Sunday, February 9, 2003
Finding the Right Company
Ron Watkins
In building the case for each technology company in the small cap group -- we seek to identify the technologies which will influence and shape the vision of the future as we see it.
As the past has shown us, it is not purely the best innovation which propels a company to stardom. To say that quality management, that has a proven track record is required is too simplistic. It is our finding that the companies we are interested in also have a corporate culture where operational and executive leadership are in sync with its technical leadership. There are barriers to success in either path. Executive leadership -- focused on marketing, sales and traction, far too often "chase" a market to gain traction and revenues. Technical leadership -- far too often approaches and addresses the business side of the equation as it would an engineering problem -- if you build it, they will come. What both paths of an technical organization need is a unified vision of what they are accomplishing. This is in stark contrast with the traditional schooled approach which is -- marketing determines what the customer wants and directs the technical department to make that happen.
So I bring up the case of Magma Design Automation (LAVA), an EDA firm. Now EDA is an interesting segment of the semiconductor industry as this is software that facilitates the creation of chips.
As chips become smaller, more dense, more powerful, more complicated, the reliance of EDA tools and the improvement of those tools are critical. In fact, it offers paradigm shift impacts which we'll cover in a bit.
The flowchart of the development of a chip is:
RTL , Synthesis, Place and Route, Verification, Tape Out.
This is the flowchart
Synoptics and Cadence -- are the current industry leaders. Traditionally these companiesÊstarted by being specialists in one of the four sections above. They have grown by the acquisition of other companies specializing in other sections. There is an inherent problem with that however due to the "interfaces" that exist in each section. As chips become smaller, more dense, more powerful and more complicated -- the inefficiencies and problems become apparent. An interesting observation is that it is difficult of a company expanded by acquisitions, to address these interface problems because of 'soft problems' faced by literally all large companies -- politics, departments fighting for their jobs -- change is difficult.
Magma isÊa company that has "started from scratch" and addressed the flowchart "as a whole" -- by doing so, information and feedback are more seamless through the process, reducing errors, decreasing time to debut with fewer iterations and improving yields.
Now to throw a wrench in the engine.
The focus today of EDA firms is in the glamorous development of "Systems on Chips" -- and ASICs (Application Specific IC's) -- these are big buck items. Essentially to produce one requires an investment of say $20Million dollars or so. In today's VC/Investment environment, many are reluctant to invest in a semiconductor company to create some chip like this, which has no guarantee of market success and penetration. One problem with the glamorous ASICs is that once programmed -- that's it. You can't change it.
Way off the scope of anyone's vision however is a type of chip called FPGA's or (field programmable gate arrays) -- this isn't a very glamorous area -- the chips in the past have been small, not very powerful and wonderful for putting technology into things like Blenders and Shavers. However, as the "tide" of technical development improves all technologies -- these chips are now "ultra deep, sub-micron multi-million gate field programmable gate arrays" -- and their use is increasing dramatically. They are far cheaper to build AND they can be reprogrammed. As expected, the EDA firm which facilitates and satisfies this niche.....
No, there is not a small cap "public" company addressing this niche but one is on the horizon (Hierarchical Design Inc.). Like Magma, their EDA product is not an assembly of sections of software addressing the flowchart, but a moreÊ"systems" or holistic way of looking at the big picture.
The main point however is not that ASICS will go away and replaced by FPGA's. The point is in the case of Magma Design Automation (and HDI) is that the management team and technical team are on the same page. They are "small" companies with a unified corporate culture, more flexible, less "political", and more focused on their product suite.
so... Innovation is fueled by natural advances in materials science pressure to solve an existing problem new creativity and innovative improvements in existing functionality.
We seek to identify a company that is fueled by the above, but now, is apparent to us that Executive Leadership and Technical Leadership operate on the same visionary page.Ê