Chinese firms are struggling to shut the gap with their U.S.-based rivals in an important area of the worldwide semiconductor market.
Electronic design automation software allows designers and manufacturers to develop and test the designs for brand new generations of chips, many made up of tens and even tons of of billions of transistors, before they go into production.
While the EDA sector accounts for just 1.6 percent of the $600 billion global semiconductor industry, it represents a critical bottleneck in the availability chain for developing the most recent, cutting-edge chips.
“They are the keys to the dominion,” said G. Dan Hutcheson, vice chairman of consulting firm TechInsights. “It's like an artist has the concept of a painting in his head, but can't make it occur unless he has the paints and brushes to make it.”
The global EDA sector is dominated by three US-based firms: Synopsys, Cadence and Siemens EDA, which together produce almost the entire software needed to design, produce and test probably the most sophisticated chips.
According to Shanghai-based consultancy ICWise Research, the trio accounts for nearly 80 percent of China's EDA market, despite Chinese efforts to supply state-of-the-art chips at home.
China is pushing for its firms to take a bigger share because it struggles to construct a bigger domestic chip industry within the face of sweeping U.S. export controls.
Supported by government subsidies, Chinese firms have made some progress. According to Insight and Info, the country's top three EDA firms – Empyrean Technology, Primarius and Semitronix – doubled their local market share from 7 percent to 14 percent between 2020 and 2023.
“With EDA tools subject to U.S. export controls, this may only further force domestic Chinese EDA firms to develop tools ok in order that they don’t have to depend on Western suppliers,” said Myron Xie of consulting firm SemiAnalysis .
China's latest five-year economic plan released in 2021 identified chip design software as a top priority for technological breakthroughs within the semiconductor industry.
The state-backed China Integrated Circuit Industry Investment Fund, often called Big Fund, and Chinese tech giant Huawei have also made a variety of investments in EDA and chip design startups.
Last yr, China opened a National EDA Innovation Center in Nanjing, whose mission, in line with its director, was “to do the critical work to interrupt the United States' stranglehold on EDA software.”
Beijing-based Empyrean Technology, the leading Chinese EDA provider, has had limited success. According to its financial report, the corporate's revenue rose almost 10 percent to Rmb443.8 million (US$63 million) in the primary half of 2024, with greater than 90 percent of sales coming from the Chinese market.
Supported by Rmb77 million in government subsidies the corporate received through the same period, Empyrean's research and development expenditure accounted for 79 percent of its revenue. Synopsys and Cadence typically estimate research and development costs at 30-40 percent of sales.
But despite this progress, the challenge stays formidable. Empyrean and fellow Chinese EDA leaders Primarius and Semitronix had lower than 2 percent of worldwide market share last yr, in line with Insight and Info. Empyrean has a market cap of about $7 billion, in comparison with Synopsis' market cap of about $80 billion.
Lu Xiaomeng, director of consultancy Eurasia Group, said Beijing was attempting to make up for lost time, having been slow to acknowledge its vulnerability to US controls within the sector.
Former US President Donald Trump's administration banned Huawei from using US EDA tools in 2019. This was followed by sweeping export controls that Joe Biden's administration introduced in August 2022 to forestall China from accessing probably the most advanced chip design software.
“China's push for EDA is an element of a broader recognition of the necessity to develop world-class 'enterprise software,' versus the less sophisticated consumer software that underlies the platforms operated by Alibaba and Tencent,” Lu said.
Gregory Allen, director of the Wadhwani Center for AI and Advanced Technologies on the Center for Strategic and International Studies think tank in Washington, said U.S. restrictions mean Chinese chip designers cannot turn to non-Chinese manufacturers like TSMC for cutting-edge ones Manufacturing chips Designed using US EDA tools.
But he added that enforcing sanctions on easily shareable software tools for Chinese-made chips could be much harder than enforcing restrictions on bulky chip-making equipment.
“EDA software might be pirated – you possibly can buy a single license, break the encryption and have way more users than are legally allowed,” he said.
Beijing also appears determined to hamper efforts by leading US firms to strengthen their influence within the sector. In May, China's competition regulator raised concerns about Synopsis' $35 billion takeover bid for Pennsylvania-based engineering simulation software company Ansys.
“This is a small cope with no monopolistic implications, and yet Chinese regulators are paying close attention to it,” Lu said.
While there are dozens of EDA firms in China, a lot of which have made progress in developing chip design software for area of interest areas corresponding to performance chips for electric vehicles, analysts say they still find it difficult to mix different tools to supply more comprehensive designs for next generation integrated circuits.
According to a Goldman Sachs study, China's EDA sector would want to spend $9 billion on research and development yearly for the subsequent decade – 29 times greater than in 2023 – to meet up with global leaders.
Jimmy Goodrich, Rand Corporation's senior technology evaluation consultant, said China's EDA sector is affected by its inability to supply software tools for developing cutting-edge chips, noting that U.S. tools for less sophisticated chips remain available to Chinese firms .
“As a Chinese chip designer or chip manufacturer, it's very easy to simply work with Siemens, Synopsis and Cadence, where you possibly can buy all the things from a single source,” he said.
“But if you desire to use native Chinese software, you’ve to work with two dozen different firms and put together a proposal. This can get very complicated in a short time.”
