M&A is a major trend, but why is it difficult to M&A in the domestic EDA industry?

Recently, a number of foreign media released news that Synopsys, a leading EDA company, has submitted an offer to acquire engineering software provider Ansys, and Ansys received an offer higher than $400 per share, so the total purchase price is close to $35 billion. If nothing else, this acquisition will be one of the landmark large-scale acquisitions in the semiconductor industry in 2024.

M&A is one of the core themes of the EDA industry, and it has played a critical role in the development of the world's three largest EDA companies: Synopsys, Cadence, and Siemens EDA. However, this industrial law has not played a good role in China, but the number of domestic EDA companies is rising rapidly, but there are few mergers and acquisitions.

EDA companies are not in large quantities

If there is any industry that does not win by quantity, then the EDA industry must be counted as one. EDA is an industry where the strong are always strong, and the strong have a very high moat, so the three international EDA companies have very strong control over this industry.

Actually, it has something to do with the nature of EDA. Looking back at the history of EDA, it can be traced back to 1980 when Carver Mead, a professor at the California Institute of Technology, and Lynn Conway, a programmer at the Palo Alto Research Center, co-published the paper "Introduction to VLSI Systems", which is one of the landmark events of the origin of EDA.

"Introduction to VLSI Systems" proposed innovative ideas for chip design through programming languages, which led to tools such as VHDL and Verilog. With the advent of application-specific integrated circuits, or ASICs, designers are finding that EDA tools require a standardized process and component library that can dramatically improve the efficiency of chip design.

Subsequently, the EDA industry defined a path of expansion, mergers, and acquisitions, with Synopsys, Cadence, and Mentor (now Siemens EDA) beginning to rise rapidly. As mergers and acquisitions continue, designers are discovering that larger, more powerful EDA tools can support larger-scale programmable logic device designs, while also being more efficient and simpler to design. Therefore, the current EDA tools have completed the full coverage of design, manufacturing, and packaging.

Along the way, Synopsys, Cadence, and Siemens EDA have all experienced a number of mergers and acquisitions. In the case of Synopsys, the company's acquisition of Zycad began in 1990, and the next 30 years of development history is a history of mergers and acquisitions. Among them, there are dozens of mergers and acquisitions that have been officially stated and reported. Statistics show that Synopsys has more than 80 mergers and acquisitions to date, the most among the three EDAs. In addition to the $35 billion acquisition of Ansys, the most classic of these acquisitions is Synopsys' $830 million acquisition of Avanti in 2002, when the company concluded a patent lawsuit with Cadence.

M&A not only means that the scale of EDA tools grows, but also allows EDA tools to integrate more technologies. The main innovation of EDA is not algorithm innovation, but the innovative application of existing algorithms to more scenarios, or the use of advanced technology to improve the efficiency of current algorithms.

M&A problems of domestic EDA

Different from the volume growth of the three major EDA companies, the development of the domestic EDA industry is characterized by a rapid rise in quantity, which is the same as that of domestic chip design enterprises. Statistics show that there are 168,300 enterprises in China whose keywords are "chip design" and "integrated circuit design", and there are more than 70 EDA companies in China, ranking first in the world.

So, why don't domestic EDA companies follow the example of EDA to achieve rapid expansion and growth? The answer lies in insufficient ability and insufficient value. The author previously wrote a content on the development of the whole process of EDA in China, which mentioned that Huada Jiutian, Primarius Electronics, and Xinhuazhang have all achieved the full process coverage of EDA, and at the same time, companies such as Hejian Gongsoft and Hongxin Micro-Nano are also developing towards the whole process. However, our EDA process has only just been completed, and the verification in the chip design industry is still very limited. In other words, domestic EDA companies are not yet clear which links are the next step to focus on, because compared with the tools provided by the existing EDA three, the whole process needs to be strengthened. Then, from the perspective of the tool itself, the relatively large EDA companies in China have not yet reached the time point of initiating mergers and acquisitions at the tool level.

The second point is digestion ability, and from the perspective of the mergers and acquisitions of Synopsys, Cadence, and Siemens EDA, many times the tools that are acquired are not worth that much money, and the team and customers are more valuable. However, for domestic EDA companies, at this stage, the acquisition of EDA companies with high-quality customers is not to mention that there are fewer targets, and it is basically a "snake swallowing an elephant", which is easy to cause an unbearable burden on the development of the enterprise, and the team that has been acquired is also easy to disrupt the original team deployment and product strategy.

Let's talk about the quality of the subject. From the perspective of the international environment, it is difficult for domestic EDA companies to find targets for mergers and acquisitions from the world, and that era has passed, and the attention of the United States and the protection of the countries and regions where the enterprises are located will most likely make this type of mergers and acquisitions stillborn. Back in China, there are almost 70 EDA companies in China, and most of them are making point tools, and many of these point tools are attached to the tool chain of Synopsys, Cadence and Siemens EDA. This leads to the fact that the party initiating the merger and acquisition, if it is really interested, needs to spend a lot of energy to understand the tool and see if it can match its own tool, which is far from the strategy of EDA to target the fourth in the market to merge and acquisition, which is far from the efficiency of the strategy.

Therefore, in summary, the domestic EDA industry has not yet reached the point of merger and acquisition, and most domestic EDA companies are too dependent on EDA, which will also reduce the value of mergers and acquisitions. At this stage, there are only a large number of domestic EDA companies, but there are very few with independent innovation and the whole process as their mission, so there are only five companies that can initiate mergers and acquisitions. It can only be said that the development of the domestic EDA industry is still in its early stages.

epilogue

If we don't take into account the external factors, we don't actually need domestic EDA tools. However, the situation now is that we have to build our own EDA tools. From the perspective of development logic, the development of the EDA industry is inseparable from the main line of expansion, mergers and acquisitions, but from the perspective of the initiator and the acquiree, the domestic EDA industry is not yet this time.