The latest news from the EDA Consortium, (see EDA Sales Jump) will make a superficial reader truly believe that EDA revenues do in fact raise during slowdowns. But statistical analysis hides pools of quicksand just below the surface.
It takes a bit of further analysis to find the real picture and thus not be so quick to join Robert Gardner, executive director of EDAC, in congratulating ourselves for an overall increase of 6.7% in 4Q revenue compared with the same quarter a year ago. The problem, for those paying attention, is that revenue are reported in US dollars, a currency that has lost value during the intervening year.
Using the calculator provided at Measuring Worth I found out that 100 dollars in 2006 are equivalent to 102.85 dollars in 2007. That means that the dollar devalued internally during that period by 2.85%. To state it differently, the official inflation in the US during that period was 2.85%. During the same period of time the value of the dollar dropped by 7% against the Euro and a almost 1.5% against the yen.
EDA tools are sold in the local currency, not in US dollars. And when the dollar is used, the price is adjusted to compensate for local currency fluctuations in favor of the US based seller. This is not a secret, every foreign purchasing agent knows it, and tries to fight it.
Thus when EDAC reports that European revenue increased by 9.8%, it in fact only rose by 2.8%. The results from Japan, though, remain quite strong, as far as dollar values are concerned. But Japan is a difficult market to judge on a quarter basis, since their fiscal year ends in March, and not in December. So, although in many instances, EDA companies have been able to report good 1Q revenue from Japan as companies used up their EDA budget before the new year, it is possible that this year the bulk of the money was spent three months in advance.
You cannot have a global economy some of the times, and a local economy some other times.
Revenue amounts, when used to establish a trend, should not only be adjusted for inflation, but also for monetary fluctuations. The same reason that contributes to American paying well over $3.00 for gasoline, a weak dollar, also contributes to a realignment of EDA revenue. So, when the revenue are stated in Euros, it turns out that our industry has not grown at all, since the overall growth of 6.7% is below the value lost to the other stronger currency. I am sure I do not need to remind you that there are strong calls to begin to quote petroleum in euros, instead of dollars, on the international commodity market.
I do not think, by the way, that 2007 was a bad year, I just think it was not as good as EDAC would like you, and especially the financial community, to think it was. But I do worry about 2008. Last year electronics companies invested in tools in order to develop products they expected consumers would buy. But, we are either entering a recession or a significant slowdown globally, and not just in the US. Consumption of electronics products has either dropped or flattened in every relevant market, but especially in the US and Europe, markets that generally offer the best profit margins. Will the desire to continue to develop new products remain? Or will we find that companies are also slowing down new product development while they wait for the existing products to reach breakeven or profit levels? If the latter, then EDA vendors will see a decline in revenue for 2008, since the old adage "develop your way out of a slowdown" will loose strength in the electronics industry.