The EDA sub-industry, which specializes in providing simulation and verification tools for chip design engineers, is the most upstream and high-end node in the entire semiconductor industry ecological chain. The industry may believe that the US sanctions against Huawei will deal a heavy blow to US chip design software suppliers. But in fact, the latest earnings reports of these US companies show no signs of slowing down.

Synopsys and Cadence, two American companies, and MentorGraphics under Siemens (which were also American companies before being acquired) are the three giants in the EDA field. They have achieved good results in the Chinese market, and their customers also include many non-Huawei customers.

– As of May 20, Synopsys achieved revenue of $861.3 million in the second quarter of fiscal 2020, compared with $836.2 million in the second quarter of 2019.

– As of March 31, Cadence achieved revenue of $618 million in the first quarter of fiscal 2020, compared with $577 million in the first quarter of 2019. Chief executive Lip-BuTan expects full-year revenue growth of 10%.

“Growth in China continues to be good,” Aart de Geus, chairman and co-CEO of Synopsys, said on a May 20 earnings call. “In fact, growth continues globally in general, but especially in the Chinese market.” He said Synopsys had “learned how to continue its growth without a so-called ‘entity list’ clientele”, which restricted business dealings with companies such as Huawei.

  

Cadence’s financial report also stated that sales in the Chinese market in the first quarter from January to March were US$83.8 million, accounting for 13% of overall sales. That’s an 80 percent increase from the same period in 2018, even though the company has stopped supporting Huawei.

  

The U.S. Commerce Department imposed export controls on Huawei in May 2019, preventing the company from delivering U.S. equipment and software to it without a license. And EDA software from companies such as Synopsys and Cadence is an essential tool for chip designers to design next-generation processors. This field has a very high technical threshold, and there is still no domestic solution that can be completely replaced.

After the United States revised its export control rules in May this year, TSMC was subject to further strict restrictions and stopped accepting chip foundry orders from Huawei. Huawei’s need for self-sufficiency has become more urgent. Despite Huawei’s tough situation, U.S. EDA software suppliers look good, with local public sectors in China filling in part of the market lost to Huawei.

According to the Nikkei Asian Review, citing Koki Inoue, chief researcher of the Japan Machinery Industry Promotion Association’s Economic Research Institute, it should be concerned about the large-scale purchase of EDA software by Chinese local governments. Several investment firms led by local governments have invested in semiconductor manufacturing for fabless services. Statistics show that there are nearly 500 such fabless chip design companies nationwide.

Inoue’s research shows a surge in local government purchases of EDA software, which are then (in some form) used by these chip design companies. For Synopsys and Cadence, this revenue appears to be more than enough to offset lost sales to HiSilicon.

AartdeGeus pointed out at the earnings conference that many chip design companies are growing rapidly, while some companies cannot. “I hope that will continue, because after all, globally, this is a very open market, and there is still an opportunity for people to join the battle again in another way or another time,” he said.

It’s not clear whether the startups are indirectly helping HiSilicon develop chips it can no longer manufacture. Koki Inoue put forward a hypothesis that if HiSilicon sends engineers to these companies, then small companies can also rebuild the same development environment as HiSilicon. In early June, the Nikkei Asian Review reported that because direct transactions with TSMC, a major semiconductor foundry, will become difficult, Huawei has begun to discuss purchasing chips produced by TSMC through MediaTek. However, MediaTek denied the news that Huawei purchased TSMC chips through its roundabout way.

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