The U.S. economy has been down for so long, and the dynamics of the electronic design automation market have been altered so much, that the landscape after the recovery may be different from the one we might expect. In the past, the survival of the fittest prevailed. Shakeouts pruned the weak, and the best companies and truly superior technologies survived the downturns. Will this evolution continue to strengthen the quality of the EDA industry? Maybe not.

Before we can predict the future, we need to determine where we are now. Dataquest sees worldwide EDA sales up a bit and domestic EDA sales down a bit. The major EDA players report worldwide revenue up a bit and earnings down a bit. Most report the distribution of revenue moving from domestic to international markets.

What is not reported, however, is the current state of the 300 other EDA companies. Undoubtedly, most of them would say their outlook is dismal. This subtle distinction between the big guys and the little guys may well be a major factor in the next big leap.

The big guys will survive. Even in a flat to down economy, they can hold their revenue stream through annualized term licenses, large maintenance legacies and strong international channels. They are globalized to take advantage of the current international uptick.

The little guys-the 300 other EDA companies-are taking the brunt of the downturn, small installed base, domestic focus, limited funding and weak sales channels. Forecasts from the four or five major EDA providers will be optimistic about the current recession. Forecasts from smaller EDA companies will be guardedly pessimistic about the current depression.

Many forecasters believe that innovation will be the driving force behind a recovery. The dynamics of innovation are different from what they were a decade ago. Today the three major EDA suppliers are distributors of mainstream, proven technology, while smaller EDA startups are the incubators of innovation. When an innovator penetrates the market and proves acceptance of the technology and methodology, it becomes a candidate for acquisition. The major EDA players bid for those innovators, which determines their balance of power.

The irony is that in these economic doldrums, innovation may not be competitive in the "survival of the fittest" equation. The fittest will be the established-that is to say, mainstream-institutions, while innovation declines because of the inability of innovative companies to reach critical mass before the economy recovers. If this happens, we may delay or even skip a technology generation.

The ability to leverage innovation has been the hardest-hit dynamic in this downturn, and it will influence EDA's evolution. It will not kill the next cycle, but it may soften an inevitable recovery.

Perhaps, though, this is just the slow start of a new beginning: The next decade could be the most explosive and revolutionary ever. Maybe it's worth hanging around awhile.

Bill Hoolhorst, Chief Executive Officer, Monarch Technologies Group, Redwood City, Calif.