New York Boston Menlo Park San Francisco Chicago

Rich Valera

Managing Director, Needham & Company June 24, 2018

EDA Observations and Outlook:

A Wall Street Perspective

2

What’s driving EDA growth?

What’s the growth rate of EDA been doing?

EDA IPO’s/Consolidation

Private and public investment in the EDA industry

Conclusions

Overview

3

Drivers of Semiconductor & EDA Growth

Growth Vectors

Driving Incremental Demand for EDA

Automotive Internet of

Things AI/Machine

Learning Webscale /

FAANGs

4

Increasing Semi Content in Autos

Source: NXP Semiconductors

81M

89M 91M

99M

89M 90M 94M

$297

$332 $344

$382

$332 $342

$366

$24B

$29B

$31B

$38B

$29B

$31B

$34B

Global Vehicle Production (millions)

Auto Semi TAM (billions)

Semi Content / Vehicle ($)

CAGR ’16E-’19E: Max% Min%

3%

1%

4%

2%

6%

4%

5

Increasing demand from IoT applications

Source: Silicon Labs, 2017

IoT Semi Market SAM IoT Semi Technology SAM

$8.1B $9.7B

$11.5B

2013 2016 2020E

Smart City Smart Home Smart Industry Other Total

$8.1B $9.7B

$11.5B

2013 2016 2020E

MCU Wireless Sensors Total

6

AI and Machine Learnings driving new design starts.

Chris Rowen, February 2018

“The Cognite list now includes 22 chip startups world wide (a third of them in China) and I am also following 5 or 6 more that are still in

stealth mode.”

• AI/Machine Learning is a source of incremental chip design

• All FAANG players (ex-NFLX) are designing AI-related chips

7

FAANG’s Have Been Driving the NASDAQ Over the Last 5 years

FB

AAPL

AMZN

NFLX

GOOG

Rest of NASDAQ

Source: FactSet

FAANGs account for ~40% of the 5-year increase in value of the NASDAQ

• The Nasdaq composite is a market cap weighted index of 3,300 stocks; the FAANGs represent between 0.1% to 0.2% of the number of stocks in the NASDAQ

• FAANG stocks (Facebook, Amazon, Apple, Netflix, Google) have driven much (~40%) of the performance/market cap increase in technology.

• All (ex-Netflix) also have, or are, developing in-house chip design capabilities

8

FAANGs have also been drivers of EDA – Apple

• Apple was first of the FAANGs getting into chip design, buying PA Semi in 2008 for $280MM – leading to design of its own mobile App Processor, the A4, in 2010.

• Over time it has developed an increasing number of complementary chips to its co-processor (i.e. motion coprocessor, GPU, neural engine)

9

FAANGs have also been drivers of EDA – Amazon

Amazon buys Israeli chip-maker Annapura to develop chips for its hyperscale datacenters.

- January 2015

Amazon is reported to be developing its own AI chip to facilitate performance of its Alexa-powered devices.

-February 2018

• Amazon defied the original cloud paradigm that suggested cloud companies would leverage standard hardware from a handful of vendors when it bought Annapura and began designing chips to improve the performance of its datacenters.

• It is now reported to be devloping AI chips, further increasing its demand for EDA

10

FAANGs have also been drivers of EDA – Google

Google announces its first tensor processing unit (TPU), a custom ASIC used in Google’s datacenters

for machine learning applications.

-May 2016

• Google joined Amazon in custom chip design with its TPU.

11

FAANGs have also been drivers of EDA – Facebook

“…is seeking to hire a manager to build an end-to-end SoC/ASIC, firmware and driver development

organization” - April, 2018

• Facebook appears set to join AMZN and GOOG in doing custom chip design.

12

EDA Industry Quarterly Revenue and TTM Growth Rate

What’s the growth rate of EDA been doing?

Source: ESD Alliance

• The growth rate of EDA (blue line represents TTM average growth rate) has shown some volatility around macro events

• ’08/’09 recession and record semi M&A/MENT in ’15/’16

• Otherwise the growth rate has been solidly trending upward towards DD% y/y.

13

EDA and IP IPOs – late 90’s early 2000’s were good times

1996 1997 1998 1999 2000 2001 2002

• The late 90s to early 2000s were a prolific time for EDA/IP IPOs

• 2001 was particularly remarkable since the ongoing collapse of the tech bubble resulted only a handful of tech IPOs, but 5 EDA/IP companies managed to get public.

14

…the following 15+ years have been all about consolidation

• Virtually all of the IPOs of the prior era (CEVA the lone exception) have been consolidated.

• Many larger scale private companies, including multiple “near IPO’s,” e.g., Denali, Tensilica, Apache and SpyGlass (Atrenta), were bought before going public.

• It goes with saying that industry has become very concentrated, one could argue an oligopoly, with most of the revenue driven by 3 companies.

15

Investment in EDA – From the Private side…

Source: Crunchbase

0

1

2

3

4

5

6

7

8

M

5M

10M

15M

20M

25M

30M

35M

40M

45M

50M

2000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2016 2017 2018

Total Amount Raised (MM) # of Fundings

Investment in Private EDA/Semi IP Companies

• Investment in private EDA companies, has been on somewhat of a downtrend, outside of the 2012 outlier from a $25MM investment in Real Intent by Andy Bechtolsheim.

16

Investment in EDA – From the Private side…

Source: Vista Ventures, LLC

EDA Private Company M&A

6

7

6

4 4

5

4

2

1.0

3.0

5.0

7.0

9.0

11.0

13.0

15.0

17.0

2010 2011 2012 2013 2014 2015 2016 2017

Number of exits Average Age at Acquisition

Ave

rage

Age

at

Acq

uis

itio

n

• The number of EDA private company exits has been declining, we think directly relating to fewer private companies being formed.

• The time to exit for these companies (blue line) has generally been well over 10 years. This long gestation and the relatively small TAMs many EDA privates look to pursue, we think helps explain the modest amount of VC funding flowing into EDA.

17

…and the public side.

Source: Company Filings

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Synopsys

Cadence

Average

R&D as a % of SNPS/CDNS Revenue

• With EDA industry an “oligopoly” (per slide 14) – one might think the main players could see less competition, reduce investment and look to maximize profits.

• This has not been the case. Combined Cadence/Synopsys R&D has been on a generally upward trend over the last 10 years*

• We see this is as positive for the industry, especially as it relates to job growth.

18

What’s happened to public EDA Valuations?

• The market has generally trended upward with an expanding P/E over the last 5 years.

• The NTM P/E of the S&P 500 has gone from ~13.5x to ~16.5x during this time.

19

What’s happened to public EDA Valuations?

• But public EDA names have seen dramatically more multiple expansion than the market.

• CDNS and SNPS have seen their NTM P/Es expand from ~14x to ~26x and 22x, respectively.

20

EDA Stock 5-Year Performance Price Price 5 year 5 year

Ticker 6/21/13 6/22/18 Return CAGR17.18

S&P 500 SP50 $1,592.43 2783.76 74.8% 11.8%

Cadence CDNS $14.37 $44.13 207.2% 25.2%

Synopsys SNPS $35.21 $90.92 158.2% 20.9%

EDA Average 182.7%

Source: Factset and Needham & Company estimates.

What’s happened to public EDA Valuations?

• … and EDA stocks have sharply outperformed the broader market.

21

The EDA/Semi IP market is seeing healthy growth, with strength from Auto, IoT, A.I. and relatively new consumers of EDA in the webscale/cloud space.

EDA has seen considerable consolidation, which has not been matched by private company formation and IPOs.

VC investment has been limited due to smaller TAM size and long gestation of many EDA companies, but opportunities still exist for privates solving challenging problems.

Overall (public and private) investment, revenue growth and job growth in the EDA/IP industry remain healthy.

And public company investors have shown an increasing appreciation for the value of EDA, as reflected in higher absolute and relative multiples of public EDA companies.

Summary/Conclusions