The semiconductor industry faces another wave of US export restrictions as the Commerce Department's Bureau of Industry and Security (BIS) has issued directives to major Electronic Design Automation (EDA) software companies, requiring them to limit sales to Chinese entities. This latest move represents a significant escalation in the ongoing technology competition between the two nations.
Official Confirmations from EDA Leaders
On May 29th, both Synopsys and Cadence Design Systems officially confirmed receiving letters from the US Commerce Department. Synopsys announced it had received BIS notification regarding new export restrictions related to China, prompting the company to suspend its financial guidance for the third quarter and full year of fiscal 2025. The company stated it is currently evaluating the potential impact of the BIS letter on its business operations and financial performance.
Cadence revealed through an SEC filing that BIS had notified the company on May 23rd about new licensing requirements. The restrictions specifically target exports, re-exports, or domestic transfers of EDA software and technology classified under Export Control Classification Numbers (ECCN) 3D991 and 3E991 when dealing with Chinese entities or military end users. According to the letter, BIS determined that the risk of these goods being used in China or transferred to military end use by Chinese military end users is unacceptable.
Export Control Classification Numbers (ECCN) Affected
- 3D991: EDA software for electronic design automation
- 3E991: Technology related to EDA software
- 3D001: Advanced EDA software (previously restricted in 2022)
- 3E001: Technology for advanced semiconductor design
Restriction Scope: Applies to Chinese entities and "military end users" on BIS lists
Market Impact and Financial Implications
The news triggered immediate market reactions, with Synopsys shares falling 9.6% and Cadence dropping 10.7% on May 28th. However, both stocks partially recovered in after-hours trading, suggesting initial market overreaction to the reports. The volatility reflects investor uncertainty about the scope and long-term implications of these restrictions.
The financial stakes are substantial for these companies. Synopsys reported nearly USD 1 billion in sales from China in fiscal 2024, representing approximately 16% of its total revenue. Cadence generated USD 550 million from the Chinese market, accounting for 12% of its total revenue. Combined, these two companies alone derive over CNY 10 billion annually from Chinese operations.
EDA Market Share and Revenue Data
| Company | Global Market Share | China Revenue (2024) | Revenue Percentage from China |
|---|---|---|---|
| Synopsys | 32% | ~USD 1 billion | 16% |
| Cadence | 29% | USD 550 million | 12% |
| Siemens EDA | 13% | Not disclosed | Not disclosed |
| Combined Top 3 | 74% | >USD 1.5 billion | ~14% average |
Scope and Limitations of Restrictions
Analysis of the official announcements suggests the restrictions may be more targeted than initially feared. The measures appear focused on entities listed as military end users rather than implementing a complete ban on all Chinese customers. This approach aligns with previous US export control strategies that typically begin with point-to-point restrictions before potentially expanding to broader sectoral limitations.
The restrictions specifically reference the Commerce Control List's export control classification numbers, indicating that existing EDA software already purchased can continue to be used. However, companies may face challenges with technical support and software updates, potentially creating operational difficulties for affected Chinese semiconductor firms.
Strategic Importance of EDA Software
EDA software serves as the foundation for semiconductor design, earning the nickname mother of chips due to its critical role in the industry. These tools enable chip designers and manufacturers to develop and test next-generation semiconductors, making them essential components of the semiconductor supply chain despite representing a relatively small portion of the overall industry by revenue.
The three major EDA companies - Synopsys, Cadence, and Siemens EDA - collectively control approximately 80% of the Chinese EDA market and 74% of the global market. This concentration makes them particularly strategic targets for export control measures aimed at limiting China's advanced semiconductor capabilities.
Chinese EDA Industry Response
The restrictions have accelerated interest in domestic Chinese EDA alternatives. Chinese EDA companies have grown from 10 firms five years ago to over 120 companies today, though most remain focused on specialized point tools rather than comprehensive platforms. The domestic EDA market share has increased from 6.24% in 2018 to approximately 11.48% by 2020, with projections suggesting continued growth exceeding 14% annually through 2025.
Leading Chinese EDA companies include Huada Empyrean, which provides full-flow EDA tools for analog circuit design, and Primarius Technologies, which focuses on digital verification tools. However, industry analysts note that Chinese companies have not yet achieved the capability to fully replace American EDA tools, particularly for advanced process nodes and cutting-edge applications.
Chinese EDA Industry Growth Timeline
- 2018: 10 domestic EDA companies, 6.24% market share
- 2020: Domestic market share reached 11.48%
- 2024: Over 120 Chinese EDA companies
- 2025 Projection: CNY 18.49 billion market size (18.1% of global market)
- Growth Rate: 14%+ annual compound growth (2021-2025)
Industry Consolidation and Future Outlook
The export restrictions are driving consolidation within the Chinese EDA sector. Major domestic players like Huada Empyrean and Primarius Technologies have announced significant acquisition plans, seeking to build comprehensive EDA platforms through mergers and acquisitions. This consolidation strategy mirrors the historical development of the global EDA industry, which has seen nearly 300 mergers and acquisitions over the past 30 years.
Market research firms predict that China's EDA market will reach CNY 18.49 billion by 2025, representing 18.1% of the global market. The combination of government support, increased investment, and technology restrictions is expected to accelerate the development of domestic alternatives, though significant technical gaps remain in advanced process support and comprehensive tool coverage.
The latest restrictions represent another chapter in the ongoing technology competition between the US and China, with both sides likely to continue adapting their strategies as the semiconductor industry evolves.