I’ve been reading Handel Jones’s book Chinamerica. I’ve known Handel for about 20 years. He’s the owner of IBS which produces a long and detailed report every month on some aspect of the semiconductor industry and ecosystem. The first three-quarters of the book is an in-depth look at various industries in both China and the US, which I think is very well done. The last quarter is more Handel’s ideas about what should be done, which I find less satisfactory not least because, even if I thought he were completely correct, I don’t see how the US political system can deliver the appropriate leadership.

One thing that I think Handel gets wrong, in good company with many other commentators, is the idea that US manufacturing is in precipitous decline. In fact only US manufacturing employment is in decline. It peaked in 1979 at 19.5 million jobs. But since that time output per worker has gone from about $80,000 to $234,000 (in 2000 dollars so this is not just inflation). In fact US manufacturing output is only slightly smaller than the entire 2008 GDP of China and the same as the entire GDP of Germany. Total manufacturing output today is 84% higher than in 1979 when employment peaked. As in agriculture before it, it is primarily technology that is reducing employment. Employment in manufacturing is likely to continue to shrink even as the value of manufacturing output rises.

Handel is impressed with the “savvy” technocrats at the head of China and, for good reason, unimpressed with our political masters in Washington. But the usual problems with a planned economy like China’s (at least in a lot of the biggest sectors) is that without price and consumer signals there is a massive misallocation of capital (as there is in the more planned parts of the US economy: corn ethanol anyone?)

Let’s look at just one area, rail. Handel is very impressed with the Chinese commitment to high-speed rail and thinks that the US should have a similar commitment. The US has a “decrepit railroad system”. But the US is a huge country and rail is just not a good transport solution for passengers. But it for freight. The US shifts a far bigger percentage of its freight by rail than any other country. Even with the disparity in wages, freight rates in the US are half those of China. That doesn’t seem “decrepit” to me. It is an unfortunate fact that you can really only run a rail system for freight or passengers but not both. A 180mph passenger train can’t cope with lots of 60mph freight trains on the same track. In Europe and Japan, most of the freight is on the roads since the rails are largely dedicated to passenger traffic. In fact one of the stated motivations in China for building high-speed rail is to free up the existing tracks for freight.

Further, there are problems in China. Most of the high-speed rail already built is only running with about 25% capacity.  The high-speed rail line from Beijing to Fujian was shut down in April after 2 months from lack of passengers since it was so much cheaper to fly. There is no escaping the fact that high-speed rail is very expensive. There is only one line in the world that covers its costs: Tokyo-Osaka (and maybe Paris-Lyon). All the other highs-speed rail lines lose enormous amounts of money every year. Most don’t even cover their operating costs let alone their capital costs. They are only workable because relatively few people use them but everyone pays for them. There doesn’t seem to be a major strategic gain from shifting people from largely unsubsidized planes to subsidized trains.

China is about to face a huge problem: in order to keep growing fast it needs to switch from being completely export-oriented (because the rest of the world can’t absorb 10% more good from China every year) to stimulating internal demand. This is an incredibly difficult transition—Japan still hasn’t managed it, for example. In order to do that, internal demand needs to rise much faster than the overall economy for many, many years, which either means the overall economy has to grow much more slowly, or that internal demand needs to rise at almost unimaginably high rates (and without creating enormous inflation).

Anyway, in summary, I think this is a very interesting book that has some great analysis of the two countries. As I said, I’m less certain of the solutions proposed because governments tend to be very bad at picking winners, they usually pick losers and then keep doubling down on them. But, in any case, I don’t see any of the solutions that Handel proposes ever coming out of the US political system.

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Vertical integration back in fashion: re-aggregation again

I was on a board meeting of Tuscany this morning and Trevor Loy, the board-member representing Flywheel Ventures painted an interesting view of what Wall Streets received wisdom is about what is going to happen in technology in general.

The basic transition is that we are going towards very large technology companies that operate on global scale to supply other large organizations with as much as they can, as opposed to the recent decades when we have had specialized companies (Microsoft for operating system, Dell for hardware, Oracle for database  etc). They will be much more vertically integrated. For example, Oracle bought Sun and has said they are looking at semiconductor companies. They want to supply not just databases but the entire computing environment to their customers.

Here’s an interesting statistic: the largest 12 technology companies are sitting on so much cash that they could buy all of the other publicly traded technology companies. Their stock prices reflect this power: they have been rising much faster than the smaller technology companies, which have languished. The giants are truly giant: Apple has a market cap of nearly $300B as I talked about recently and over $40B of that is in cash.

Any company not doing billions in business and operating on a global scale is in play and a target for acquisition. Note that in EDA, although they do operate globally, none of the “big” EDA companies is really big by this standard and so they are all in play. Synopsys has a market cap of about $4B. ARM has a market cap of $8B. There have been some rumors that Apple might buy ARM. I’m not sure that would make much sense, but they would barely notice the dent in their bank balance.

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System re-aggregation

For some time now Jim Hogan and I have been debating whether we are finally on the cusp of one of those design transitions that comes along once every decade or so: the move to gate-level from transistor, the move to synthesis, and so on.

The classic design methodology was built on an assumption that design today is roughly: write the RTL, automatically reduce it to layout, then write a little software for the control microprocessor. But now, for most SoCs, this is completely backwards: 80% or 90% of the design is pre-existing IP. The software load can be enormous but most of it isn’t being written for this specific SoC, it is inherited from earlier designs. This changes the whole nature of design and potentially causes one of those re-jigging of the supply chain and a re-jigging of who realized the most value.

One implication of all of this is that system companies like Apple can design their own systems without having to share so much of the margin with others, as they have done with the iPad A4 chip.

So Jim and I wrote a piece and it is running in EEtimes. I’m not sure how heavily it is going to end up being edited. I’ll put stuff up here that got cut for space reasons. The first part is here.

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Apple is chasing down Exxon

Apple just became the most valuable tech company in the the world, surpassing Microsoft. It is now chasing ExxonMobil, the most valuable company in the world and the only one ahead of it. Apple is valued at $291B and with nearly $26B in cash they can do pretty much anything they can dream of.

The last century was largely defined by energy and, especially, oil (OK, up until about 1990). Oil exploration, the creation and growth of the automobile industry, the creation and growth of an electricity generation and distribution industry. ExxonMobil is, of course, the current name of (several parts of) Rockfeller’s Standard Oil Company.

The previous century had been defined by agriculture and, to a lesser extent, by railroads. Indeed, the railroads of the 1800s were the Internet boom of the time: a few large profitable companies and hundreds of completely nonviable railroads in places where it turned out there wasn’t enough business to support a company. By the way, did you know that the Lefty O’Doul bridge by AT&T park in San Francisco used to be a rail bridge since the baseball parking lots were railyards. That’s why it is so massive.

For the most of the last 50 years Exxon has been the most valuable company on earth as it continues to be today. I believe GE were more valuable than them for a short period (the Welch years) and Microsoft pushed ahead at one point in the 1990s, but both fell back. However, I think they are on borrowed time and, if Apple continues to execute as well as it has been doing, then they will eventually surpass them.

But in the 21st century consumer electronics looks like it is going to be the defining technology: Internet, computers, cell-phones and who knows what else. Although in first quarter PetroChina was actually more valuable event than Exxon, ChinaMobile is also in the top 10 with its 570 million subscribers. That’s another trend we can expect to see more of, Asian companies rising to the top. When consumer electronics is the technology, Asia has a lot of consumers. Remember, the population of China (never mind India) is bigger than the US, all of Europe, Japan, Brazil combined.

Apple apparently has 50,000 employees. Not the over 80,000 that ExxonMobil has but in the same league, but nothing compared to Walmart’s two million employees.

With revenues of $65B Apple makes over $1M per employee. Revenue per employee isn’t actually a very interesting measure, it often merely indicates how much a company outsources, but when you consider that many of those employees are in retail and so not highly leveraged, the revenue per person in the core company must be huge.

In other parts of the business, in particular semiconductor design, Apple is outsourcing less than it used to. The original iPhone was all parts purchased externally, the heart of the iPad is the A4 chip designed internally at Apple (with lots of IP from elsewhere, of course). This is a trend that I think is going to be important and that I’ll come back to soon.

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eSilicon is a company with a unique business model. A few weeks ago I sat down with Kalar Rajendiran to find out how they’ve been doing.

As you probably know, eSilicon is a fabless ASIC company. They operate like an ASIC company and not like a design house although they do provide design services too, just like any ASIC company. But their business model is not to do the design and hand it to you, and then have you go and get it manufactured. They manage the entire manufacturing process and deliver you packaged, tested parts just as if they had their own fab. Primarily they use TSMC for manufacturing. But they are completely independent. Indeed I met with them at the Global Foundries technology conference.

They have been in existence for 10 years, created soon after Jack Harding was pushed out as CEO of Cadence. Today they are about 330 people with and expect this financial year’s revenues to come in at around $130M. That is larger than I expected in both headcount and revenue. Of course because the manufacturing revenues flow through their P&L you have to look at them as a manufacturing company and not a service company. Like any manufacturing company they have significant CoGS (cost of good sold, basically what they pay TSMC and their other suppliers to build the parts).

Their business actually splits into 3 parts: designing basic gates, IP and operational outsourcing.

Basic gates is largely taking RTL, doing all the synthesis, place and route and then taping out the chip. This is the basic ASIC business of having the customer do the front-end part of the design and then taking over to do the back-end. As well as doing design in the US, eSilicon acquired Sycon with an engineering organization in Romania.

In addition they have their own portfolio of IP that they will license you. Much of this is licensed from 3rd parties but in addtiona eSilicon aquired Silicon Design Solutions in Vietnam where memory IP is developed today.

The newest part of their business is operational outsourcing. Small fabless semiconductor companies who do their own design often have little expertise in operational management of a semiconductor supply chain. Typically for these designs eSilicon does not do the design at all, the customer does that. But then eSilicon takes over and manages all the manufacturing using the fact that they have relationships with foundries, packaging houses, test houses and have operational specialists who do this every day. Since they have a 10 year track record at doing this successfully, it is a low risk solution for a company to let eSilicon take over.

I’ve written before about how VLSI Technology, one of the inventors of ASIC, would probably have been more successful to have split into an EDA company and a fabless semiconductor company (Cadence and eSilicon) rather that keeping a fab along with the financing and technology development challenges that it posed. Of course this is more a case of Monday morning quarterbacking since this was certainly not obvious at the time when wafer foundries were not really seen as real businesses, more a way of unloaded excess capacity (VLSI even did foundry business at various times in its life).

But it’s nice to see eSilicon being successful and vindicating that idea.

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Transitioning from EDN: categories, comments

I’ve gone through and categorized all the old posts so if you want to find all posts on, say, engineering then click  on that category to the right.

I didn’t bring comments over from the old EDN blog to avoid any ownership squabbles. I clearly own the content I wrote since I didn’t assign it to EDN but the comments are more dubious. Comments are open here, though, so fire away. To minimize spam the first time you comment it will be moderated by me, but after that they should go straight through.

The EDAgraffiti book is still available here or at Amazon. It contains the best of the blog, re-edited and grouped into topics. To find out more either follow the links or click on book in the menu at the top of the page.

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Making DAC more valuable

I attended a “DAC strategy meeting” earlier this week, basically a meeting about how to make DAC more successful. The numbers are currently all going in the wrong direction.

Any attendee to DAC can’t fail to have noticed that the amount of space on the tradeshow floor is decreasing every year. In fact it has almost halved since 2005. Tradeshow floorspace translates almost directly into dollars so this is a big financial impact. The number of exhibitors is not down nearly so much, by about 20% (there are still nearly 200 EDA companies attending). The biggest difference is probably that the big companies no longer have huge booths with 50 or 60 demo suites, and small companies basically just have one or two demo suites and a reception desk without a real booth. Attendance of visitors to the exhibits is also down from a peak of over 4000 people in 2006 (admittedly in San Francisco which is always anomalous) to less than 2000 this year.

What about the technical conference? Submissions of papers for DAC continue to be strong at around 800 papers per year. It hasn’t seen the falloff of other conferences like ICCAD and clearly remains the pre-eminent conference in EDA. But attendance is way down. In 2000 there were 4500 people paying for the whole conference, now only 1500. In fact it is worse than that since there are about 700 people who get to go free (or at reduced prices) since they are speakers, session chairs, on the DAC organizing committee and so on. So true general public paid attendance has gone from 3800 to 800, a reduction of 80%.

So what is to be done to increase the value of attending DAC to the exhibitors, the exhibit attendees and the technical conference attendees.

One desire is to broaden DAC into neighboring spaces, in particular embedded systems and software. Having been in that business I’m not sure that will work. Embedded systems already have their own conference ESC (actually several although only the main one in San Jose is on a DAC-like scale). And embedded systems companies there sit around and grouse that their customers don’t all show up, that it is not clear that their customers even think of themselves as being in the embedded software business. If they won’t attend ESC I think it is a stretch to think they’ll attend DAC although there are always some people who straddle the divide (virtual platforms, register management etc).

There is a big push in the conference to increase interaction. Technical presentations, which have always been 30 minutes, will now be 15 minutes with a poster session outside immediately afterwards for people who are especially interested in the material. There will also be a reception at the end of each day (free beer is always an idea worth trying). This will replace the DAC party (not the Denali party which Cadence said they would continue). This was always a weird hybrid: exhibitors not invited, a dance band when the audience is about 95% male, music too loud to talk over, uninspiring food.

DAC is a curious hybrid of an academic conference largely attended by people who are not working in the EDA industry, and a tradeshow largely attended by people who don’t go to the technical sessions. It wasn’t always that way. Ten or twenty years ago EDA companies would send large numbers of engineers to attend the sessions. I’ve been to every DAC since Albuquerque and for the first ten or fifteen years I was an engineer and went to technical sessions. But now budgets are so much tighter and the utility of going seems have decreased. Synthesis was perhaps the last big area where EDA broadly commercialized and extended work from academia.

I still go to DAC but mainly I go to meet people. As a blogger I get a press pass for free so it costs me very little to go, and I usually end up getting at least one consulting gig out of going which more than covers the airfare and hotel (and when it is in San Francisco it is a ten minute walk from where I live so I don’t even have those costs). Most people in EDA who go are either exhibitors or manage to get a free pass anyway.

Tradeshows are clearly not dead in general. One problem in our business is that the big companies (EDA companies like Cadence, IP companies like ARM and foundries like Global), have decided that it makes more sense to organize their own one-company tradeshows. After all they don’t get leads out of DAC in the same way as a small unknown company does. Nobody discovers TSMC makes wafers or Synopsys does synthesis by going to DAC. I suspect it is cheaper too.

Perhaps the model for DAC (and conferences in general) is going to turn out to be TED. People go to the TED conference itself in Long Beach to interact with others. But most people experience TED for free through the videos as they get edited and released in the months following the conference. That’s the paradox: people are paying $6000 to experience the same material they can watch for free. But people pay good money to see, say, Arcade Fire live when they can download the album for $9.99. How to achieve that balance is a huge challenge: making DAC the ultimate must-attend industry/academia networking event, and providing a lot of the content to non-attendees by web-based video.

DAC is June 6-10th in San Diego next year. I’ll be there.

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Welcome! Bienvenue! 欢迎光临!

If you are reading this then you’ve found your way to the new home of EDAgraffiti. I will no longer be updating the version over at EDN.

I decided to move for a couple of reasons. Firstly, I could get no statistics from EDN about how many people read each blog entry and I know that the number of comments, the only metric I had, was a poor proxy. The number of comments seems to be driven by how controversial a topic is so that the most-commented entries were entries on things like open source.

The other reason was that with Ron Wilson’s departure there wasn’t anyone left at EDN that I knew, and they pretty much stopped covering EDA, so it didn’t seem like a good home anyway. Plus I got tired of wrestling with their various content management systems.

So welcome to the shiny new home of EDAgraffiti.


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EDA360: Apps, Android, Apple

Recently I attended CDNlive, the Cadence user conference, although this year with the subtitle “Realizing EDA360.” This time Cadence did a much better job than I’ve seen before of explaining what they are really thinking. Even John Bruggeman admitted that far too many people told him that they were well aware of EDA360, they just weren’t entirely sure what it was.

At its heart, EDA360 is an acknowledgement that creating a chip from scratch is no longer the heart of electronic system design. Cadence describes this as chip design driven by apps (in the iStore sense). But I think really it is an acknowledgement that Software, IP integration and IP quality are the heart of designing a system today. Cadence has done a loud job of articulating this vision but in fact they have been behind both Mentor and Synopsys in terms of execution. Mentor is the only EDA company with a foot in the embedded world, they have the most successful high level synthesis in Catapult, they have FPGA synthesis and PCB tools. Synopsys has acquired a whole portfolio of IP, most recently including Virage, along with 3 virtual platform companies (Virtio, VaST and CoWare), high level synthesis (Synfora) and FPGA synthesis (Synplicity) to go along with their existing products in the IP and system space. Cadence has a lot less, and acquiring Denali for a ridiculous price is just a small piece of a solution.

But I don’t really understand the notion of “app driven design.” The further you get from the underlying silicon, the more independent the software is from the underlying hardware. Look how quickly apps written for iPhone can be moved to Android and Blackberry. Of course some apps require hardware support: you can’t do location-based services without some way to get the location, you can’t do a compass or even a clock in software only. The corollary is that the underlying hardware is almost completely independent of the apps, although it might be intimately bound up with lower levels of the operating system and communication stacks (think of power-down of the trasmit/receive function when a phone is not making a call).

At lunch for the press (broadly defined to also include everyone from Gary Smith to John Cooley to bloggers) John said that he’d flown to Europe last week sitting next to Aart de Geus. Now that would have been an interesting conversation to have eavesdropped on.

John is very enamored of the Google/Android business model as opposed to the Apple model because it allows hardware vendors to differentiate. But I actually think Google’s plan is to commoditize the hardware vendors in the same way as Microsoft commoditized the PC hardware vendors—the only people to make any real money in PCs were Microsoft themselves, and Intel who sold the one component not available from a wide range of suppliers. The Motorola Droid had some differentiation for a short time as the first Android handset, but now that many handsets are out there the carriers will play the suppliers off each other and I think that the carriers will be unable long-term to lock people into proprietary walled-garden style environments, which some are currently attempting. No user ever asked for differentiation in the form of being able to do less with their smartphone. Cost considerations and competitive pressure will eventually force the handset makers to ship the standard Google release of Android unchanged, and the carriers to accept it.

The Android business model is to go for market share by Google giving away Android and hoping to make the money back on search and advertising. Unlike Microsoft, Google doesn’t even bother to make money on the operating system and so even commoditizes that. In the meantime, Apple continues to make huge profits in the iPhone and iPad space, last time I looked almost 30% of the entire profit of the cell-phone industry and a huge percentage of the profit of the tablet industry. This is similar to how Apple is in the laptop business, where it has a relatively small market share by unit count but takes the lion’s share of the profits. Apple’s challenge is to keep forcing down the cost of the iPhone so that they can keep their price premium small enough that they have high margins without giving up too much market share.

My belief is actually that it is very hard to differentiate in silicon any more outside of the highest performance niche: high-end microprocessors and GPUs. The only purpose of an SoC is to run the software efficiently and provide the interfaces to the outside world (WiFi, Ethernet, Bluetooth, CDMA, GSM etc). Hardware has to be co-optimized with the software.

John also hinted at some sort of “app store” model for EDA connected in some way with cloud computing and SaaS. I’m not quite sure how this would work given the price point and the level of technical bandwidth needed to sell, let alone support, a leading edge EDA tool. It will be interesting to see, in any case.

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Magma: getting products into the channel

I met Rajeev Madhavan, CEO of Magma, last week. We talked about a number of things but focused on one issue I’ve talked about before. Large EDA companies are capable of developing new technology—they have plenty of smart engineers, after all—but struggle to introduce new products into their channel. The reason is that their salespeople are rational and realize that they don’t want to be the first person to sell a new immature product. The trouble is that each salesperson making their own personal optimal decision isn’t optimal for the company since the product never matures or it gets to market too slowly to beat the competition. Startups don’t have this problem since they only have one product to sell and so their salespeople can’t sell other products while they are waiting for their colleagues to do the heavy lifting of maturing the product.

This dynamic is the reason that most new products are introduced by startups and then acquired by larger companies with bigger channels once there is market demand. But Rajeev admitted to me that they have had more success with internally developed products than with acquisitions, partly because he is outgunned financially and so cannot acquire startups that have established successful products.

Magma’s original BlastFusion product was introduced while Magma was still a startup, so that doesn’t count. But Magma has successfully introduced Finesim, a circuit simulator, and various analog products under the Titan umbrella. Rajeev claims that if Magma’s circuit simulation and analog product lines were a separate company, they would be the 5th biggest EDA company, larger than Atrenta and Apache who are both rumored to be around $40M in revenues.

I asked Rajeev how he had succeeded in getting his salespeople to sell new products. The answer turned out to be two-fold. Firstly, get some new salespeople. Magma turned over almost all of their salespeople to get a team that was up to addressing the problem. Then Rajeev had the team working on the new products report directly to him, and he would take them into accounts. Rajeev confessed that he actually learned this from Gerry Hsu. The salespeople didn’t always like it but the person they had to argue with was the CEO not some engineering director with no power. It takes that level of focus to get a new product into a channel with lots of alternative products to sell and renewals to book.

Rajeev told me he has been doing this with a soon-to-be-announced product and is hoping for similar success. I guess we’d better watch this space.

Interestingly, with Tekton, their new timing analyzer, he didn’t take this approach. Since Tekton is tied tightly enough into the mainstream place and route business, and since Synopsys can use PrimeTime as a weapon (somehow place and route plus PrimeTime doesn’t seem to cost much more than place and route alone) individual salespeople only needed tweaks to their commission plans to have them sell it aggressively. Apparently now 5 of the top ten semiconductor companies have it in qualification right now.

Talus, the follow-on to BlastFusion, was slow to get adopted. But this time it wasn’t a channel issue. As essentially the next version in an existing product line it shouldn’t require special focus. Rajeev admits that when it was first introduced a couple of years ago the 1.0 version had a lot of problems and was simply behind in routing technology, which took time to resolve.

Posted in eda industry, sales | Comments Off