Santa Cruz, Calif. Synopsys Inc. and Magma Design Automation Inc. independently announced acquisitions last week that signal their willingness to pay dearly to expand beyond traditional electronic design automation markets.
Synopsys said that it would acquire memory intellectual-property provider Monolithic System Technology Inc. for $432 million in stock and cash, while Magma agreed to pay up to $140 million for Mojave Inc., a startup with design-for-manufacturability (DFM) analysis technology.
Synopsys' agreement to pay such a high valuation for a company that had revenue of just $19.2 million in 2003 drew criticism from competitors and analysts, and helped trigger a 13 per-
cent fall in Synopsys' stock price last Tuesday. And some observers questioned why Magma would pay so much for a 10-person startup with no products or prior public announcements.
The reason for these seemingly expensive acquisitions may lie in the relatively anemic recovery that's taking place in traditional EDA sectors. Gartner Dataquest recently lowered its growth forecasts for EDA, particularly for IC physical design, as designers look toward electronic-system-level de- sign and register-transfer-level signoff .
In a conference call with analysts last week, Synopsys chairman and CEO Aart de Geus said his company intends to become a player in the "broader silicon infrastructure market." He identified intellectual property (IP) and design for-manufacturability as two areas of key concern to Synopsys customers. "These areas are funded outside the traditional EDA budget, and thus they expand our market significantly," he said.
In addition to its acquisition of Monolithic System Technology (MoSys), Synopsys paid $22.5 million to acquire Accelerant Networks Inc., a provider of serializer/deserializer technology that Synopsys intends to integrate into its connectivity IP portfolio.
Synopsys, however, didn't raise its 2004 revenue guidance in light of the two acquisitions, and in fact lowered its earnings guidancea move that led to Tuesday's stock price decline.
Magma decided to buy Mojave, which is developing physical-verification software, in order to integrate Mojave's DFM analysis with Magma's IC design flow. "This opens up a significant new market for us--the market for tools between GDSII and silicon," said Venk Shukla, senior vice president at Magma. "That's where the bottleneck is."
Investors didn't like that move, either, sending Magma's stock down 7 percent last Wednesday, a day after the Mojave announcement.
Synopsys' de Geus said strong customer demand is pushing the company into IP. "Our customers require rock-solid quality IP," he said. "Our [IP] business has grown rapidly in the last 18 months, and customers increasingly want Synopsys to become the house supplier for the majority of their diverse IP needs."
Synopsys' major new expansion, he noted, is into memory IP, which may consume up to 70 percent of the area of systems-on-chip by 2005. De Geus said that MoSys' 1T-SRAM technology, based on single-transistor memory cells, offers better density, power, speed and yield than other approaches, and is scalable for different process geometries. The cells are similar to DRAM cells, but don't require a DRAM process. They are organized into small blocks that can be independently refreshed, precharged and accessed. The array of blocks is surrounded with logic and buffer SRAM, so the entire array appears to be a very fast SRAM, although denser and lower in power.
Asked about the high premium paid for MoSys, de Geus replied, "IP valuations are quite rich in general, and hopefully some of that will transfer to Synopsys." The acquisition of MoSys, a public company that employs around 90 people, is expected to close before the end of May.
At least one analyst viewed the deal in a positive light. "I think the acquisition of MoSys makes a lot of sense for Synopsys," said Jim Tully, vice president of research for semiconductors at Gartner Dataquest. "IP is likely to become
a far bigger market than EDA in the long run, and Synopsys is obviously making sure it will remain a big player." The acquisition, Tully said, will open the MoSys product to "far greater opportunities" and is likely to grow the IP market as a result. Dataquest currently sees that market growing 14 percent in 2004, 18 percent in 2005 and 22 percent in 2006.
Puzzled by deal
But news of the deal prompted a less positive comment from another analyst. The premium Synopsys paid was high, noted RBC Capital Markets analyst Garo Toomajanian, who also questioned whether MoSys' technology would fit into Synopsys' business. He said MoSys technology must be accompanied by a methodology and services arrangement. "MoSys offers a semiconductor technology, not a design technology," he said.
Mike Kaskowitz, general manager of Mentor Graphics Corp.'s IP division, also questioned the wisdom of a valuation that's more than 20 times revenue. He noted that Mentor once had a memory IP business, but got out of it. "It is very difficult for an EDA channel to actually service that business," he said. "Typically, memories align better with a foundry-based model."
It's likely that the purchase will disrupt Synopsys' relationships with its customers, suggested Jan Willis, senior vice president for industry marketing at Cadence Design Systems Inc. "Synopsys is directly in competition with IP suppliers and customers," said Willis. "Not only do they jeopardize their relationships with key players like ARM, but how do they make money? They certainly can't continue paying premiums on acquisitions like they did with MoSys."
Magma, meanwhile, agreed to pay $25 million upfront for Mojave, with additional payments of up to $115 million if specified milestones are met. It's a high price for an unannounced startup, but this particular startup has been the subject of much speculation, given the caliber of its founding team.
The company is headed by chief executive officer Vivek Raghavan, who was formerly in charge of Avanti Corp.'s Astro placement and routing system. Other Mojave founders and technologists include John Lee, former R&D director for Avanti's simulation and analysis products, and Murat Alaybeyi, architect of the StarRC-XT product.
Mojave is developing DFM-aware, physical-verification software that can be integrated into an IC design flow. "We think there needs to be a synergy between design and verification tools, and with Magma's success in the implementation space, we see good synergy," Raghavan said.
While Mojave's physical-verification technology potentially competes with Mentor Graphics' Calibre product, Magma is planning to take it in a different direction, said Nitin Deo, Magma's vice president of product marketing. "So far, people have gone through postprocessing, but we want concurrent analysis for manufacturability issues during the implementation process." Product decisions have not been made yet, Deo said, but Magma believes Mojave's technology can help guarantee that structures in physical design will be manufacturable. "What is different about this technology is the way it does the analysis in a hierarchical fashion, handling large chips."
"Design-for-yield and manufacturability are significant concerns for major semiconductor customers, so it is not surprising that Magma would be trying to fill the major gaps within its flow," said Sandeep Khanna, Synopsys' vice president of marketing for DFM products. "The Mojave technology, however, is unproven and will take a long time to mature."
But it may be just the technology Magma wants, suggested Eric Filseth, Cadence's marketing vice president for IC implementation. "We don't know exactly what Mojave is doing," Filseth said. "It must have been truly exciting to command the kind of premium Magma is apparently paying."
Additional reporting by Michael Santarini and Ron Wilson.