It aint easy to the top, its after all EDA

Date:   Friday , June 05, 2009

Mentor Graphics emerged as the top EDA supplier in Europe in 2008, after spending 7-8 years in the second spot. Windele’s deep knowledge of the EDA market all across Europe has ensured that his team has its feet firm on the ground and seize every opportunity to expand the market.

Windele has now taken on additional role of overseeing the business of the India market. While European market is quite matured and EDA players are constantly looking at avenues to expand the market, the Indian market is relatively nascent. “We are making profits here, yes, but the moot point is not that,” he says, continuing to talk about Mentor’s performance in India. “What is important is what stage the business is in, and whether it can grow the way we want it to grow.”

There are three kinds of companies in the chip designing space in India, he says, while giving the overall industry perspective. Some companies are dependant on the European region for their clients, some depend on the U.S.; there are yet others that are home grown.

“The growth potential is immense; EDA companies here have only scratched the surface,” he notes, adding that most companies have been very dependant on U.S./ European companies for their revenue. Going ahead, he perceives that the home-grown companies, ones that concentrate on the local market, will rule the roost. They will grow immensely over the next 3-5 years, he says, adding that the downturn will, in fact, aid this development: many Indians from the U.S. will return to India, given the sorry state of affairs there. They will want to start their own ventures, and why not?

“Demographic data shows that the number of people who will be able to afford phones, computers—basically, things that rely on the EDA industry—will increase dramatically,” says Windele, adding that for Mentor to grow, it is important to concentrate on this segment. Today, there is a pressing need to keep the developments here connected to the larger picture, in other words, developments in the U.S. and European markets.

Collaboration, access
Windele’s long-term vision—that of making Mentor Graphics the number one EDA player in the region—involves working with start-ups. He says that there is a plan to bring the “Cre8 Ventures” programme to India soon. The programme is one through which Mentor has, in different countries beginning with the UK, worked with start-ups; it has provided them with tools, but more importantly, given them access to the market, and sound advice.

“Providing tools is easy. It is something many companies can do,” observes Windele. Through “Cre8 Ventures”, Mentor concentrates on providing start-ups access to its own customer base, and since almost every large electronics company is its customer, this base is huge. The programme also brings together experts from the technology as well as the financial side; this pool then interacts with entrepreneurs, and advises them, based on their own experience.

When the “Cre8 Ventures” programme comes to India, it will be tweaked according to the needs of the region, says Windele. “Some areas like the UK have a lot of VC money; others like Germany and France, have access to government spending; many a time, money is not the important thing, the route to market is,” he says.

But how does helping start-ups reap returns for Mentor? Does it acquire these start-ups, or perhaps, take equity stake in them? “We are not in the business of acquiring start-ups,” says Windele. Start-ups open up niches in the market, and help in its maturity, something that helps Mentor Graphics in the long run, he argues.

Speaking about the growth prospects of EDA, more specifically Mentor Graphics, in India, he notes that the industry is at a very interesting stage. It will grow in the coming years, but will not have the kind of double digit growth that the semiconductor industry saw, he feels. Also, the growth trajectory of the semiconductor industry globally is, in a way, aiding EDA companies.

“The semiconductor industry is not consolidating; instead, quite the opposite is happening,” says Windele. More and more small companies are covering niches of the market; this is good for the EDA players—it makes it easier to acquire customers, and this gives everyone (EDA players) a chance. “You only have to be at the right time at the right place, with the right attitude,” he quips.

Road to the top
We ask Windele, what the chief factors were in Mentor Graphics’ climb to the top spot in Europe, after being at the second spot for 7-8 years. This is important, given that the lessons could be applied more effectively in other emerging regions.

“In a market like Europe, which is growing slowly,” says Windele, “there are two ways to grow.” One is through taking more market share; the other is through expanding the market. Mentor did both: it took customers away from competition in the area of functional verification, among others; also, it went into new areas like the automotive space, where none of its competitors were present.

However, capturing market share in emerging, and therefore, rapidly growing markets, is difficult, concedes Windele. The EDA space is a lot about inertia—once there is a flow towards a particular player, it is difficult to wean away customers.

Another trick of growing an EDA company in a place like India is to remember that the character of every region is different, much like Europe. “People often make the mistake of looking at Europe as one market, forgetting that it is made up of several countries,” he says. Each country has specific strengths—the UK, for instance, has a lot of start-ups, Germany and France are strong on the automotive side. Likewise is the case with different regions in India. Companies must consider the market differences, and try to make them work in their favor.

Changing dynamics
Currently, almost one third of Mentor Graphics’ revenue in India comes from local companies and the rest two thirds from big international companies. Going ahead, revenue from local business will increase, reckons Windele. This is mainly because, while on the one hand, start-ups are just beginning to grow in India, on the other hand, with this downturn, MNCs are wary of growing their own operations; they would rather buy whatever they need from vendors here.

The focus on the local market is one of the chief strains of difference between the India operations of Mentor Graphics, and Cadence and Synopsys.

It’s never too early to start focussing on the domestic market, he says, on being questioned whether the India market has matured enough, and whether the time is right to bet on it. He adds that what is important in the Indian context is the value proposition, along with the pricing.

“At the same time, one must ensure that one’s team is stable, yet dynamic,” says Windele. In this regard, the mistake that Cadence made in Europe is on top of his mind. Cadence kept changing its organisation quicker than “people changed their underwears”, he says. Europeans don’t like sudden changes, he observes, adding that such sudden changes were responsible, partly, for the company’s fall in the continent.

When things don’t work in your favor, changes might be imperative, but it is important to bring about such changes incrementally, he notes. “We thrive in the industry on the basis of our relationships,” he says. In the event of an argument with a customer, Mentor would rather sacrifice the deal than lose out on the relationship, he informs, while talking about the bedrock of the company’s customer acquisition strategy.

Going ahead, Windele thinks every new wave of technology will bring about a disruption, and the cards will get mixed. Those will be occasions when Mentor will need to be alert, it can then either can go for the kill, or lose out on its position.

“We are better prepared than the other two (among the Big Three),” he says, in this context. For one, his company focuses more on developing tools internally, rather than acquiring start-ups that have capabilities that the parent does not. He says that Mentor intends to build centres of excellence for specific technology areas in the years to come.

This will propel innovation, and help Mentor prepare for the next churn—something that happens in the EDA space once in 9-10 years, says Windele. Mentor Graphics, with its emphasis on internal development, he hopes, will be able to emerge on top.