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Cadence: U.S. lags China, India in semiconductor funding

Posted: 21 Mar 2013     Print Version  Bookmark and Share

Keywords:semiconductors  venture capital  funding  startsups  EDA 

“The China and India governments are making semiconductors a strategy industry, but I would hate to see those countries have the most semiconductor companies," said Lip-Bu Tan, the chief executive of Cadence Design Systems Inc.

In a roundtable with journalists before his keynote at annual CDN Line event, Tan said, “China and India are pouring money” into semiconductors and “the U.S. government should do the same,” said Tan. If it doesn’t, some day U.S. engineers “will have to go to China to work, and its painful to see your kids go to the other side of the world."

Expressing his concern over the decline in U.S. venture capital funding for chips, Tan said the U.S. was once home to as many as 30 VCs active in semiconductors, but now has five or fewer, including Walden International, Tan’s own company that has many investments in the U.S. and China. “It’s very alarming for me personally to see, so I am trying to reverse the trend,” he said.

“If the VC trend is not reversed, innovation will be threatened, so it’s important to see more startups funded,” said Tan.

Cadence's board of directors has discussed starting its own internal VC fund, following in the footsteps of larger companies such as Intel and Qualcomm. So far it has resisted what it sees as a risky business outside its core, but it may opt to loan startups design tools they can pay for once revenues come in, he said.

For the past decade, VCs have turned to Internet software and services companies such as Google and Facebook that have lower startup costs and higher return potential than most chip startups. Even Tan has participated in the trend as a member of the board at Weibo, a China social networking site that gained 50 crore registered users in two years.

Tan points to Walden startups such as Ambarella as examples of viable chip ventures. With investments of less than Rs.134.41 crore ($25 million), such companies grow to profitable firms that could be acquired for upwards of Rs.537.63 crore ($100 million), he said. “If you can demonstrate that, the VC money will come back,” he said.

EDA companies need to grow--and be more fun

Tech companies including Cadence have done their share of acquiring startups to access new technologies and products. Most recently Cadence bid to buy Tensilica in Silicon Valley and Cosmic Circuits in Bangalore to expand its portfolio of intellectual property cores.

Cadence has plenty in the bank for any other acquisition candidates it finds. The company has Rs.4,446.24 crore ($827 million) in cash, generates more cash each quarter and has a Rs.1,344.09 crore ($250 million) line of credit at a relatively low interest rate. “We generate a lot of cash, so liquidity is not our barrier,” said Tan.

The chip designers the EDA sector serves, however, face a tougher financial outlook. Market watcher Semico Research predicts the $108 million required to design a 28-nm chip could balloon to Rs.1,129.03 crore ($210 million) at the 14-nm node.

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