US chip software makers thrive in China with non-Huawei clients

Linda J. Dodson

TOKYO — One would assume that American trade sanctions imposed on Huawei Technologies would have been a heavy blow to U.S. chip-design software providers. Yet, earnings reports of such U.S. companies show no sign of a slowdown.

Synopsys and Cadence Design Systems, the two American companies that form a virtual global oligopoly with Siemens unit Mentor Graphics, have enjoyed uninterrupted success in China, selling to non-Huawei clients.

“Growth continues well in China,” Chairman and co-CEO Aart de Geus said during a May 20 earnings call. “Actually, growth continues overall in the world, but China particularly.”

The company has “learned how to live without” companies listed in the so-called entity list, he said, which restricts business with the likes of Huawei.

Cadence reported $83.8 million in sales to China during the January-March quarter, accounting for 13% of overall sales. That marks an 80% jump from the same quarter in 2018, the first year Cadence disclosed those figures, although the company has ceased trading with Huawei.

Huawei has enlisted subsidiary HiSilicon to develop chips for telecommunication equipment. (Photo by Shuhei Yamada)

The U.S. Department of Commerce enacted export controls against Huawei in May 2019. Companies are not permitted to deliver American equipment and software to the Chinese telecommunications equipment giant without a license.

But the electronic design automation software that Synopsys and Cadence offer are indispensable tools that chip designers rely on to draw blueprints of next generation processors. The advanced technology has created a high barrier to entry, and no substitute supplier from China has emerged.

Huawei’s strategy was to have subsidiary HiSilicon Technologies develop the semiconductors needed for its fifth-generation telecom equipment. The need for Huawei to be self-sufficient became increasingly clear after Taiwan Semiconductor Manufacturing Co. ceased taking chipmaking orders from the client, in accordance with further tightened U.S. restrictions.  

But despite such troubles at Huawei, American EDA software providers look to be doing just fine.

Stepping in to fill the void is China’s local public sector.

“Mass purchases of EDA software by Chinese regional governments should be noted,” said Koki Inoue, principal researcher at the Economic Research Institute of the Japan Society for the Promotion of Machine Industry.

Investment companies headed by local authorities have poured resources into developing fabless semiconductor producers. These enterprises are believed to number nearly 500 across the country.

Inoue’s research shows a surge in local government purchases of EDA software, which then is used by the fabless makers. For Synopsys and Cadence, this looks to have been more than enough to offset the loss of sales to HiSilicon.

“A number of companies have picked up very quickly where others could not develop themselves,” de Geus said at the Synopsys earnings conference, without elaborating.

Is Huawei using these companies to develop the chips that HiSilicon can no longer create? It is not clear.

But Inoue throws up a hypothesis. 

“If HiSilicon dispatches engineers, a small company can re-create a development environment on par with HiSilicon,” he said.

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