Here in Europe we are experiencing an extended post-bubble recession, particularly exacerbated in the electronics industry, the customer base for electronic design automation. The initial response of businesses to the collapse of revenues and rocketing inventory has been to stabilize cash flow by drastically cutting costs — primarily by laying off staff. As inventories fall, we are now in the second phase, where businesses seek to rebuild their balance sheets and reestablish long-term shareholder value.
The question originally posed for this article was, "Is there a fundamental shift in the business model of the electronics industry, or is this economic downturn just an extended cycle in the high-tech industry?" The answer is that there is nothing fundamental happening — this is the market behaving as it always has done. Modern communications and a global environment mean it all happens much more quickly and on a grander scale than in the past. The result, however, will be the same. The best businesses will survive and will be all the stronger for the experience.
It is important to remember that the underlying market is still there. We are a society whose development is inextricably linked to advances in electronics. In much of the developed world, fiscal policies have ensured consumer demand remains buoyant, meaning continued demand for luxury electronic goods. Growth in broadband Internet services ensures there is a ready market for access equipment. The post-boom clearing of inventory, however, has depressed prices, and set customer expectations for low prices that cannot be rectified until the recession ends.
The consequence for companies is that they can only improve profit and loss in two ways: reduce costs and bring products to market sooner. Increasing prices is not an option. Rebuilding balance sheets demands this be achieved on a reduced-asset basis, so capital expenditure levels are under extreme pressure.
For our business, the market to provide "virtual silicon" models in parallel with hardware development to shave months off development time looks very attractive. The future belongs to the innovators, those companies that can quickly adapt to new ways of doing business using techniques such as soft models, rather than investing in multimillion dollar hardware emulators. These companies can save capital to invest in design resources, such as hiring more engineering talent, and significantly increase their return on investment.
