The global EDA is mainly controlled by three US companies, Synopsys, Cadence and MentorGraphics (which have been acquired by Siemens). In the Chinese market, the concentration is even higher, with a market share of more than 95%. The industry generally believes that the US sanctions against Huawei will deal a heavy blow to US chip design software suppliers, but this is not the case from the latest financial report.

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

Aart de Geus, chairman and co-CEO of Synopsys, said on a May 20 earnings call: “China’s growth continues to be good. In fact, growth continues globally in general, but especially in the Chinese market.” He said , Synopsys has “learned how to continue its growth without so-called ‘Entity List’ customers”.

Cadence does the same. From January to March 2020, the company’s operating income from China reached $83.8 million, accounting for 13% of the overall. Although the company has stopped supporting Huawei, it is still 80% higher than the same period in 2018.

Huawei has previously adopted a strategy of letting its subsidiary HiSilicon develop semiconductor chips. Semiconductor chips are the brains of communication devices that support the 5G standard. Taiwan Semiconductor Manufacturing Co (TSMC) has stopped accepting new orders to make chips for Huawei due to the tightening of U.S. sanctions on May 15. Even more deadly, there is a view that the development of HiSilicon will sooner or later be in trouble due to the difficulty in procuring EDA software.

However, although support for Huawei has been stopped, the operating income of the EDA Big Three in China is still increasing. What is the reason?

According to the Nikkei Asian Review, citing the view of Koki Inoue, chief researcher of the Japan Machinery Industry Promotion Association’s Economic Research Institute, this should be attributed to 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.

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.

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