Synopsys certainly raised eyebrows when it agreed to buy Monolithic System Technology last month for $432 million in stock and cash, a valuation worth more than 20 times MoSys' revenue. Analysts, competitors and investors had a collective response: What on earth was Synopsys thinking?
What Synopsys appears to have been thinking is that electronic design automation is a small market that isn't growing very fast, and that it may be difficult for the company to gain much more market share than it already has today. Therefore, there's a strong incentive to expand beyond traditional EDA. Silicon intellectual property is an obvious way to do that.
The silicon IP market is expected to double between 2003 and 2007, according to Dataquest. By 2007, revenues could reach close to $2 billion. Embedded memory, expected to take up most of the area on systems-on-chip by 2005, will be an important part of that market. With its one-transistor, 1T-SRAM technology, MoSys appears to have an approach with some compelling advantages with respect to speed, area and power.
But MoSys, hard hit by the semiconductor recession, only had revenue around $19 million last year. Some analysts think MoSys could do $30 million this year. Even if all of that is added to Synopsys' revenue, it will take a long, long time to pay off the $432 million. Clearly, this acquisition is a strategic play, not an incremental revenue thing.
Perhaps Synopsys envisions selling tools that automate the creation of on-chip embedded memories. That would certainly increase the silicon real estate that could carry a "designed by Synopsys" sign. Or perhaps Synopsys wants to become a broad-ranging IP provider, supplanting the various niche companies that now sell IP.
But here's the rub. It is unknown whether embedded-memory IP even fits within an EDA business model. Mentor Graphics tried it, and decided it belongs more with a foundry. If that's the case, Synopsys could end up competing with its own customers.
For a $1 billion company, a $432 million acquisition is not trivial -- nor was the 13 percent plunge in Synopsys' stock price the day after the acquisition was announced. Synopsys is paying a lot of money for something that may or may not work. It's a bold and risky move, but whether it's a smart one remains to be seen.
Richard Goering is managing editor of Design Automation for EE Times.