Big four — Cadence, Synopsys, Ansys, and Siemens EDA — account for over 90% of EDA industry revenues

Electronic design automation or EDA tools are used to design and validate semiconductor manufacturing process to ensure that it delivers the required performance and density.

At a SEMI Silicon Valley and Northeast Chapters conference, Jay Vleeschhouwer, Software Research, Griffin Securities, presented on the state of EDA: A view from Wall Street.

The combined enterprise values of Cadence Design and Synopsys are ≈$112 billion, or more than 11x combined estimated revenues for 2023 and 10.5x estimated 2024 revenues. Six years ago, the combined enterprise values of Cadence, Synopsys and Mentor was ≈$23 billion (prior to the acquisition of Mentor by Siemens).

The material increase in value has been sustained by a combination of bookings growth, including growth across multiple product categories; increasing backlog; increasing operating income (up 155% over the past half-decade), and increasing operating cash flow (up 170% over the past half-decade).

We estimate that the EDA industry revenue increased by 12.5-13% in 2022 to over $11.7 billion. Based on our estimate for Ansys, Cadence, and Synopsys, the industry could increase by high-single-digits in 2023, or more, depending on Siemens EDA.

Ansys, Cadence, and Synopsys, could increase by high single-digits in 2023, or more, depending on Siemens EDA. The big two — Cadence and Synopsys — accounted for over 70% of the estimated industry in 2022. Mentor, or Siemens EDA has sustained its pre-acquisition share of 1/5th of the industry revenues.

The big four — Cadence, Synopsys, Ansys, and Mentor or Siemens EDA — account for over 90% of the industry revenues. In 2023, we estimate Cadence revenue will rise 4% to $3.67 billion. Synopsys will rise over 13% to $5.24 billion. Ansys EDA business will increase by 7-8% to over $400 million. Siemens EDA business model remains one of upfront revenue.

The EDA industry has also continued to consolidate. Cadence and Synopsys – the big two – accounted for ≈70% of the estimated industry revenues in 2022, as compared with ≈65% three years ago, and 57-58% a decade ago. Mentor has largely sustained its pre-acquisition share of one-fifth of industry revenues, or very nearly one-fifth, with the exception of 2022.

Two arms races
There are two arms races underway in technology — software development, and silicon development. Investments in silicon development – by semiconductor companies, still the majority of EDA revenues, and the always important class of “systems” companies, e.g., Apple, Microsoft, – are dependent upon EDA’s role as a source of essential technologies and services. They are sustaining the EDA industry’s revenue, income, and cash flow momentum.

EDA industry growth has been sustained by growing demand among multiple EDA tool categories – as compared with earlier periods of more narrowly based growth. This has been, and is likely to remain, an important phenomenon, supported by growth of semiconductor R&D budgets and systems customer product engineering budgets. These customer investments are in turn sustaining, and enabled by EDA investments in R&D, etc.

In 2022, combined Cadence-Synopsys R&D was $2.99 billion (≈34% of the revenues), vs. $2.116 billion in 2019, and $1.06 billion a decade ago. Cumulative combined R&D over the past half-decade was $12.1 billion. We are estimating $3.3 billion for R&D in 2023, and more than $3.65 billion by 2025.

One key change has been growth of hardware-based verification, including emulation and prototyping. Combined EDA IP revenues in 2022 were over $1.75 billion. Big two core EDA revenue was $5.65 billion in 2022, up 15%, with three-year CAGR of 13%. For 2023, we are estimating combined income of $3.51 billion, or 36.5% of estimated revenues, and $4.68 billion by 2025, or 41% of estimated revenues.

Ongoing demand across multiple product categories by semiconductor and systems customers has been conducive to EDA revenue growth, and that will continue. TTM also increased by product category. The leading category here is custom layout, with IC implementation, and PCB close behind.

Semiconductor R&D
Semiconductor R&D has also shown growth! A composite of two dozen semiconductor companies showed total R&D of over $63.8 billion in 2022, up 16%. Intel accounted for ≈28% of this total. Total R&D spending, excluding Intel, was up 16% in 2022, to more than $46.3 billion. AMD’s proforma R&D increased by 29%, Intel’s by 15%, NXP’s by 11%, Nvidia’s by 39%, ST’s by 10%, Qualcomm’s by 14%, and Renesas’ by almost 14%.

Intel’s commercial EDA spending – over $700 million last year – accounts for as much as a high-single-digit percent of EDA industry revenues. About three-fourths of its spending is with Synopsys, plus Cadence, Siemens EDA and Ansys, etc. R&D begets bookings and backlog!