"Chip design is for the rich"

Magma CEO Rajeev Madhavan, in Israel, expects consolidation.

"I believe that within five years only two EDA companies will survive," said Magma Design Automation Rajeev Madhavan at the Silicom Ventures LLC international summit today. "We will therefore be one of these two big companies, or we will have been bought by one of them," he added.

This was Madhavan's first response to the $1.6 billion offer to purchase two weeks ago by electronic design automation (EDA) developer Cadence Design Systems Inc. (Nasdaq: CDNS) for Mentor Graphics Corporation (Nasdaq: MENT). Magma Design Automation Inc. (Nasdaq: LAVA) is the world's fourth largest EDA software developer. Magma's share has fallen 50% over the past year and it has a current market cap of $300 million, and could well become a takeover target for the EDA industry's number two company, Synopsis Inc. (Nasdaq: SNPS).

Madhavan talked extensively about the changes in the semiconductor industry and their effect on EDA vendors. He believes that the cost of designing 45-nanometer processors is now $50-100 million, which is why there are fewer start-ups in the industry than there were a decade ago, when he founded Magma.

Madhavan noted, "The industry has changed. If you are the manager of a start-up and think that you have a processor that can run much faster than what now exists, know that the market has changed. You need to differentiate yourselves, for example by integrating an architecture change in an existing processor. The complex design of a system on a chip is for the big companies."

Madhavan said that the significance of the change was the need for much more money in the semiconductor industry. "Chip design is for the rich. That's the truth. I believe that the transition of small companies to develop small architecture changes in processors rather than the entire processor must happen. Israeli and American start-ups must understand this in order to survive."

Madhavan concluded, "In a few years, hardware groups will be much smaller than software groups. We'll see software becoming easier to work with and more involved in the hardware side. Software and chip design from the hardware side will be one unit and not separate ones."

Published by Globes [online], Israel business news - www.globes-online.com - on June 30, 2008

© Copyright of Globes Publisher Itonut (1983) Ltd. 2008

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