Q: In Q1 2009, Magma Design Automation regained its momentum, registering 11 percent quarter-over-quarter (QoQ) revenue growth. In the second half of 2009, what initiatives will Magma implement to sustain its profitability, set the company apart from its competitors and improve its performance within its supply chain? What benefit does participating in the analog/mixed-signal market provide the company?

A: Magma Design Automation expects to be profitable during the next three to four quarters. Even if today's difficult economic climate continues, we have already positioned ourselves to remain stable and lucrative in 2H 2009. However, if the economy worsens, we will need to take the necessary actions to sustain our profitability. Over the past year, Magma has developed software tools that have great usability and require the effort of fewer engineers, thus enhancing the productivity of our customers' design processes. This technology achievement has allowed us to gain many customers and differentiate from competitors as we strive to provide the most user-friendly tools that produce profitable chips for our customers. During the next few months, we plan to interact with many more companies to further promote the performance advantages of our products.

Magma views the analog/mixed-signal market as the future of chip design as it is necessary in emerging semiconductor applications such as smart grid technology. The big chips that the industry typically produces cannot be used in these new applications which require that designs be combined with diodes, analog circuitry, etc. We actually first discovered the demand for the analog/mixed-signal market when our key customer, Texas Instruments, moved to analog/mixed-signal. In the past, Magma centered its efforts on wired and wireless communication to support Texas Instruments in this market. Similarly, when Texas Instruments voiced a few years ago that they would be getting involved in the analog/mixed-signal space, Magma heavily invested in it. We have already developed key analog/mixed-signal design solutions and aim to be a technology leader in this market.

Q: As companies continue to expand their global operations (e.g., nearly 50 percent of Magma's employees are located in Asia, Europe and India), their supply chains become increasingly complex to manage. How does Magma streamline its global operations to produce quality products and minimize risk? What global markets are currently proving profitable for Magma?

A: When Magma started implementing company changes to reduce costs, one significant task we undertook was reassessing our global operations. We previously had employees located in multiple countries, such as China, India and the U.S., working together on one product. However, communication amongst the employees in these regions was somewhat disconnected. Now, we have realigned our product development model to have only one region focus on a project, and have moved some of our technology leads from the U.S. to different countries to facilitate product development. For example, our Titan platform is now completely developed by a team in India instead of having portions of the product developed by U.S.- and Europe-based employees, as was the case prior to the reassessment. In addition, if a team does not have the leadership required to execute a superior product, we will pull the project out of that region. With focused teams, we have better control over technical and economic aspects of product development, which is especially important in today's economy.

Although the U.S. has been a tough market, it has always been our most profitable. My current focus is to build our business in Asia, specifically Japan. So I will be spending a great deal of time in Japan to increase our presence. And we are happy to see our market share in Europe improving.

Q: In Q4 2008, the EDA industry experienced a 17.7 percent year-over-year (YoY) revenue decrease according to the EDA Consortium. Industry experts attributed the revenue decline to: (1) vendors shifting from term licensing to time-based licensing and (2) the misguided attempt to transform Cadence into a dominant vendor. With the industry looking to bounce back, what structural changes must the EDA industry undergo to re-establish growth? Do you see the industry transitioning from its current business model to a traditional software-based business model?

A: The decline of the EDA industry is not solely a result of the licensing shift and Cadence failing to become a dominant vendor. The current practice of the large EDA companies engaging in "primary vendor" deals is greatly responsible for the market downturn. These vendors are shooting themselves in the foot by offering deep discounts to customers in exchange for publicity as their "primary vendor." Once you've given your software to your customers for free, it's very hard to come back later and get them to pay you for it. Despite what these large EDA vendors believe, this is not an intelligent strategy for beating competitors. It does not drive industry growth, increase market share or help customers in the long term. Once these vendors realize this and stop this practice, the EDA industry will grow much faster.

The shift towards adopting a traditional software business model will also drive growth in the EDA industry. The industry has already transitioned from providing perpetual licenses (i.e., revenue is recognized upfront) to time-based licenses (i.e., revenue is booked quarterly), and I believe we will make one more transition to a project-based licensing model. With this new model, companies do not have to sell software off-the-shelf. We're looking at transitioning a few of our product lines to a project-based licensing model, and we plan to lead the industry in making this transition.

Q: The convergence of more features in today's electronic products has increased chip design complexity and cost. How is Magma assisting chip companies in tackling design complexity and decreasing software and verification costs?

A: Today, a greater number of engineers must be employed to develop complex products. However, this practice defeats the rationale of Moore's Law (as more transistors are put on a chip, the cost to make each transistor decreases) because it actually increases costs. Magma has taken a unique approach to addressing design complexity by automating the chip design process. Within the next few months, the industry will see many companies taking advantage of this approach, displaying the value Magma offers in reducing chip complexities.

To help customers further reduce costs by shortening turnaround time, we've designed our products, including our circuit simulation and physical verification solutions, to leverage multiple central processing units (CPUs), which enables significantly faster runtimes. There will be many more of Magma's tools using multi-CPUs to reduce costs and increase productivity in the future.

Q: Smart grid technology is attracting great interest from investors as the importance of alternative energy sources becomes a focal point of governments worldwide. How does Magma plan to contribute to the advancement of smart grid technology?

A: We are currently working with a number of solar companies to make our process manufacturing software, such as Camelot and YieldManager, relevant and help improve the performance and yield of chips used in smart grid technologies. Magma recently formed a partnership with Orion Metrology, a supplier of inline process monitoring and control tools to solar cell manufacturers. Through this partnership, Magma's YieldManager Solar will integrate with Orion Metrology's inline inspection technology to enable photovoltaic (PV) solar panel manufacturers to speed up defect identification and improve process control.

I believe the industry's development in sensing and mixed-signal technology will be required to advance smart grid projects. To successfully integrate these technologies with the smart grid market, we need to thoroughly understand what types of chips are being produced in the sensing and mixed-signal markets and ensure the software we market can be used efficiently and quickly without much human effort.

Q: There are a great number of EDA start-ups saturating the marketplace. Though these companies are powerhouses of innovation, many are finding it difficult to obtain funding. In a recent EDA DesignLine article, author Nicolas Mokhoff stated that Mark Stevens, a principal at Sequoia Capital, has been studying a model used in the biotech industry where large companies help fund start-ups and then buy the companies once their products are complete. Since large, mature EDA companies tend to focus more on sales of existing products than developing new technology, could this business model be applied to large EDA companies to keep innovation alive? How does Magma prioritize its research & development (R&D) activities?

A: This business model has been evident in the EDA industry for the past few years. Magma has followed this strategy by investing in a number of companies that develop leading-edge technology and acquiring them during their early product stages. We recently funded a company whose products are just hitting the market and look forward to helping them succeed. Magma funds companies that we feel solve industry challenges and promote innovation. For example, we still have significant investments in one of the fastest logic simulation tools in the market, which addresses a significant problem area in verification.

We prioritize our R&D activities based on the level of differentiation the product offers. If the product developer cannot explain the competitive advantage of a proposed, new product in a 30- to 40-second elevator pitch, then we will not pursue it. During this recession, it is imperative to only support products that provide something unique to the market.

Q: Two leading EDA standard organizations, Accellera and The SPIRIT Consortium, recently announced their plans to merge. The merger intends to fuse the language-based design and IP-assembly worlds. How will the combined organization's single view of the design process impact the development of future standards that will meet the needs of the EDA community and its customers (i.e., where will standards be going in the future)?

A: For the standards industry to successfully meet the needs of the EDA community, I would encourage the standards bodies to merge. For example, Accellera and The SPIRIT Consortium should merge with the standards body Silicon Integration Initiative (Si2). It took a tremendous amount of effort for Magma to support both Accellera and Si2 with relation to Common Power Format/Unified Power Format (CPF/UPF).

Today, the EDA community cannot afford to have multiple standards bodies. It was possible when the industry was in its early stage and files and formats were not being tracked. In reality, files and formats from the most widely used tools are what become de facto standards. Magma is fortunate in that our software's architecture makes it much easier for our tools to read any files or formats regardless if they are standard or not—because of this, we can focus on supporting our customers rather than supporting standards.

Q: Magma has criticized the emerging trend of chip companies announcing specific EDA suppliers as their primary vendor, stating that the announcements prevent innovation and hurt product pricing. Are chip companies or EDA vendors more likely to feel the effects from these exclusive partnerships? How can Magma and other companies combat this practice?

A: I strongly believe that the primary vendor and flexible access models that the larger EDA companies are adopting are extremely detrimental to the industry. I know from firsthand accounts of these vendors offering a discount of 30 percent in exchange for publicity as a primary vendor. This can actually work to Magma's advantage because the money that customers save on these deals with the large EDA companies often gets spent on Magma's, or other, EDA software. So while the large EDA companies may get a press release, these deals don't prevent Magma from making a software sale. The other problem with these deep-discount deals is that they don't cover the EDA vendor's support costs.

To combat these practices, Magma will simply continue to focus on producing differentiated, superior products and ensure that chip companies invest the money they save from the primary vendor deals in Magma, which is already occurring. We will continue to be profitable, while other companies shoot themselves in the foot by reducing their prices.

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