In Part-I of this series of articles, we discussed how the EDA market is a Triopoly between CDNS, SNPS & Siemens EDA (Mentor Graphics). In this article, we will discuss EDA’s total addressable market (TAM) and some factors which could grow TAM beyond the usual growth trendline.
TAM: According to industry estimates, the EDA market is expected to grow at a CAGR of 9.1% between CY22-30 from a CY22 market size of $11.1B to $22.2B by 2030. Historically, EDA market growth is directly proportional to the growth in semiconductor & electronics manufacturing. However, in the last couple of years, there’s been additional EDA growth drivers. We discuss incremental TAM growth in the EDA market apart from the traditional growth in-line with semiconductor & electronics manufacturing.
- Switching Chip manufacturers: For example, if Tesla used TSMC in Taiwan to manufacture a particular Automotive chip and now to diversify the supply chain wants to get the same chip manufactured from Samsung in Korea, Tesla has to use the EDA process which is used by Samsung to integrate with Samsung’s manufacturing process and hence run the chip design through the EDA suite again albeit without any major changes to the chip design. This requires additional EDA tools usage and so it’s another lever of growth for the industry.
- Companies setting up chip manufacturing units in different geographies: As more governments subsidize local chip manufacturing, new chip manufacturing units are planned around the world. Capex in the semiconductor space is estimated at $114B in 2022 and could be in the same range in 2023. Governments & Companies realized the dangers of relying on a single region (Taiwan) to manufacture all the chips during the pandemic-related supply chain disruptions and from Russia’s invasion of Ukraine. Hence, the US (US CHIPS Act), EU and many Asian (PLI in India) countries are providing tax breaks to set up new chip manufacturing plants. As these plants come online, over the next few years, they will have their own EDA processes and chip designers will rely on EDA tools to integrate with new chip manufacturing facilities.
- New AI, Machine Learning & Deep Neural network start-ups: For Cloud data solutions that specialize in AI & Machine learning, off-the-shelf GPUs are not always the right solution for all of their computational use cases. Hundreds of start-ups designing custom chips for various AI & Deep Neural network use cases have sprung up over the last few years. Cloud giants such as Amazon and Google have also designed special purpose chips for their own Cloud machines; these custom chips provide superior performance with lower power consumption compared to off-the-shelf GPUs. It is the equivalent of designing custom tires for race cars or off-roading rather than using the generic variety of tires. Some of the 20% plus growth in the EDA industry over the last few years is from these custom design chips, all of which require EDA tools to design new chips.
- EV’s & Autonomous cars: Deloitte anticipates EV sales rates to grow more than 12 times by 2030. EVs, on average, use 2-5x more chips compared to a combustion engine automobile. Simply put, EVs are a bunch of computers on wheels. For example, a Ford Focus uses roughly 300 semiconductor chips, whereas the average electric car has almost 1,400 semiconductor chips. The number of chips in automobiles is expected to grow with autonomous vehicles; while autonomous vehicles are a 5–10-year opportunity, EVs are a near-term growth opportunity.
Risks: EDA TAM growth over the long term is quite attractive. The sector is also one of the lowest volatility segments within the semiconductor value chain. However, there are a few near-term risks that may impact the segment. We will discuss a few near-term risks to the EDA market in Part III of this (Electronic Design Automation (EDA): Chip Design Software Tools) series of articles.
Note for Indian residents: Unfortunately, none of the companies in the entire semiconductor value chain (not only EDAs) are listed in India and hence it’s difficult for Indian residents to participate in this global growth segment in spite of being one of the largest consumers of semiconductors. Send a message to us and we will help you invest in these global growth opportunities.
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