China aims to shake US grip on chip design tools

Veteran engineers and high-level executives are leaving top US chip design toolmakers for Chinese rivals as Beijing seeks to break America’s near monopoly on this key segment of the semiconductor industry.

Three Chinese start-ups established since September last year were founded by or have hired executives and engineers from Synopsys and Cadence Design Systems of the US, the world’s two biggest makers of electronic design automation (EDA) tools, as such software is known.

The start-ups include Nanjing-based X-Epic, Shanghai Hejian Industrial Software and Hefei-based Advanced Manufacturing EDA Co, or Amedac, in which Synopsys owns a stake.

The push to recruit US chip tool talent comes as Washington’s crackdown on Huawei Technologies exposes key weaknesses in China’s chipmaking ecosystem, including in EDA tools, which are used to design integrated circuits, printed circuit boards and other electronic systems.

The US has long dominated the segment, with Synopsys, Cadence, Mentor Graphics and Ansys controlling 90 per cent of the global market for EDA tools. Mentor was taken over by Siemens in 2017 but maintains extensive research and development operations in the US. These four companies own much of the intellectual property needed for chip development and count the world’s top chip developers as clients, including Apple, Samsung, Qualcomm, Nvidia, Micron and Huawei.

China’s own EDA tools industry, by contrast, has been largely neglected until recently. Its two main homegrown companies, state-owned Empyrean Software, founded in 2009, and Beijing-based Cellixsoft, in 2002, are still unable to match the offerings of Synopsys and Cadence. Jinan-based Primarius Technologies, founded by a former senior Cadence executive in 2010, is likewise still struggling to catch up to its US rivals.

A wake-up call came last year when the US Department of Commerce banned Huawei, the world’s biggest telecoms equipment maker, from receiving software updates and technical support from American EDA tool makers without US approval.

This move sharply curtailed the capability of Huawei’s chip design arm, HiSilicon Technologies, as close co-operation with EDA tool providers is essential given the increasing complexity of chipmaking processes, and spurred China to act.

“We are seeing more and more people who previously worked with big US chip design tool companies joining start-ups because they think it’s a once-in-a-lifetime opportunity,” said a source from a China-based chip developer and Synopsys client. “Previously very few people would want to start up a chip design tool company because it’s a very niche market already dominated by huge players, but now they see growing customer demands for local software in China for the very first time.”

That new demand has led to the launch of at least three start-ups.

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X-Epic, based in Nanjing, was founded in March by Wang Libin, a former vice general manager at Synopsys China, according to company data. TC Lin, former vice-president of Cadence with more than 30 years’ experience in EDA tools, joined the company as its chief scientist on August 3.

X-Epic announced in November that Tiyen Yen, another Cadence veteran, would join the company as vice-president of R&D.

Shanghai Hejian Industrial Software, founded in May, hired a high-ranking, China-based R&D executive from Synopsys in late October, according to two sources familiar with the matter. The executive worked for the US company for nearly two decades, they said.

Shanghai Hejian Industrial Software is backed by the state-owned Assets Supervision and Administration Commission of Shanghai Municipal Government and renowned Chinese venture capital firm Summitview Capital, according to online disclosures by the company.

The third start-up, Amedac, was founded in September 2019 by Chieh Ni, a former vice-president of Synopsys China who worked with the US company for 10 years. Synopsys, moreover, holds a more than 20 per cent stake in the start-up and Ge Qun, global senior vice-president at Synopsys and chairman of its China operations, is a board director at Amedac. Other key investors of Amedac include Summitview Capital and the state-owned Institute of Microelectronics of the Chinese Academy of Sciences.

Willy Shih, a professor of management practice at the Harvard Business School, said Synopsys and Cadence dominate the market because they can “lock in” their client base. Switching to an alternative provider is difficult, he said, because design tools are closely linked to existing chip process flows.

“Now China’s motivation, of course, is access for Chinese firms to these critical tools. So of course they will want homegrown tools not subject to the whims of a US administration . . . Given enough time and money, they could probably develop alternatives but it won’t be easy,” Mr Shih told Nikkei Asia.

“With the US and China locked in a prolonged tech war, the whole Chinese tech industry is aware of the significant insufficiencies in some areas (of chipmaking) and they definitely want to build their own versions of chip design software to replace current ones,” said a source at a company that works with both Synopsys and Cadence. “Synopsys knows it will lose some market share in China in the long run due to the Washington-Beijing tensions, so it wants to also hold stakes in some of these potential Chinese rivals to secure the market.”

Synopsys set up a $100m strategic investment fund for the Chinese market in 2017 to “expand engagement” with the booming Chinese chip design community — the world’s largest and fastest-growing market has more than 1,600 chip designers. The same year, Cadence decided to build a China semiconductor hub in Nanjing to better serve local clients and foster engineering talent. The company pledged to invest Rmb100m ($15.2m) in the project over the years.

Synopsys said at the time that the strategic fund, operated and managed by its China unit, was designed to collaborate with local companies and venture capital in investing in the areas of chip design, artificial intelligence, cloud-computing, software security and EDA tools.

“The China strategic investment fund is an important milestone of our China strategy and it represents Synopsys’ confidence and commitment to the Chinese market,” Chi-foon Chan, Synopsys president and co-chief executive, said in a statement in 2017.

It is not uncommon for foreign companies to forge deeper ties with local partners through investments or joint ventures to expand their presence in the Chinese market. Such ventures do not always bear fruit, however.

Intel’s venture capital arm, Intel Capital, invested in three Chinese chip-related unicorns in May, having previously paid $1.5bn for a 20 per cent stake in a subsidiary of Tsinghua Unigroup, a Beijing-based chip conglomerate. The partnership between the world’s biggest PC microprocessor maker and Tsinghua Unigroup’s mobile chip unit Unisoc to develop 5G modems ended abruptly after just one year of collaboration.

US chip developers Qualcomm and AMD also formed joint ventures with local companies to expand in the Chinese market, but these too faced setbacks.

“If companies like Synopsys and Cadence invest in Chinese partners, it is a way to stay in the market and keep those players close to them,” said Mr Shih at the Harvard Business School. “‘Stay close to your friends, stay closer to your enemies’ is one quote that comes to mind.”

In the event trade tensions die down one day, buying back stakes in their Chinese joint partners could be an option, he added.

Synopsys declined to say whether it had expanded the scale of the fund over the years or if investing in Chinese peers was part of the scope of the fund, nor did it comment on the talent exodus in China. Cadence did not respond to Nikkei Asia’s request for comments.

A version of this article was first published by Nikkei Asia on November 25 2020. ©2020 Nikkei Inc. All rights reserved

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