Complex chips reignite demand for design services

Two announcements last week suggested an increasing role for EDA vendor design services. The EDA Consortium's Market Statistics Survey showed year-to-year growth in design services for the second quarter in a row, and video IC provider Focus Enhancements Inc. announced a partnership with Cadence Design Systems Inc.'s services group to collaboratively design an ultrawideband (UWB) chip set.

But EDAC's design services revenue for the second quarter — $69.9 million — is still far below the record $153.1 million recorded in the fourth quarter of 2000. The consortium's numbers reflect only services from EDA and silicon intellectual-property (IP) providers, a small portion of the overall semiconductor design services market.

That larger design-outsourcing market was around $2.5 billion in 2003, said Jim Tully, analyst at Gartner Dataquest Inc. Included in this figure are independent design services firms such as Intrinsix, electronics manufacturing services providers like Flextronics, offshore specialists like Wipro, distributors such as Arrow and Avnet, and semiconductor manufacturers themselves.

The services market swings up and down with the semiconductor cycle, Tully said. "The difference this time is that the last downturn was so bad that large numbers of engineers were laid off," he said. "The semi vendors have been so nervous since then that they have not re-employed many of these engineers. They have had no choice but to turn to services firms."

But this doesn't translate into much of a rise in design services revenues, said Bill Martin, acting vice president for Mentor Graphics Corp.'s worldwide services group. Mentor has largely gotten out of design services and is focusing its efforts on methodology services, which help customers get the best use out of Mentor's tools.

"There is so much competition out there for people doing design work that you've got more pressure on what you charge for services," Martin said. "Providers of silicon, boards and systems may throw in services. That hurts margins. There might be a lot more work, but it's not translating into more dollars."

But Cadence Design Systems and Synopsys Inc., the two largest EDA vendors, remain bullish. Cadence has more than 300 people providing both design and methodology services. "Cadence's service business has been very focused and very solid over the last couple of years, increasingly so," said Y.Y. Lee, vice president of worldwide services at Cadence.

Synopsys has over 250 people providing several types of services, said Glenn Dukes, vice president of Synopsys Professional Services. These include technology consulting for specific tools, optimization of design flows, IP integration and "design realization," which involves chip design services for customers.

Dukes declined to comment on revenue or growth, but noted that Aart de Geus, Synopsys' chairman, cited a 12 percent year-to-year revenue increase in design services during Synopsys' fiscal third quarter, ended July 31. The largest services area, Dukes said, is design realization, accounting for about 60 percent of the services business.

Intrinsix Corp., one of the largest independent ASIC design services firms, has recently seen a 20 percent jump in its services business after being flat for 18 months, said Jim Gobes, president and CEO. But the business is nowhere close to where it was in 2000, he acknowledged. Intrinsix, which has designed more than 650 ASICs, employs around 100 people in 10 design centers.

What appears to be driving some OEMs to consider design services is the increasing complexity of system-on-chip (SoC) designs, coupled with scarce resources in strategic areas, like analog and mixed-signal design. "The number of design starts is going down, and the risk associated with design starts is going up," said Cadence's Lee. "There is increasingly low tolerance for risk in the process. Our customers are looking for predictability."

Further, she noted, many customers are tackling technologies such as wireless or RF for the first time. They need to reach out for domain expertise they don't have in-house. Focus, for example, is "trying to do video over wireless, which takes advantage of one of our key vertical areas of expertise," Lee said. Cadence and Focus will collaborate on the design of an entire UWB-for-video chip set, she said, including both digital and analog components.

Synopsys, said Dukes, is seeing renewed interest in design services. In a Synopsys Users Group survey last year, he said, only around 23 percent of respondents said they would consider using design services; this year, that figure is up to 60 percent.

"Companies cut too deep and didn't invest in the resources or training they needed in the past couple of years," he said. "Now, as they start to do advanced designs and move to 90 nanometers, they find they need additional skills and capacity to deal with signal integrity and yield issues and power consumption."

For such customers, Dukes said, Synopsys Professional Services can "complement" existing internal teams.

Mentor has around 100 people in its services business, and that business has grown 20 to 25 percent since 2002, said Martin. The key, he said, was moving from chip design services to focus on methodology services. "If we had continued in the RTL-to-gates space, we never would have seen this kind of growth," he said.

Independent view
Gobes of Intrinsix acknowledged that margins in the services business are often low, and that there's increasing competition from offshore providers. What works for Intrinsix, he said, is focusing on high-value areas such as mixed-signal design.

The company only does physical design for mixed-signal ICs, he said, because digital physical design has become a "commodity" that is widely available from ASIC vendors. Intrinsix's main focus is front-end design for complex SoCs. The company also does some verification work, but competition is higher in this area and pricing pressures greater, Gobes said.

"We're seeing companies send a significant amount of work to [India and China], but it's not work we're competing with," Gobes said. "That's stuff that can be well-specified and easily done by virtually anyone. We have a higher cost model, and we're doing leading-edge stuff."