[Report Highlights] China’s EDA Industry Enters a Period of Consolidation amidst Rapid Growth

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1. China’s EDA Industry into Fast Development with Efforts of Downstream Industries, Capital and Policies Propel

Within the broader context of China’s push for semiconductor self-sufficiency in recent years, the domestic EDA (Electronic Design Automation) industry in China has undergone remarkable growth. This growth has been spurred by a collaborative effort involving the Chinese government (through policies and investment funds), the expansion of the IC design sector (the growth of IC design scale and investments upstream and downstream), and private offered funds.

EDA companies in China are in rapid growth, and finance companies reached its zenith in 2021, with funding amounts consistently setting new records year after year. In 2022, EDA financing amounted to approximately 8 billion RMB, with companies like Primarius Technologies, Empyrean Technology, and Semitronix making their debut on the stock market. Over the past three years, these companies have sustained a continuous uptrend in their revenues. All in all, with support from various quarters, China’s EDA industry is now on a fast track to development.

2. Point Tools Take Center Stage for Chinese EDA Companies

Nowadays, the supply of EDA tools is largely controlled by Synopsys, Cadence, and Siemens EDA, three major players with deep technical expertise across the entire spectrum of EDA tools. While Empyrean Technology, having entered the arena early, boasts a comprehensive suite of EDA tools for analog circuit design and FPD, the majority of other Chinese EDA firms are strategically focusing on specialized point tools in simulation and verification.

These companies win customer recognition and purchases before broadening their path to other tool categories. Another strategic avenue pursued by Chinese EDA companies is the exploration of innovative opportunities in emerging fields such as AI chips, setting them apart from their larger counterparts.

3. China’s EDA Industry Enters a Phase of Consolidation, Confronting Challenges of Inexperience and Political Risks

Over the past few years, the number of Chinese EDA companies and the scale of funding have surged dramatically. As they experience rapid growth, mergers and acquisitions (M&A) and investments have become indispensable means for Chinese EDA firms to fortify their positions. This trend is becoming increasingly conspicuous, with a total of 20 M&A and investment deals occurring within the Chinese EDA sectors over the past three years, comprising 2 in 2021, 15 in 2022, and 3 in the first half of 2023.

Primarius Technologies (with 9 deals), Empyrean Technology (with 3 deals), and Univesta (with 4 deals, one of which was unsuccessful) are among the firms with comparatively high M&A activity. Beyond M&A and investment, Chinese EDA companies are accelerating their collaborations to achieve complementary advantages, a trend that is expected to continue to gain momentum in the future.

China’s EDA companies do encounter certain challenges during the integration process: (1) They lack prior experience in M&A and must continually learn and experiment. (2) Given the global semiconductor industry’s shifting dynamics, they may encounter obstacles from local governments when pursuing overseas M&A and investments.