Today we're going to talk about a "small and smart" industry:Electronic Design Automation (Electronic Design Automation,EDA)The two giants in the industry have realized the attribute of long slope and thick snow.$clang Teng Electronics (CDNS.US) $It has increased 87 times since it went public in 1990.$New thinking Technology (SNPS.US) $Since it went public in 1992, it has increased 143 times, and the compound annual rate has reached 32.7% and 37.5% respectively.

This is mainly due to the explosion of the Internet in recent decades, leading to an unprecedented expansion of demand for semiconductors, and the EDA industry as the most basic application of semiconductor development, the development of the industry "lifts all boats".

Moreover, the EDA industry is also known as the "crown pearl" of semiconductors. What is the charm of the industry that has been growing cattle for half a century?

Why does the EDA industry hold the "life gate" in the chip industry chain?

To put it simply, EDA is the most basic fulcrum of the integrated circuit industry chain and has an important leverage effect.

Through the development of today's global electronic products and semiconductor market, the top layer is the trillions of dollars of the global electronic information market and tens of trillions of dollars of digital economy market. The bottom fulcrum under the inverted pyramid is the $7 billion EDA industry.

EDA tools can help designers reduce the design difficulty, reduce the design deviation and improve the success rate of taping in the complex IC design process.Although the output value of the industry is small, it determines the efficiency of the whole industry and the quality of products, and has a huge leverage effect. It can be said to be the base for the stable development of the industry.

In a word, EDA is essentially a standardized and instrumental presentation of the semiconductor design process.

Because in electronic design, it actually involves not only computer engineering know-how (technical know-how), but also many methodological applications such as microelectronics, physics and so on. Manufacturers integrate them into EDA tools for design companies to use.

The chip design process is not achieved overnight, which needs to be carried out in accordance with certain workflow and steps.At the same time, between steps,NeedHave relevance or cycle optimizationIn order to find the optimal solution in the final production.

This is also the main direction pursued in electronic design: automation, programming, AI, optimization.

From the perspective of the development of the industry, EDA technology refers to a set of automation processes including circuit system design, system simulation, design synthesis, PCB layout design and plate making. Industrial development has experienced decades of development, has experienced many iterations.

Moreover, because of the variety of EDA product lines, according to the different application scenarios of EDA tools, EDA tools can be divided intoThere are five categories: digital design, analog design, wafer manufacturing, packaging and system.

Therefore, due to the need to assemble a variety of EDA tools, and each subdivision of the product line is quite largeIn order to ensure efficiency and design accuracy, designers tend to use familiar software products, so the industry has a high degree of stickiness.

On the whole, the global EDA software industry belongs to technology, capital and talent-intensive industries. Due to the long cycle of R & D and production, the demand for talents and capital consumption have become the key factors in the development of the industry, which also reflects the main characteristics of the EDA software industry.

In the development of acquiring leading technology, EDA enterprises often acquire the advanced technology of other companies in addition to their own internal research and development.

Throughout the history of the development of the three global EDA giants (Xinsi Technology, Cadence, and Mentor Graphics acquired by Siemens), in the past 30 years, there have been more than 200 M & A cases, which have formed the current oligopoly position in the industry, among which the number of mergers and acquisitions of Xinshi Technology is as high as 80 times.

From the point of view of the business model, the charging model of EDA software is mostly "periodic authorization" mode.The effective period of authorization is about 3 years.

Compared with the "royalty" model charged by volume in the semiconductor industryThe "periodic authorization" model is more sticky and repetitive, and has the ability to balance the cyclical risks of the industry, so that the whole EDA industry can maintain steady growth.

From the perspective of global industrial growth, the EDA market is smoother than the IC market, showing a weak cyclical attribute.

In addition, with the refinement of the semiconductor process and the upgrade of the design process, EDA software will also make corresponding software updates. After each update, downstream IC designers need to re-purchase the new version in order to obtain permission.

From a historical perspective, Moore's Law has driven the semiconductor industry forward over the past 50 years.The number of transistors that can hold per wafer area increases exponentially, which increases the complexity of chip design, and the requirements of EDA design accuracy, efficiency and performance are also increasing. The upstream and downstream of the industry is a state of continuous mutual drive and development.

In addition, as the process nodes continue to move forward, the cost of chip design is also greatly increased, especially after the 5nm process nodes. From the perspective of R & D investmentThe revenue and growth rate of the world's leading EDA maintains a high correlation with the growth trend of R & D investment of the world's leading semiconductor companies.

As countries continue to strengthen the development of the local semiconductor industry, it is expected that the upstream revenue of EDA design software will increase again with the high capital R & D costs of the semiconductor industry.

According to SEMI and Markets and Markets, the global EDA market has grown steadily, reaching $7.8 billion in 2015, $11.5 billion in 2020, and is expected to reach $18.1 billion in 2026.

Finally, from a further point of view, as the costs of software research and development and mergers and acquisitions are often one-time investment, and then can be sold indefinitely, the intellectual property industry often has the cash flow characteristics of high gross margin, and the operating risk is relatively low. Coupled with the technical barriers of continuous research and development, the company's moat can be said to be getting wider and wider, and extremely difficult to overcome.

The end result is Buffett's favorite light-asset cash cow model.

Due to the lack of space, that's all for today.

Do you have any views on the commercial characteristics of the EDA industry?