uploads/2015/02/v.png

Factors that will shape the EDA industry

By

Updated

Chip complexity’s effect on the EDA industry

In 1975, Intel co-founder Gordon Moore predicted that chip complexity would double roughly every year, an axiom known as Moore’s Law. Moore’s prediction has held up well through the years, as chip complexity doubles every year and a half. As technology advances, some companies are migrating toward more advanced nodes, such as 16nm and 14nm FinFET structure, although many preferred to remain at 28nm.

Article continues below advertisement

The industry faces cost challenges, as complex designs are costly to implement. As complexity grows further, the increased demand for more advanced electronic design automation (or EDA) tools, as well as IPs (intellectual property) embedded in SoCs (or Systems on a Chip), is likely to outweigh challenges in the form of increased SoC development costs.

Internet of Things likely to be a major driver

Internet of Things (or IoT) refers to wireless devices that are connected to each other through the Internet. For instance, home devices such as air conditioners, washers, and refrigerators could be connected. Wearable products such as watches can be connected to a data processing system via mobile phones. Security systems such as alarms and cameras, or energy devices such as thermostats, could also be part of the IoT.

Going forward, IoT is likely to be a major growth driver as this market is forecast to grow at a compounded annual growth rate of 30% and should reach $290 billion by 2017.

Article continues below advertisement

These trends are likely to translate to increased shipments of electronic devices and should have a positive impact on the performance of semiconductor companies, including Applied Materials (AMAT), Intel (INTC), Texas Instruments (TXN), and Broadcom (BRCM). They also bode well for companies into EDA and IP.

Key ETFs

Investors seeking to gain exposure to the semiconductor sector can consider a pooled investment vehicle such as the VanEck Vectors Semiconductor ETF (SMH). In addition to an allocation of ~35% for Intel and Taiwan Semiconductor Manufacturing, this ETF has an allocation of 4.93% in Arm Holdings (ARMH) and 4.20% in Micron Technology (MU).

Advertisement

More From Market Realist