The EDA industry reported 6 percent growth in the first quarter, but it's not time to break out the champagne. Much of the growth was not in EDA product sales, and most of it is not occurring in North America, Europe or Japan.

The EDA Consortium's Market Statistics Service recently reported that first-quarter 2004 worldwide EDA revenue was $995 million, a 6 percent rise from a year ago. Much of that, however, came from a surge in design services, which was up 31 percent, and semiconductor intellectual property, up 15 percent. EDA licensing and maintenance revenue rose just 3 percent.

The uptick in design services is positive in that it reflects more design activity among EDA customers. But it also suggests that large electronics OEMs haven't reached the point where they're hiring full-time designers. Instead, they're outsourcing design work to EDA vendors and dedicated service companies. Meanwhile, there hasn't been a comparable rise in tool purchases.

Also curious is the geographical distribution of growth. North America, which still accounts for half of global EDA revenue, rose 5 percent in the first quarter. Europe was up 4 percent and Japan down 2 percent. But the real action was in "rest of world," where EDA revenue growth surged 36 percent, to $116 million.

Rest of world includes India, China, Korea, Singapore and other Asian countries outside Japan. How much of this EDA revenue growth is triggered by indigenous design activities, and how much comes from multinationals opening design centers in those countries? The latest EDA Consortium numbers may further signal a trend toward offshore outsourcing.

There is probably far more design activity in "rest of world" than the consortium figures suggest, given that a U.S. company that buys EDA licenses for a design center in Bangalore, India, may be included under North American revenues and given the proliferation of unlicensed software in countries like China.

While the latest numbers are a good start, a sustainable EDA recovery will show a notable increase in EDA product sales as well as services, and will show some real growth in North America, Europe and Japan. When companies in those countries start hiring engineers at home, both the EDA industry and the designers it serves will benefit.

Richard Goering is managing editor of Design Automation for EE Times.