The New Verticals

Chasing the vertical OEMs is not a new strategy in EDA.

But it is becoming that much more widespread as the major players extend their reach from automotive (long the domain of Mentor Graphics) to other sectors.

Semiconductor design companies — the linchpin to the product development and cash flow of Synopsys, Mentor and Cadence — are expected to consolidate over the near term, and the revenue outlook from that market is being tempered.

But the “new verticals” — military, aerospace, IoT, cloud — offer the chance for the EDA titans to extend their reach by not only selling IC design software but also an ever-growing array of emulation, analysis, and system design tools to a single customer. Doing so tightens the binds between EDA firm and customer, potentially making the deal more profitable as some list price devaluation that naturally occurs with bundling is offset by a lower cost of sales (including commissions).

As Cadence CEO Lip-Bu Tan said this week, “We had been emphasizing system design development. That basis is providing the entire vertical solution spec that is from IT tool and PCB and a host of system design and verification and we strongly believe that is the strategy going forward to meet the requirement of some vertical (markets).

“IoT, the cloud infrastructure and the massive cloud infrastructure fueling up; the automotive as kind of the connective devices; some of the medical field and DNA sequencing … and a few others: those can be clear application for some of our IT portfolio and some of our EDA flow and also some of our hardware PCB and system analysis requirements.”

We are starting to hear the major EDA companies discuss the PCB segment on their quarterly conference calls. This is an emerging trend; not long ago PCB was an after-thought to most analysts because the revenues were so puny compared to those of semiconductor. Now that PCB is part of a larger strategy, as opposed to simply a (profitable) business unit, that’s changing.

As this strategy ramps, it could very well shift the scope of acquisitions by the major EDA players. For decades, Synopsys has stayed far away from owning PCB design tools  although some of its tools have been tied into Zuken’s. Its last foray into PCB came when it acquired Viewlogic in 1997; management quickly bought out the PCB design segment the next year. Would a shrinking semi customer base lure them back in?

Most PCB design M&A related deals these days are tied to filling gaps in technology. There’s still a disconnect between ECAD and MCAD, and there will be some shakeout as new disruptive hardware startups enter the field. So while Cadence and Mentor are pursuing true top-down strategies, not everyone is following suit.

Altium corporate director, technology partnerships and business development Dan Fernsebner told me at PCB West last month, “Incubators and hardware startups have to put products out very quickly, and they have to be right the first time.” Fernsebner says the model for these companies is shifting from enterprise engineering to relying on reference designs.

Does the change to entrepreneurship pose a challenge for the developers in terms of having to reevaluate their business models, I asked Fernsebner. “I think you’ll see explosive new companies changing the business model for those who have been in it for years,” he said, citing Telsa, Nest and Skully, companies that develop products that are field-upgradeable.

It’s rare that any single model wins out completely. But if the end-customers in key industries begin to flex their muscles, it won’t be long before the M&A activity gets really interesting.

CAD Software Pricing Wars Heat Up

Another price/performance battle is heating up in PCB design software, and this time Altium could feel the burn.

Altium has experienced decent growth over the past few years, reaching about $75 million in annual sales. That’s not a huge sum compared to the Big Three of Mentor Graphics, Cadence and Zuken (subsequently referred to as MCZ), but it no doubt is getting the attention of the big boys, given the fairly modest pace of PCB design layout seat growth.

After dropping pricing on its signature Altium Designer tool from $14,000 to about $5,500 in 2008, Altium then raised them more than 30% a year ago this month, with some reports indicating even larger spikes, plus support.

Mentor today fired a big shot across the bow, pricing its newly configured shrink-wrap Pads suite at an entry level  price of $5,000, including a year of support. A mid-range version is priced at $10,000, in line with Designer once support is factored in.

Mentor made its move to target so-called independent users, those who may work for corporations but have the latitude to go outside the enterprise CAD system for their tools. That sector is characterized by engineering generalists who look for lower seat costs and aren’t driven by the particular tool. Will Altium counter move, or will it take a chance that it can wait out its deeper-pocketed competitor, hoping that Mentor lacks the patience to withstand the margin pain?

No matter how this plays out, a company can only grow so large in the shrink-wrap space. Enterprise is where the big bucks come from, and that space is dominated by MCZ. And that next move is Altium’s.

 

 

 

Fewer Reports Not in Altium’s Best Interest

Always a company that operates behind a veil of mystique, Altium will take that secrecy to a new level with its latest board decision which pares its quarterly earnings reports to semiannual announcements.

In a statement today, the PCB design software company said the decision came about following an investor roadshow in Sydney and Melbourne in February, where management pitched the notion that the quarterly reports somehow — and I’m reading between the lines here — distorting and negatively affecting the market perception by obscuring the “steady annual growth delivered by Altium” over past years.

“The overwhelming view of the investor community was that Altium has reached a level of maturity that allows it to focus on driving its business and, consistent with market practice, provide full year and half year reporting,” the company said.

OK, then.

The great thing about quarterly reports is that they force a company to be upfront with investors on a regular basis. Dial that back, and investors are going to make decisions based on data that are often less clear. I’ll be surprised if there’s any mass selling, given that many of Altium’s major shareholders are insiders, with current CEO Aram Mirkazemi holding about 9% of the company directly and more than 11% through holding companies, with the board holding more than 20% of the shares overall. But I suspect they will have a more difficult time attracting institutional investors.

Altium has set as a goal $100 million in annual revenue by fiscal 2017. It’s at an annual run rate of about $75 million right now. As companies get bigger, they need to keep in mind that their responsibility to their investors grows as well. We’ve been supporters of Altium’s unconventionality in the past, including the move to Shanghai, which some predicted would be the death-knell of the company. If anything, Altium has been very willing to think out-of-the-box, to its benefit. Reducing its earning reports is an ill-advised decision, however.

Predictions for 2013

It’s been awhile since I used this space to make any predictions about the coming months, but the end of the year is always the logical (if cliched) time to do so.

So here goes:

  • The migration of manufacturing to North America will accelerate, and the mainstream media will begin to report that OEMs are also reestablishing internal production lines.
  • Flextronics will buy at least some of RIM.
  • Robots as substitutes for human labor will be heavily hyped but lightly used.
  • Ousted Altium founder Nick Martin will hook on with a budding cloud-based software company and build a PCB CAD tool.
  • At least two new PCB CAD vendors will emerge.
  • Electronics manufacturing companies will end 2013 with less cash in the bank but brighter prospects for the future.

 

 

 

 

Why Not Nick?

Nick Martin, the founder and, until last week, CEO of Altium, is fighting back against the board that tossed him out.

But the real question isn’t whether he will regain his spot atop the CAD tool developer. It’s why the board saw fit to relieve him of his duties in the first place.

Some contend privately that at least one board member wants to sell the company but that Martin, who is the company’s largest shareholder, has been reluctant to go along. If so, pushing him out would mean removing, in part, one big barrier. For its part, the board has publicly stated that the decision to leave was Martin’s — something he vehemently contests, and which seems unlikely on its surface — and that the company has not returned the type of shareholder value the board seeks.

So while it’s true the move to Shanghai coincided with an improved bottom line and a higher share price, it’s also true the stock hasn’t topped $1 in years (chart — the top line = $1; the current price is about 80 cents). No one is getting rich owning Altium right now. If the board is getting antsy, it’s understandable. Whether that merits replacing  Altium’s answer to Steve Jobs — a design visionary who, according to many we’ve spoken with, has always put the technology first — is for the historians to determine.

 

Riding High on Design

The herd is riding on the EDA vendors, almost all of which are at or near 52-week high share prices.

In the past week, Cadence, Mentor and Synopsys hit or were trading just pennies off their yearlong highs. National Instruments and Ansys both traded much closer to their highs than their lows. Even Altium closed in on a high, but that’s a bit deceiving because it’s a penny stock and lightly traded on the Australian exchange.

So, is it the investor herd driving up an industry? Or is it a sign that the EDA market, which topped $5 billion for the first time in 2011, is geared up for a sustained run?

 

From Sydney to Shanghai


It was a year ago that Altium decided to pack its bags and relocate its headquarters and R&D to Shanghai. The company’s revenue was up 20% year-over-year in the second half of 2011, and the pretax income, excluding charges related to the move, was $4.6 million, up from a loss of $315,000 the year before.

It’s way too premature to call the move a success, but on the other hand, those who thought the PCB software company would vanish into the Chinese ether have quieted down.


Safe in the Cloud

Data are safer in the cloud.

That’s what tech industry research firm Aberdeen concludes, based on findings from multiple benchmark studies on best practices in content security and security software.

Aberdeen says its analysis shows that users of cloud-based web security had substantially better results than users of on-premise web security implementations when it comes to security, compliance and reliability (and cost, by the way).

Over a 12-month span, cloud-based web security solutions users had 58% fewer malware incidents, 93% fewer audit deficiencies, 45% less security-related downtime, and 45% fewer incidents of data loss or data exposure than did their on-premise web security colleagues.

Extrapolated to the PCB design industry, the report suggests Altium’s move to a cloud-based server environment isn’t as fraught with security hurdles as some have posited.

Short Cuts Don’t Always Make Long Delays

The saga continues. I have my parts kit. The PCBs should be here from Sunstone tomorrow. When I placed the order on our website, I estimated that I’d have the parts and PCBs today. I knew it would be tomorrow, but I wanted to see how our communications goes when something is late. Obviously, an assembler can’t start building until the parts have arrived, so the Industry standard is to start the turn-time once everything is in the shop.

If a box is late and the sender doesn’t know it, unintended delays can be added into the process. Knowing this, we recently did a lot of work to improve our communications, on such issues as late parts, to help reduce delays. Sure enough, I dropped on over to the website and right on the top of the home page is a note that I have an issue (late parts) with my job. Tonight at midnight, I should receive an email telling me the same thing too.

On the subject of the PCBs, I sent Gerbers to Sunstone. That works just fine, but I’m always a bit nervous about the accuracy of my layer mapping. They double check, so I’ve never had problems, but I still get nervous.

If I’d waited a few days, like until today, I could have taken a short cut by just sending in my CAD board file — they just started accepting native CAD files. You can still use Gerbers, but if you use Altium, Eagle, OrCAD, National Instruments’ Circuit Design Suite, Ivex Winboard or PCB123, you can just send in the board file and save some time and hassle.

When I get the boards tomorrow, I’ll pack everything up and deliver it to the receiving folks. Then I’ll see how the rest of the build process goes from the other side of the fence, and I’ll see how we deal with extra parts. I did that on purpose also. With a couple of parts, I’m delivering several hundred more than I need. With a few other, just the requisite 5% over. It will be interesting to see just how I get the extras back.

Yes. I know. I work here, so I shouldn’t have any doubt about how all of this stuff works. I do know how it goes, but it’s always a good thing to, every now and then, check and see how well practice matches up with theory.

Duane Benson
Grip, Fang, Wolf! Guard the mushrooms!

http://blog.screamingcircuits.com/

Sunstone’s ‘Fab’ Design Tool

Sunstone is again acting as much like a software company as it is a quickturn PCB fabricator.

The board shop, which over the past few years has developed and honed its free CAD/DfM tool known as PCB123, today rolled out a conversion tool that features native file upload functionality.

In short, customers no longer need to export data in Gerber; instead, they can use one of a series of native data formats, including Altium, Eagle, OrCad, NI, and others (including, of course, PCB123).

It’s the second big development by the PCB maker in the past year, having already rolled out a parts library addition to PCB123 that supports some 500,000 components.

PCB123 won’t replace the big ticket CAD suites, of course, but for the types of prototype boards most designers need, it keeps getting better and better. And with its CAD conversion capability, Sunstone further extends its “ease” factor to those who don’t use the company’s own software.