In recent developments within the semiconductor industry, SK Hynix, one of the leading memory chip manufacturers, has taken proactive steps by initiating a review of the semiconductor Electronic Design Automation (EDA) tools provided by Chinese suppliersThis measure aims to mitigate the potential impacts of new U.S. policies that could restrict Korean semiconductor companies from utilizing Chinese EDA tools, especially under the new U.S. administrationThe urgency of this review indicates a significant shift in the industry, driven by geopolitical tensions and market dynamics.

Electronic Design Automation is often referred to as the "mother of chip design," serving as an indispensable tool within the semiconductor supply chainAs the integrated circuit industry continues to evolve, the complexities of circuit design and fabrication processes have escalated, necessitating the reliance on sophisticated EDA toolsThese tools help designers conduct circuit design, layout design, layout verification, and performance analysis, significantly reducing design flaws, enhancing yield rates, and saving costs associated with physical chip fabrication.

According to research firm TrendForce, key U.S. companies such as Synopsys, Cadence, and Siemens hold substantial shares in the global EDA market, combining to control approximately 74% of the marketSpecifically, Synopsys leads with a 32% share, followed closely by Cadence at 29%, and Siemens at 13%. This dominance underscores the challenges faced by non-U.SEDA providers, particularly in the current environment of U.S.-China competition in technology.

In response to this competition, China has accelerated its push for domestic EDA solutions, with local companies increasingly adopting homegrown EDA toolsProminent Chinese EDA firms include Empyrean (formerly known as Huada Jiutian), Primarius (which acquired Entasys), and Semitronix, among othersThese companies have made significant strides in developing EDA capabilities, illustrating China's commitment to achieve technological independence in the semiconductor space.

The market presence of domestic EDA providers in China has been growing, but it still trails behind that of their U.S. counterparts

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In 2020, the market share of Chinese EDA vendors was only 11.5%, with Empyrean leading the local space by clinching about 6% of the marketHistorically, companies like Samsung and SK Hynix have primarily relied on tools from major U.S. suppliers, but in recent years, they've started to incorporate EDA products from Chinese vendors due to improvements in performance and cost efficiency.

Interestingly, the relationship between Chinese EDA companies and major Korean chipmakers has intensified as restrictions on U.S. exports to China have increasedSK Hynix's scrutiny of its usage of Chinese EDA tools not only protects its interests but is also reflective of the potential for the escalation of U.S. trade policies aimed at the Chinese semiconductor sector.

There are insinuations in the industry that SK Hynix may entirely stop using Chinese EDA tools to avoid complicating its relationship with U.S. regulatorsThis situation has been compounded by earlier trade restrictions imposed by the U.S. on Empyrean's Korean subsidiary, which has prompted a review of the risk associated with collaboration with Chinese EDA companies.

Notably, the acquisition of Entasys by Primarius in mid-2021 for approximately $8 million highlighted the ongoing consolidation within the EDA sector and its potential impact on key players like SK Hynix and SamsungFollowing the acquisition, it’s plausible that Samsung, which began utilizing EDA products from Empyrean and Primarius in 2022, might reconsider its partnerships based on the evolving regulatory landscape.

Both Empyrean and Primarius boast a comprehensive range of EDA tools, with Empyrean providing a complete suite for analog circuit design, while Primarius specializes in manufacturing EDA tools, including device modeling and circuit simulationThe adaptation of these tools by major clients like Samsung and SK Hynix signifies a growing recognition of the capabilities of Chinese EDA entities.

The potential withdrawal of heavyweight manufacturers like SK Hynix and Samsung from employing Chinese EDA tools would undoubtedly exert pressure on the domestic firms

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