[Editor’s Note: An edited version of this article first appeared on-line in EDA Weekly in March 2003.]

Before we started to discuss the EDA market in Taiwan and China (PRC), Dataquest’s Nancy Wu asked to set the stage for our discussion by describing the current state of affairs in the two countries with regards to semiconductor design, manufacturing, and test. After she set the stage, she then described the distinctions between the EDA market in Taiwan and China - with emphasis on China. Her concise and informative comments are as follows and reflect highlights from a significant Dataquest report published in January 2003, co-authored by both Nancy Wu and Gartner/Dataquest analyst Gary Smith.

"We started looking at the specifics of the EDA market in Taiwan and China in 2001 in a joint study done with EE Times-Asia. We surveyed close to 1000 engineers across the two countries about EDA tool usage in their daily work. We wanted to understand the nature of their engagements in ASIC, FPGA, and PCB design, and other types of design as well. And in that survey, we discovered a lot. And now we’ve updated the study."

"We had been seeing the Asia/Pacific market as the highest growth market in EDA over the past 5 years. Back in 1998, we had seen Taiwan emerge as the number one EDA marketplace in Asia, replacing Korea - which up to that point had been the number one market in Asia. But by 2000/2001, we were starting to hear that China was also becoming an EDA marketplace and that China was moving aggressively into [all aspects of] the semiconductor market."

"Interestingly enough, the Chinese strategy has been, not just to attack the semiconductor manufacturing and test areas, but also to attack the design area as well. The Chinese approach [might have been] to copy what Taiwan had done previously - to start with manufacturing and test, and then move into design when both manufacturing and test capabilities were steady and strong - but the Chinese have clearly moved into design simultaneously with manufacturing and test. They’ve tried to get up to speed in the three different areas at the same time, so their approach has been [distinctly] different from what we’ve seen in Taiwan."

"Since 1998, as Taiwan has become the leading Asian EDA market, Taiwan has shared a ‘bit’ of that market with China. However, as I said earlier, now we’re seeing China with more than just a ‘bit’ of the market. [In fact], although the EDA market in Taiwan continues to grow steadily, it’s actually not growing as fast as that of China and India. We’re seeing the design presence moving from Taiwan - and other traditional centers of design strength such as Singapore and Korea - and gradually shifting to China and India."

"[Parenthetically], I do sometimes hear of concerns from India, that China may be getting more attention [from the EDA industry] than India. However, my work has mostly been focused on China - and the market competition between Taiwan and China - so I do not know enough about India to comment in depth about that."

"[Meanwhile], we know that, in Taiwan, there are lots of OEMs who have [struck] deals with big computer giants like HP, IBM, Dell, and Compaq, among others - and those OEMs are supporting a type of derivative design [intended] to carry some of the design [load] for those large companies. That’s really part of the reason why Taiwan has become so involved in design."

"[Additionally], we were interested to learn that the majority of the design projects in Taiwan have been engaged in producing computer peripherals and consumer electronic products. Alternatively, in China [in its brief history in design], most designs are dedicated to telecom and datacom end-users. Since China got into the design market later - when the market was hot for cell phones, PDAs, etc. - they’ve entered the design market from the point of telecomm, WAN, and sometimes even military [end-use type products]. Meanwhile, Taiwan continues to emphasize computer peripherals and consumer electronics-related design."

"A year ago, Gary Smith and I both spoke at a CMP Media event in China. We found there, that Taiwan does not believe that the design community in China is getting ahead of them - that Taiwan is still way ahead. And I think they may be partially right."

"[Of course], in the areas of manufacturing and test - companies in Japan, North American, and Europe continue to invest heavily in Taiwan - and now some in China as well. But those companies are also investing money in design, both in Taiwan and in China - and China is [quickly] becoming an even more interesting area than before."

"Meanwhile, lots of Taiwanese companies are [also] investing in China. They are either investing [by way of] new companies or setting up operations of exiting Taiwanese companies in China. [Yet], those Taiwanese investors don’t see companies in China getting into the high-end design area. And, even though our survey indicates that companies from Japan, North America, and Europe are supporting design efforts in China that include high-speed, high-end design - even designs with greater than 10 million [on-chip devices] - Taiwan doesn’t seem to see any need for concern."

"China does have local design engineering [talent] - graduates from local engineering schools capable of doing high-end design. The problem is that there’s too much demand, and yet there aren’t enough well trained engineers. [So] there’s a lot of work going on in the local universities in China to train more engineers, to establish training facilities, and to cooperate with various EDA vendors to provide that training. China is [beginning to] emphasize getting more complex design projects into the schools, making them available to students, and also making more [on-the-job] training available to engineers who are already working. So China is working both in the universities and in industry [to promote the designer talent pool]."

"[Meanwhile], design engineers - whether in Taiwan, China, or anywhere else in the world - want EDA tools that can help them with their work. And they must find the best price for the tools that will provide exactly what they need. A lot of considerations need to be taken into account before a purchase decision is made. These considerations have to be carefully [evaluated] before a designer buys and uses a tool to get a product out [the door]. Lots of tools are needed which are capable of dealing with complex designs - but these tools are extremely expensive. That’s true every where in the world, no matter where [EDA tools] are sold."

"Suggestions that cultural distinctions in either the Taiwanese business environment or the Chinese business environment influence the way EDA vendors pursue customers in those countries are inaccurate. In Taiwan and China, [just like in every other EDA market], it’s the price point and customer support which are far more important [for the EDA customer] than the particular culture surrounding the business relationship. Pricing concerns are [always] the major issue in getting EDA products to sell - particularly in China."

"If you think of the price point - and remember that China is getting into design a lot later, the cost of living is lower, the engineering costs are relatively inexpensive - and if you think of spending $500,000 on a synthesis tool, it’s really more than Chinese designers can afford. Chinese design [houses] have to think of their ROI and how many projects they must engage just to cover the costs of purchasing such an expensive tool."

"Meanwhile, very few EDA tools are being translated into the local languages in either Taiwan or China. For Chinese design engineers who have started to focus in the design area, they are comfortable working in English and it’s not necessary for the tool vendors to translate the tool [interface] or the documentation. Again, the biggest concern for these customers is not so much the language, as the price point of the tools."

"I think EDA vendors are trying to open the market in China - one or two of the vendors are giving super high discounts just to get into the Chinese market. These vendors want to have at least ‘someone’ who can use their tools [on a design team] and who can become familiar with the product and its capability. Those vendors feel that once they have that ‘someone,’ they’ll then launch their product officially and be able to accomplish a larger market in China. [Today], vendors are competing to get the most market share by offering deep discounts - and then they will worry about how to get the revenue out of that market."

"[Certainly] in Taiwan, there’s still price competition among the EDA vendors, but it’s not [anywhere near] the level of price point that is being offered in China. [Additionally], since Taiwan has been engaged in design for many years - getting started much earlier than in China - they’re familiar with the vendors and which vendor can provide which functions and at which price point."

"This is not happening broadly across China, [however], since the design market there has only become [a reality] in the last two to three years. [In fact], the EDA vendors have just started to launch their programs in China and lots of vendors are not selling into that market at all. So the local design communities in China don’t [even] know which vendors are out there. What the Chinese design community needs to know, [today], is who is out there and who can help them do their designs."

"[Certainly], the Chinese know Synopsys, Cadence, Mentor and maybe another 10 vendors out of the top EDA companies. But it’s not like in the North American design community, where those designers are aware of 50 to 60 percent of the [EDA] companies. It’s going to take some time for the engineers in China to know who’s out there - the EDA vendors need to promote their tools and get their names out there in China."

"For many EDA companies, particularly the start-ups in North America, it’s really a business decision. Many of those start-ups are still in the design phase of their own tools - maybe they can sell one or two of their point tools to large North American customers [or customers in Japan or Europe], but those small companies aren’t able, or ready, to move into emerging markets like China. [As always], it takes quite a while for a small [EDA] start-up to get into the market anywhere."

"For mid-size companies, however - those who have established a steady business and are able to remain financially stable, even during the downturn - those are the companies who should be capable of sustaining exploration into new areas."

"[Meanwhile], piracy is [always] a concern in emerging markets, particularly in China. For instance, we’re seeing certain vendors who have a higher percentage of tool usage rates in China than [should be expected] when compared to their reported sales. The question is - Where are those engineers getting access to that software? [Not surprisingly], several vendors have seen that piracy is an issue and they’ve [noted] wide spread use of their tools."

"Do the vendors worry about it? They tell us - no, they do not. They say - yes, it’s a concern to them, but what can they do? One vendor has told us that they’re happy to see this wide spread use of their tool, because at least it’s opening the market for them. They feel that they will get maintenance fees for the [pirated] software and they’ll be able to keep relationships with those design houses [where the pirated software is being used]. Those vendors believe that, as those design houses get bigger, they will ask for more software seats and will end up paying for those seats eventually."

"[Clearly], the EDA market in China is small now, but it’s growing much faster than other areas around the world. That is part of the reason why a lot of tools have been pirated. But, in general, those pirated tools are the lower-end tools. Users are not really able to copy the high-end tools, because they need training and support to use those high-end tools and to work around the bugs. [Again], it appears that for some EDA vendors - those who are engaged in providing the next-generation design tools - they are happy to see that there are lots of users out there and happy to think that someday those users will migrate to the need for the next generation of tools."

"Taiwan and China have had a tense relationship for a long time. Gradually, however, they’re moving closer to each other. You can’t expect that leap to happen quickly and there are so many restrictions that must be lifted [by both governments] to allow joint [business development]. There is a lot of effort going on in the commercial area [to lower the barriers] - people in both countries lobbying their governments to open up to each other."

"China has always felt that Taiwan is part of their country, so China’s approach is pretty much to welcome any investment from Taiwan on the mainland. [However], Taiwan is at the opposite end of that philosophy - they’re still trying to maintain a distance from China, to educate their people that China is the ‘other’ country, [to insist] that Taiwan won’t talk to China until Taiwan is accepted as an independent country."

"So the two governments come at the problem from very different standpoints. Taiwan has certain rules, for instance, about how much you can invest in China in a particular year. But, [as with everything], there are always tricks to get around those kind of rules. Large companies like TSMC and UMC are always under the spotlight [from the government of Taiwan], so it’s not easy for them. But small and middle-sized companies can get around the rules and know that the government won’t see that they’re [working outside the rules]."

"[Meanwhile], businessmen on both sides of the Straight continue to try to reduce the barriers to joint ventures."

"Geographically, in Taiwan Hsin-chu is still the major design area. Tai-nan is in the southern part of the island, but that [technology center] is still under development, so there’s not a lot of design effort going on there as yet."

"In China, there are actually a lot of different cities and provinces engaged in various types of design work including Guangdong, Shanghai, Beijing, Jiangsu, Zhejian, Sichuan, and Shandong - where Shanghai and Beijing are the most significant cities in design with the largest number of designers engaged in different types of design."

"Currently, there is only one major EDA show in China - EDAT Expo, Electronic Design Automation & Test Expo - that focuses on EDA. [EDA&T was held in early March 2003, in Shanghai and Beijing.] ASP-DAC, for instance, never happens in Taiwan or China. There are other shows in Taiwan and China - but they have much more emphasis on manufacturing, not on design."

Previously Nancy Wu worked as a securities analyst in Taiwan and also served in various capacities at Avanti. In closing, she said that Dataquest is "the best place I’ve ever worked."

When asked about Gary Smith’s on-going interest in Taoism, she said, "Not only has he studied the philosophy closely, but he practices it as well. That," she added with a smile, "is great for me, because he’s my boss."

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Peggy Aycinena owns and operates EDA Confidential. She can be reached at peggy@aycinena.com

Copyright (c) 2004, Peggy Aycinena. All rights reserved.