In Israel, Electronic Design Automation (EDA) is not considered to be one of the foremost fields for young people aspiring to work in high tech. Only non-matriculating students in vocational schools are interested in working in the field.
It turns out, however, that the world at large has other ideas about the EDA market, and considers it to be one of the more attractive software markets. Moreover, it is a steadily growing market, unlike so many other communications and electronics sectors.
Israel has contributed much to the flowering of EDA. Daisy, launched by Mercury Interactive Corporation
(Nasdaq: MERQ)founder Aryeh Finegold, was the first company in the world to develop EDA products.
One of the current EDA leaders is Innoveda (Nasdaq: INOV), the latest incarnation of Daisy. Innoveda, a public company whose shares are traded on Nasdaq, develops and markets tools to create a work environment for the visualization, design, and building of electronic components and systems of communications products, computers, and technology-intensive appliances.
Innoveda’s products are designed to assist development engineers in handling the challenge of software and hardware-based complex systems requiring high-quality standards and short time-to-market. The solutions are designed for different product development stages, and are used to visualize and design high-performance products. Innoveda simultaneously competes in the printed circuits market. The company’s customers, which include Motorola, Lucent, Fujitsu, NEC, Ericsson and Nokia, operate in the communications, computers and automobile industries.
Innoveda’s Israeli R&D center employs a staff of 70 to develop its flagship Visual HDL product. This product enables the visualization of electronic systems and circuits using graphic software and textual hardware development languages. The company’s Israeli customers include ECI Telecom (Nasdaq: ECIL), Chromatis, and El-Op. “We are now marking the tenth anniversary of our operations in Israel, and ten years of developing our innovative products,” says Innoveda CEO William J. Herman.
“Globes”: There are many EDA companies. What makes you special?
Herman: “Although our field is small, it growing rapidly. We are making excellent progress and our technology is the best in the industry. Analysts say we are number one, and we consistently prove it. There are many companies developing sophisticated circuits and advanced products. The trick is to reach the market first. We try to help companies get to market as fast as possible in the hopes of maximizing their profits. Then, we hope that they will give us a bit of their profits.”
What is the current market size?
“The market size is an estimated $4-4.5 billion a year, with a 20% growth rate.”
Why haven’t electronic giants entered your field?
“They are trying to enter, but we are better than they are. Many giants are trying to penetrate larger markets, thereby enabling us to provide technological solutions that are sold directly to consumers, virtually without OEM agreements.”
Innoveda also offers Internet environment products. These products enable a development engineer to hook up his personal development environment with all its components to an Internet platform. This enables distant development teams to cooperate on the development process. Innoveda sells its products directly, using e-commerce and e-service.
What problems does online product development solve?
“Our products are designed to enable engineers and teams in different locations to transfer information and work together on projects. In the past, two engineers could carry out a project that now requires many engineers who are not always located in the same place. Systems’ synchronization is therefore critical. We also provide enormous project databases, enabling our customers to conduct project reviews and improve team productivity.”
The Israeli connection
Innoveda was founded in March 2000 through a merger by Nasdaq-listed Summit Design (SMMT) and ViewLogic Systems. Summit Design evolved from an Israeli company, CTechnologies, which developed Visual HDL technology that was well received by the market. ViewLogic Systems concentrated mainly on the PC platform Board sector.
“Following the merger, Innoveda became the fourth largest of the hundreds of EDA sector companies. It is now very much an Israeli company. The Israeli R&D center develops our most innovative products. 70 of the company’s 530 employees work there, half in marketing and sales. Most R&D work is done in Israel. In late December, we launched our new product line, which was developed in Israel,” says Herman.
In effect, it was a reverse merger.
“Correct. ViewLogic Systems was a public company that was delisted after employees acquired part of its operations. ViewLogic Systems and Summit Design complemented each other. ViewLogic Systems had good sales and Summit Design was growing quite nicely. The merger was important for us because EDA R&D investments are very high and you need a critical mass to challenge the market.”
What problems arise when merging with an Israeli company?
“I, for example, spend a lot of times in the air. It was necessary to integrate the company’s departments when we merged, so the only problem was one of geographical distance. We could have merged with companies from across the street, but we preferred Summit Design. Israeli workers know which technologies the market needs and the company has developed unique technologies. I can tell you that there were no problems of employee duplication, and that the merger proceeded very smoothly.”
Despite the advantages you cited, Innoveda’s stock is traded at less than $4.
“Prior to the merger, the company traded at $2. After the merger, the share jumped to $6, later falling back to $2. Nevertheless, last year the price doubled, in contrast to the general market trend.”
Where would you like to see the company in a couple of years?
“We want to see continued expansion. We want to double our sales in the next two years, and we can reasonably expect to do so. We are striving to continue to be the leader in our market sectors. This is our mission, and we hope to carry it out.”
What about Israeli acquisitions?
“Our business plan is built on acquisitions and we are examining several Israeli companies. There are no negotiations in advanced stages at the moment, but a number of small companies in Israel are developing unique products, proving that Israel has a good technological market that can be exported. In our field, a small number of developers can create advanced products, which is an advantage. Although the venture capital market is in hibernation now, there are quite a few companies that are breaking the financing barrier and developing.”
What about lay-offs?
“We began the year with 500 employees, and we plan to reach 580 by year’s end. We do not expect to reduce our investment in R&D and sales this year, so there is no reason to cut staffing.”
The willingness by the company’s management to risk publishing sales target for the coming year proves that Innoveda does not fear the weakness in the software sector. Innoveda is aiming for 23-25% growth in software and service sales revenue. Overall revenue is expected to grow 15% in 2001, with a profit margin of at least 13%.
What is the basis for your assertions that you won’t be affected by the market weakness?
“When the software market was in a slump, EDA market growth actually accelerated. The reason is that a company cutting its workforce wants to increase the tools at its disposal to better exploit the remaining manpower. Our market may not grow at the rates predicted, but I can assure you that it won’t shrink. Our solutions are critical for companies interested in launching advanced electronic products, so there is no chance they will reduce their expenditures in our field.”
Why is your share traded at a company value of only $130 million?
P> “We are definitely traded at a deep discount. As a company planning sales of $129 million this year, Innoveda is unquestionably [trading] below its real value.”
Published by Israel's Business Arena on 22 March 2001