Indeed, Verisity posted the single most successful performance of 2001's 93 IPOs, closing the year with a share price 170 percent over its March 21 opening price of $7 per share.

Magma, which went public Nov. 20, was the second most successful IPO with a 132 percent gain over its $13 per share offering price. Breaking the EDA string and coming in third was IP provider Monolithic System Technology Inc. (MoSys). But Nassda recorded the fourth most successful IPO with a 104 percent gain over its Dec. 13 offering price of $11 per share. And a 75 percent increase in shareholder value for PDF Solutions Inc. since its $12 IPO in mid-August earned that company a respectable seventh place, according to analysis by EE Times and investment house Robertson Stephens.

John Barr, an analyst with Robertson Stephens, said these EDA companies benefited from a natural upturn that coincides with IC makers' desire to buy new tools even while other technology sectors were experiencing a severe down cycle.

"The last time we saw EDA companies going public was back in the 1996 time frame and that was during a retooling cycle where chip designers were buying tools for 0.35 micron," said Barr. "Back in 1996, the other industries were also doing well so EDA didn't seem too great. Now the EDA industry is showing strength in difficult times and is getting more attention."

Simplex Solutions Inc.and Synplicity Inc., which also went public during an otherwise difficult 2001, have also done well on the market, he said.

Investment required

That EDA IPOs flourished even as the chip industry suffered its biggest plunge on record "isn't surprising" to Garo Toomajanian, research analyst RBC Capital Markets (formerly Dain Rauscher Wessels). "Even in a downturn companies have to invest in technologies that will help them innovate," he said. "If they don't they will miss an entire market window."

Toomajanian said that the EDA industry slumps typically trail semiconductor industry slumps by six months. But that wasn't the case in 2001 because the semiconductor downturn occurred at a time when new tools were needed for the transition from 0.18-micron to 0.13-micron design rules.

"The good fortune of EDA in 2001 is a bit of an anomaly," said Toomajanian. "Many companies want to design chips at 0.18 and 0.13 micron. They need the newest tools to do so."

Investors' newfound fondness for EDA stocks contrasts sharply with previous years, when EDA was overlooked. "Since the fall of the dot-coms, traditional values such as sound business strategy and solid customers have come back into vogue. Those were the cornerstones of our business all along," said Francine Ferguson, vice president of worldwide marketing at Verisity.

Ferguson also noted that Verisity's five quarters of profitability helped reassure investors. For the quarter ended Sept. 30, Verisity reported revenue of $9.8 million, a 63 percent jump over the same quarter a year earlier. Net income was $1.4 million.

Barr said that Verisity went public in very rough times, didn't overprice its stock or set expectations too high and then met those expectations.

Toomajanian also pointed out that the EDA industry has typically been less volatile than other technology sectors, which is why EDA IPOs fared well relative to other sectors in 2001.

"We are anticipating the general markets will pick up in 2002 and that EDA will do well," said Toomajanian. "We think there is a lot of pent-up demand — that people perhaps wanted to buy more tools but put those requests on the back burner for budgetary reasons."

Barr said he expects a few more EDA companies to test the public market in 2002. "EDA saw some great successes in 2001 and the industry hopes to stretch it into 2002 and beyond," he said.