own tools for years. Dassault bought Synchronicity not too long ago and some rumors have it that they’re looking for more acquisitions in the EDA area.” Smith said PTC previously bought an EDA company, but it was so long ago it has dropped off his radar. “They’ve had one for a long, long time,” he said. Smith said Mentor Graphics has a significant play in the mechanical market, especially in automotive (they are not counted in the $6.67B number).

On the other hand, mechanical CAD supplies are now largely focused on PDM (product data management), which Smith described as the IT of design. “They have a lot of hope that the IoT market is going to give them a lot of opportunity to capture the software that goes from the ground to the cloud. That’s sort of the big white hope for the mechanical guys. They don’t think their mechanical design tools are going to be a major growth factor.” Smith suggested that it might be a good idea to “let them have PDM and see if we can acquire the tool market away from them.”

Smith asked the question: Should we accelerate our growth or not? He said for the “big play,” Siemens and PTC are possible, but a long shot. “The rumor is that PTC is in trouble. There’s nothing saying that Synopsys or Cadence can’t buy them. If the price is low enough, that is an opportunity,” he said.

Smith said other domains the EDA companies might consider include optical design, applications development software, biomedical design and chemical design. “Biomedical design is looking very interesting; a lot of companies are at least exploring it. Chemical design.. who knows? Is there synergy in that area with us? I don’t think anybody has explored it that much,” he said.

Applications development software is the largest market, but already dominated by giants such as Microsoft, IBM and Oracle. “You’re in with the big boys. We definitely aren’t the size of those three and quite a few other software companies.” Smith noted that Synopsys is looking at this by buying into niches that they can dominate. “They bought the top company in what I would call software DRC market, so they have a safe play there. Optical is a small market and Synopsys already bought the leading supplier,” he added.

Smith concluded by noting the synergy between the focus of EDA and many other markets. “EDA is one of the leading algorithmic development markets. That gives us a much broader view on all software development. One place that it’s obvious is we’ve seen EDA engineers go over to the financial side to develop financial software. Google is picking up some of our engineers for the same reason – the for the algorithmic expertise,” he said.

Gary Smith

Gary Smith

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