Table of Contents
What is an EDA platform?
Who competes in EDA?
Synopsys (SNPS)
Cadence Design Systems (CDNS)
Siemens EDA (formerly Mentor Graphics) (SIE.DE in Europe, SIEGY in U.S.)
Other players in EDA
The AI era creates new challenges to EDA, and new winners?
How EDA companies make money, and competitive barriers to entry
A unique software business model, and the EDA business cycle
The best place to invest in EDA software in 2025
How to Invest In Chip Stocks – EDA Software and the Biggest Merger of 2025?
If you haven’t read it/watched it yet, check out part one of this manual on the 2025 overview of the semiconductor market and the Semiconductor Industry Flow.
How to Invest In Stocks 2025: Top Semiconductor Stocks To Buy January 2025
Electronic design automation (EDA) software companies are the foundational gears of innovation in today’s semiconductor industry. As depicted in the Semiconductor Industry Flow chart, EDA software is that point in which the final end product (in this case, high-end chips and software that runs on those chips) is used to iterate the whole design and manufacturing process again – creating that virtuous cycle of never-ending improvement that’s a hallmark of any engineering and manufacturing industry.
EDA software is expected to be about a $15 billion industry worldwide in 2025. That’s a small piece of the semiconductor market that pulls in hundreds of billions of dollars every year. However, as stated above, EDA is foundational. It has permeated throughout all parts of the semiconductor engineering and manufacturing process. And lines have been blurred, as EDA is far more than design software these days.
We expect global spending on the EDA software market to trend towards mid- to high-single-digit percentage growth over the next five years, trending towards (but perhaps just a bit higher) than the overall growth of semiconductor end-market sales (expected 8% CAGR through 2030). We expect revenue growth of EDA platform leaders, discussed later, to outpace the EDA market average due to frequent acquisition of smaller peers and EDA market adjacent purchases.
What is an EDA platform?
As design complexity has dramatically increased (billions of features on the most advanced chips, many of them just nanometers thick, or just 10s of atoms in dimension), it’s impossible for a team of engineers to simply draft a chip design by hand. EDA software automatically places millions of microscopic circuitry patterns into a chip design. Think of these patterns like pre-designed rooms in a large high-rise building that might get pre-designed, and then replicated and dropped into a total building design, rather than being individually drafted by hand.
Thus the “automation” in electronic design automation software. AI has been a core part of this software type since its invention in the 1980s. In addition to design suites, EDA also uses special chips (often an FPGA, more on those later) for emulation and verification of a design before it goes to the manufacturing floor. These chips can be programmed to perform the 6
functionality of the new chip design to verify it will work as designed before mass manufacturing of the actual product.
EDA also integrates with the manufacturing equipment itself so that the design is accurately transposed onto silicon wafers. And after manufacture, an EDA platform helps with the collection of data for analytical purposes, key for quality control and assurance and device testing, before the final product is shipped to customers.
Later in the electronics manufacturing process, EDA is used in the assembly and design of total computing systems, arranging complex arrays of devices into data center servers, and further helping with the layout of servers into networked computing nodes (supercomputers). Big tech and data center operators are fast-growing EDA customers as generative AI has ratcheted up complexity of systems design.
And finally, EDA companies also have their own portfolios of patents and IP that often get bundled with an EDA software license for their customers to use. We will address the IP portion of the semi industry in a later video and show notes.
Who competes in EDA?
Onward to the companies themselves. You’ll often hear us say EDA is an “oligopoly,” meaning the industry is largely controlled by just a small handful of businesses. Over several decades of 9
consolidation, EDA businesses have been reduced into a few powerful platform business winners that span software design and related hardware.
In this case, the three main EDA providers that make up the oligopoly are Synopsys, Cadence Design Systems, and Siemens, with some smaller public and privately-owned players picking up the scraps, and other related companies (like Keysight) competing with various point products.
- Synopsys (SNPS)
Founded in 1986, Synopsys is one of the few surviving companies largely responsible for kicking off the semiconductor industry’s transition from CAD to EDA software.
In January 2024, Synopsys announced one of the biggest M&A deals of the year when it confirmed it had put in a bid for physics simulation and design software giant ANSYS (ANSS).
Massive Software Merger Wants to Bring AI to the World — Synopsys Acquires Ansys
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Due to the size of the merger – a bet on the convergence of electronic and mechanical designs and systems as chips become increasingly important – the deal is still being reviewed by regulators. To satisfy regulators in the U.K., Synopsys will be divesting its optics design business, and ANSYS will sell its PowerArtist semiconductor power analysis business, to Keysight Technologies pending final approval of the Synopsys-ANSYS merger.
Ignore Intel Rumors: Synopsys and Ansys Merger Announcements You Need to Know About
Besides EDA platform and software, about one-third of sales are tied to the patents and IP portfolio. Last year, we called out how nearly 10% of Synopsys’ revenue consisted of software integrity and security testing (Software Integrity Group, or SIG, rebranded as Black Duck). However, Black Duck (SIG) was sold to private equity firms Clearlake Capital and Francisco Partners in October 2024 for $2.1 billion as Synopsys whittles its focus down to the pending acquisition of Ansys. https://investor.synopsys.com/news/news-details/2024/Synopsys-Enters-Definitive-Agreement-with-Keysight-Technologies-For-Sale-of-Optical-Solutions-Group/default.aspx https://www.businesswire.com/news/home/20241001535294/en/Clearlake-and-Francisco-Partners-Complete-Acquisition-of-Black-Duck-Software-Formerly-Known-as-Synopsys-Software-Integrity-Group
Synopsys expects the merger with ANSYS to be complete by the middle of 2025. This will be one of the most important corporate deals of the year, and is a key part of Synopsys’ growth plans in the decade ahead…