The North American EDA market may be showing declines in revenue, encouraging a slip in total Q1 EDA sales, but EDA Consortium (EDAC) Chairman and Mentor Graphics CEO Walden Rhines is confident on EDA growth opportunities beyond the industry's largest market.

EDAC's Market Statistics Service (MSS) today announced that Q1 EDA industry revenue declined 1.2% to $1.350 billion compared to $1.366 billion in Q1 2007 and was down some $2.5 million from the $1.6 billion recorded in Q4 2007.

However, the four-quarter average growth rate, which compares the most recent four quarters to the same four quarters in the prior year, was up 5.9%, according to data from the group.

"North America was down while Europe and Japan were up and there was an increase in the Rest of the World," said Rhines. "If you look at the four quarter moving averages there, the US is still down slightly, 0.8%, but the Rest of the World on a four quarter moving average basis is up nearly 20%."

EDAC numbers estimated North America purchased $565.1 million in EDA products and services in Q1, which represents an 8.2% decrease compared to Q1 2007. The figure is also down from Q4 revenue of $735.9 million.

Rhines reminded that Q1 is traditionally a weak quarter compared to Q4.

"The one-quarter effect of an 8% decline in the US can be affected by who orders what in what quarter. What's probably more meaningful is that the US market is not growing on a four quarter moving average basis, whereas all the other markets are reasonably well on a four quarter moving average basis, with the exception of ROW [Rest of the World] on a single quarter basis," he said.

Western Europe revenue was up 13.5% in the March quarter compared to Q1 2007, with revenues of $268.7 million. Sequentially, revenue in the region was down from Q4's $316.9 million. The four quarter moving average growth for Western Europe was 11.2%.

Q1 revenue from Japan increased year over year by 2.4% to $327.1 million and was down slightly from Q4's $316 million. The four quarter moving average increase was 7.9% for Japan.

ROW

ROW Q1 revenue decreased 2.5% year over year to $189.8 million and recorded a sequential decline from Q4's $233.8 million. ROW's four quarter moving average growth was positive at 19.9%.

"Rest of the World tends to be driven by multinationals, so it's more a case of growth from the increasing amount of design that European and US companies are doing offshore in places like India and China than it is by local demand," Rhines said.

The executive further noted the strength of start-ups and smaller EDA companies as a buoying market factor. Non-public EDA companies tracked by EDAC's MSS, which Rhines said tend to be start-up and smaller EDA companies, saw a Q1 year-over-year revenue gain of 12.9%.

"The actual numbers for startups were quite strong. Small companies pop up and are acquired on a pretty steady basis," he remarked, noting the commonness of M&A (mergers and acquisitions) in EDA. "What you see over time is that any consolidation that occurs is offset by the new start-ups that come in. If you look at the last three or four years, the market share of largest three EDA companies has been almost constant."

As Mentor's CEO, Rhines has a firsthand understanding of consolidation in the EDA industry. The company just this week made a cash offer to acquire a controlling stake in Flomerics, a computer simulation company based in the United Kingdom.

On the flip side, Mentor is currently being pursued by its rival Cadence Design Systems, which in June made public a $1.6 billion bid for the fellow top-three EDA company. Rhines declined to comment in an interview with EDN Wednesday on the bid.

Revenue by product category

By product segment, Rhines noted main areas of strength were in leading-edge technologies, such as ESL (electronic system level) design, design for manufacturing, design for test, IC layout verification, IC/ASIC power analysis, and RF/ mixed-signal design.

EDA's largest category, computer aided engineering, generated revenue of $535.4 million in Q1, representing a 2.7% increase over the same period in 2007. However, sales were down sequentially from Q4's $663.6 million. The four quarter moving average computer aided engineering growth rate was 10.6%.

For IC physical design and verification, EDA's second largest category, revenue decreased to $325 million in Q1, a 9.1% decrease compared to Q1 2007. Revenue was also down significantly from Q4's $440.5 million. The four quarter moving average growth rate increased 6.7% for the segment.

Printed circuit board and multi-chip module revenue also decreased, dipping by 1.4% year over year to $131.1 million. Sequentially, sales were down from the $153.8 million recorded in the December quarter. The four quarter moving average growth rate for the segment showed a 4.7% decrease.

Semiconductor intellectual property revenue totaled $271.4 million in Q1, a 1.7% increase over Q1 2007 and a gain on Q4's $265.4 million. The four quarter moving average growth rate for SIP was 1.2%.

Services revenue was $87.8 million in Q1, down 0.8% year over year and up from Q4's $79.4 million. The four quarter moving average growth rate for services was 6.0%.

By Suzanne Deffree, Managing Editor, News - Electronic News