Dialogue - Walden Rhines

Part 1, startup issues in the EDA industry

by Bipin Parmar & Woz Ahmed

The Chilli's analysts talk to Walden (known in the industry as Wally) C. Rhines, the 57 year old chairman and CEO of Mentor Graphics. Rhines has held several senior positions in the electronics industry, and prior to Mentor Graphics was executive vice president in charge of Texas Instruments' Semiconductor Group with responsibility for over $5 billion of revenue and over 30,000 people. He served as chairman of the Semiconductor Technical Advisory Committee of the Department of Commerce, as an executive committee member of the board of directors of the Corporation for Open Systems, as a board member of the Computer and Business Equipment Manufacturers' Association (CBEMA), and as a board member of Sematech. He is also board chairman of the Electronic Design Automation Consortium, a board member of the Semiconductor Research Corporation and Lewis and Clark College.

Walden Rhines

Rhines talked to The Chilli last month in London, and we are presenting the discussion here in two parts. The first part, deals with startups and Mentor Graphics relationships with them. In the second part, he gives his views on general issues affecting the EDA industry.

The questions:

MS1: How important and what roles do high growth startups play in Mentor's overall business strategy?

MS1a: Why there are only three large EDA vendors?

MS2: Do you have a special programme that understands the needs and challenges of startups, and addresses issues specific to start-ups?

MS3: What percentage of Mentor's revenues come from companies that did not exist five years ago?

MS4: Mentor had instigated a community-related programme for displaced engineers. Can you tell us more about the programme and how it has worked out?

MS1: How important and what roles do high growth startups play in Mentor's overall business strategy?

EDA startups play two primary roles in the industry, and Mentor Graphics' strategy: as customers and as creators of innovative technology and tools. Mentor has been successful attracting startups as customers since the early 1990s, due to our long-established distribution channel, which could provide expert support for our very popular product Modelsim.

More recently, a startup in Silicon Gorge (Bristol, UK) has done complete design flows with us, as we had worked on developing models for a low cost design start for those with limited budgets.

One of our competitors had adopted the strategy of taking equity in startups, in exchange for design tools. Mentor did this once or twice, but stopped, as we were concerned that founders who were willing to give away equity (the most precious form of money) so early on for tools were not necessarily the ones who would succeed in building sustainable businesses.

Mentor is a key supplier to fabless startups, with our 'Calibre' tool for foundries, and related design tools for analogue and mixed-signal.

EDA startups are a key source of new innovation. They do not need to go the IPO route, as they mostly get acquired by one of the big three EDA companies.

MS1a: Why there are only three large EDA vendors?

A certain revenue threshold is required for worldwide sales and support network. Customers enter into a relationship of critical trust. I meet many CEOs, and before they commit to an EDA vendor, they need to know that they can contact the CEO, see the whites of his eyes, and know that we will be there for them in the short and long term.

EDA startups in the Valley first get revenue traction locally, then start generating business in other clusters such as Texas, then Tokyo, Europe and Korea.

It gets very expensive, particularly when a startup tries to develop and maintain a distribution channel and support network. As equity dwindles, restricting expansion, so they sell out to one of the big three.

MS2: Do you have a special programme that understands the needs and challenges of startups, and addresses issues specific to start-ups?

Yes, we have a programme in place for startups. For Mentor they are greenfield prospects, as they have no legacy, although their staff may well have preferences in terms of what they have used previously.

We have always felt that VCs have had an influence on the decision to select a tools vendor. Good VCs will realise that vendor partnership is key, and will note that Mentor has a strong relationship with the foundries and partners with other EDA vendors. VCs with little domain expertise will focus on the lowest price, or prejudice, in terms of tools they may have once experienced several years ago.

We will often partner with other EDA vendors, e.g. Magma, to do turnkey, or sometimes alone, using products such as IC Design Station.

Mentor has considerable interoperability experience in different IC design flows. One flow with one vendor is a nice idea, but not always the best. The history of single vendor flows isn't good, and we believe a mixed flow to be better. Having a single vendor puts a customer at their mercy.

Mixed flows are often best for the customer, giving them the ability to use innovative solutions from EDA startups to solve tricky challenges. It is best to use a primary EDA vendor who is willing and able to partner with other EDA vendors.

Some of the best integrated tools for interoperability come from startups. Many EDA product and services companies sprung up in the late 1990s.

The big three have made strides to deeply integrate and be interoperable with one another. Cadence and Synopsys need integration with Mentor's Calibrate tool, just as Mentor needs integration with Synopsys' Logic Synthesis. No one vendor has best in class tools for 80% of the design flow, so we need each other.

MS3: What percentage of Mentor's revenues come from companies that did not exist five years ago?

Just under 50% of Mentor's bookings came from startups/small companies in the bubble era of 2000. It is now around 20%. In the last two years over 600 VC-backed startups have engaged with Mentor. This is mostly in the USA, although the UK, particularly Silicon Gorge, is quite strong.

MS4: Mentor had instigated a community-related programme for displaced engineers. Can you tell us more about the programme and how it has worked out?

As the industry recession worsened, we reviewed our training programmes. We decided to train unemployed engineers on Mentor products, to help them find employment, to help get Mentor tools designed-in and if nothing else, to help educate these engineers to improve their design skills.

Worldwide the scheme has been offered to over 700 people. The training, if offered at list price, would cost over $1m. In the UK, 60 people have applied, and 45 of them have been given training.

To read the second part of The Chilli's discussion with Wally Rhines, and his views on the industry as a whole, click here.

Comments on this story? Send an e-mail to Editor@TheChilli.com

© Chilli Publishing Ltd 2004

02JUNE2004