Cadence software firm bets on growth from auto sector

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Cadence software firm bets on growth from auto sector

The company's offices in San Jose, California, U.S. January 31, 2020 are pictured with the logo of Cadence Design Systems. Jan 18 Reuters- Microchip design software maker Cadence Design Systems Inc CDNS.O is betting on growth from automakers and other chip users who are strapped by global supply shortages and competing with rivals such as Apple Inc AAPL.O and Tesla Inc TSLA.O that design their own chips.

Synopsys Inc. SNPS.O and Siemens EDA SIEGn are backed up by Cadence and rivals. Cloud computing providers, software makers, and others who have traditionally bought semiconductors from a few big companies are trying to draw up their chips in-house, as a result of a shift in the industry.

The GOOGL.O Google of Tesla, Apple and Alphabet Inc are some of the leaders in the field of in-house design. Anirudh Devgan, who became Cadence's chief executive last month, said executives across industries have taken note of how custom chips help set products apart from each other. The company counts Tesla as a client and analysts say Apple is as well.

Cadence shares fell by 5% on Tuesday in a down market.

Developing a chip costs around $100 million, but artificial intelligence is reducing costs even as traditional semiconductor firms keep raising prices, with many chips selling for more than $100 each.

How many car companies have more than 1 million units? In his first interview, Devgan said he had a lot of them. It's a no-brainer to do it because of the cost, schedules and more importantly, customization. Bottlenecks in the global semiconductor supply chain that have hobbled production at most major automakers for over a year are forcing companies like Ford Motor Co F.N and General Motors Co GM.N to reconsider their approach to chip procurement.

The industry is combining hundreds of microcontroller chips that crept into cars piecemeal over decades into a smaller number of more powerful and costlier chips.

Tesla has always used a consolidated approach, and the results contrast sharply with those of other automakers. In part due to close control of its chip and system designs, Tesla reported record fourth quarter production, which allowed the company's engineers to quickly rewrite code to use chips that were available, despite a global chip shortage.

Cadence makes electronic design automation EDA software that can be used to translates ideas on how a chip should work into the physical layout of tens of billions of transistors crammed onto a few millimeters of silicon. In the past, most of Cadence's customers were traditional semiconductor firms, and the chips are often manufactured by third parties like Taiwan Semiconductor Manufacturing Co. Jay Vleeschhouwer, head of software research at Griffin Securities, said that the newer breed of systems customers, which dream up full products in which chips play a central role, now account for about 40% of Cadence's revenue.

Cadence has branched out to offer customers software that goes beyond chip design to help fit their custom chip into a full product. Cadence has acquired apps for tasks like packaging finished chips to put onto circuit boards and making sure the chips won't overheat and melt in daily use.

Joe Vruwink, analyst with Robert W. Baird Co, said that the allure of such functions extends to automotive, aerospace, industrial equipment, all of the makers of products in which chips eventually reside.

Automakers and other chip-design newcomers will have stiff competition when hiring chip architects, who are some of the most fought-over talent in the tech industry, because of the transformation of cars into rolling computers.

As little as four years ago, Vleeschhouwer said that EDA companies were not excited about the automotive market because it used less complex chips.

Multiple EDA firms have made pilgrimages to Detroit and other centers of automotive development, and they are investing in those areas, he said. It's a consequence of the fact that the complexity of automotive systems has become highly motivating at the system level and chip level.