News: Latest News
Latest NewsCompaniesMarketsEconomy & ForexCommoditiesInterest RatesBusiness LeadersFinance Pro.CalendarSectors 
All NewsEconomyCurrencies & ForexEconomic EventsCryptocurrenciesCybersecurityPress Releases

Cadence Design Systems aims to cash in on new custom-chip era

01/18/2022 | 04:32pm EDT

Jan 18 (Reuters) - Microchip design software maker Cadence Design Systems Inc is betting on growth from automakers and other chip users strapped by global supply shortages who face mounting competition from rivals such as Tesla Inc and Apple Inc that design their own chips.

Cadence and rivals Synopsys Inc and Siemens EDA are at the center of a microchip industry shift as cloud computing providers, software makers and others who traditionally have bought semiconductors from a few big companies now want to draw up their chips own in-house.

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

Cadence shares fell 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? A lot of them," Devgan said in his first interview as CEO. "At some volume, it's a no-brainer to do it because of cost, because of schedules and more importantly, for customization."

Bottlenecks in the global semiconductor supply chain that have hobbled production at most major automakers for over a year also are forcing companies like Ford Motor Co and General Motors Co to rethink their approach to chip procurement

The industry is consolidating hundreds of small micro-controller 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. Despite a global chip shortage, Tesla reported record fourth-quarter production, in part because close control of its chip and system designs allowed the company's engineers to quickly rewrite code to use chips that were available.

Cadence makes electronic design automation (EDA) software that 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. The resulting chips are often manufactured by third parties like Taiwan Semiconductor Manufacturing Co.

In decades past, most of Cadence's customers were traditional semiconductor firms. But 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, said Jay Vleeschhouwer, head of software research for Griffin Securities.

Cadence has branched out to offer those customers software that goes beyond chip design to helping 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 will not overheat and melt in daily use.

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

With the transformation of cars into rolling computers all but assured, automakers and other chip-design newcomers will face stiff competition when hiring chip architects, who are some of the most fought-over talent in the tech industry.

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

Now, multiple EDA firms "have made pilgrimages to Detroit and other centers of automotive development, and they're making investments in those areas," he said. "It's a consequence of the fact that the complexity of automotive systems, at the system level and the chip level, has become highly motivating." (Reporting by Stephen Nellis in San Francisco; Editing by Peter Henderson and Richard Chang)

© Reuters 2022
Stocks mentioned in the article
ChangeLast1st jan.
ALPHABET INC. -5.62% 2103.67 Delayed Quote.-23.03%
APPLE INC. -2.88% 139.0799 Delayed Quote.-19.41%
CADENCE DESIGN SYSTEMS, INC. -3.16% 143.07 Delayed Quote.-20.78%
FORD MOTOR COMPANY -3.70% 12.3652 Delayed Quote.-38.23%
MICROCHIP TECHNOLOGY, INC. -0.04% 67.01 Delayed Quote.-23.04%
MSCI TAIWAN (STRD) -1.23% 596.425 Real-time Quote.-18.64%
NVIDIA CORPORATION -4.52% 161.5586 Delayed Quote.-42.55%
ON SEMICONDUCTOR CORPORATION -2.50% 54.51 Delayed Quote.-17.71%
QUALCOMM, INC. -2.99% 128.25 Delayed Quote.-27.75%
SIEMENS AG -2.14% 114.2 Delayed Quote.-23.57%
STELLANTIS N.V. -3.21% 13.136 Delayed Quote.-18.66%
SYNOPSYS INC. -3.74% 295.48 Delayed Quote.-16.69%
TESLA, INC. -6.41% 632.0447 Delayed Quote.-36.14%
VOLKSWAGEN AG -1.61% 145.44 Delayed Quote.-16.71%
Latest news "Economy & Forex"
02:15pU.S. states, manufacturers to decide if gov't benefits apply to imported baby formula
02:11pIn Fed's inflation fight, Bostic wants to avoid 'recklessness'
02:11pBritish advisor says Typhoon jets to be delivered to Qatar in August -QNA
02:10pAnalysis-Subtle shift in U.S. rhetoric suggests new Iran approach
02:05pIndia restricts sugar exports for the first time in 6 years - government order
02:04pTop Republicans query FBI on warrantless wiretapping of Americans
02:00pNY Fed sees 3-yr balance sheet rundown to $5.9 trln, slow MBS decline absent sales
02:00pExclusive - Sri Lanka's prime minister says he will slash expenditure in new budget
01:52pTIM gets 1.6 billion euros in Italian broadband tender
01:50pUKRAINE AND RUSSIA : What you need to know right now
Latest news "Economy & Forex"