Outsourcing here to stay: DAC panel

Outsourcing here to stay: DAC panel
By Brian Fuller, EE Times
June 2, 2003 (6:14 p.m. EST)
URL: http://www.eetimes.com/story/OEG20030602S0104

ANAHEIM, Calif.—Despite a wild decade of existence, suspicion from its customer base and rocky economics, design outsourcing is here to stay, according to a panel here at the Design Automation Conference.

"We're going into the design bubble this year. There will be an explosion of design services like there always is" at that part of the cycle, said Gary Smith, EDA analyst for Gartner-Dataquest (San Jose, Calif.). "It'll go for two design cycles and then flatten out."

The panel, sponsored by Cadence Design Systems and moderated by EE Times EDA editor Michael Santarini, probed the history and the future of the service, which emerged in the mid 1990s as design-automation vendors struggled to expand their businesses. The business model worked when design starts soared toward the end of the decade. Cadence, for instance, at one point had 1,700 engineers in its Tality design-services operation.

But engineers whose companies contract with a design-services house to help them complete or start designs felt threatened by the model. And when the bubble burst in 2000 and design starts fell off the table, the design-services business fell with it. Cadence today has about 300 engineers in its design services business.

Cadence has changed its model as it's downsized its services business, shifting from a focus on front-end architectural design help to back-end implementation, said Cadence's Paul Estrada.

"It's hard to measure, but this really is a very leveraged business," said Glenn Dukes, vice president of design services at Synopsys. "Our goal is to make it contribute, in both good times and bad."

Mike Gianfagna, vice president of marketing at eSilicon Corp., said his company will outsource any part of the supply chain it deems to be a commodity. eSilicon will focus on what it considers differentiating skills, such as qualification, test, procurement, and logistics.

All things to all people?

"What we're finding is we can't be everything to everybody," said Karla Reynolds, manager of customer-owned tooling (COT) technical enablement with IBM's foundry and manufacturing services. "We want to get more into foundry space, but we need to use our third-party design centers to do that. We hope these outsourcing companies are successful."

Smith pointed out that a lot of mid-sized companies are having to make hard decisions today about being power users of tools or relying in part on an outsourcing model. The difference can be boiled down to $15 million for a power-user's design costs to $30 million for a partially outsourced design.

If there is benefit to the model to the purveyor and the user of services, the answered question is whether Wall Street will respond.

Design implementation outsourcing is a much lower-margin business than EDA," Smith said. "Every time an EDA vendor books more low-margin business against its high-margin tools business, Wall Street really doesn't like that ."