According to statistics from the Electronic Design Automation Consortium, EDA industry emulation revenue, which is usually an early sign of customer commitments to major new design projects, grew 16 percent in the fourth quarter of last year. EDA product and maintenance revenue for North America grew 15 percent, a hopeful sign since the United States has historically led all recoveries. Moreover, in the same period, seven out of 10 small public EDA companies reported strong double-digit growth. This tends to be a leading indicator of renewed design activity because such companies are usually narrowly focused on specific products for particular design tasks, rather than depending upon revenue from a range of products.

So design activity is increasing. And this time, unlike previous cycles, I believe it will not be stalled by limitations in leading-edge semiconductor manufacturing capacity. A large number of fabs in various stages of completion were "mothballed" when the downturn hit, and those fabs can now be ramped up much more quickly than would be the case if construction had to start from scratch. Moreover, they can be brought online in stages according to demand. So I expect to see relatively constant availability of leading-edge design capacity for several years or, at worst, a series of "boomlets" as minor wafer supply demand imbalances are quickly corrected.

How will that affect EDA? Leading-edge designs with increased functionality and shrinking geometries will demand leading-edge design tools. Having a young product portfolio of design tools will be a tremendous advantage in this climate. The challenge of designing for manufacturing with geometries smaller than the wavelength of light is going to be a major factor driving EDA growth. On a larger scale, I also think the emergence of a huge middle class in Asia, especially China, will generate enormous demand for electronic products that need EDA tools to enable design.

The continuing boom in consumer electronics will be an important driver. So will the wireless revolution, especially as we upgrade to the next generation of phones. Another huge growth area is likely to be automotive electronics. A new car now contains 15 percent more electronics than the models of one year ago, in entertainment, navigation and safety systems. Over the next few years I foresee innovations such as collision avoidance warnings for changing lanes and backing up. I also see televisions and DVDs being placed in the backseats of sedans in a few years, just as they are now in some SUVs. The automotive market represents an enormous potential for those EDA companies that are preparing now to meet future need.

In terms of chip-specific technologies, I believe things like Wi-Fi, ultrawideband, RFID tags and possibly smart cards will increase demand for leading-edge design tools.

And bear in mind that 90-nanometer technology is still only in its infancy. As 90-nm technology progresses, it will in turn spawn more innovations that take advantage of reduced feature sizes.

Walden C. Rhines Chairman and Chief Executive Officer, Mentor Graphics Corp.,Wilsonville, Ore.