Japan's largest high-tech manufacturer is attracting attention in the software industry.
A battle is brewing in an area of the artificial intelligence (AI) industry that doesn't get much attention: chip design software. Several merger and acquisition deals have been announced, with mega-mergers among electronic design automation (EDA) leaders pending. synopsis (SNPS 1.47%) and ansis (Anse 0.20%). Shortly after that his second EDA software suite was announced. cadence design system (CDNS 0.50%)announced a new supercomputing platform for simulating electronic systems.
Japanese chip makers don't want to be left behind Renesas (RNECY 2.81%) Announces intent to acquire small EDA software provider Altium (ALMF.F 0.58%). Is something big happening in the AI market?
Renesas seeks to strengthen software
Renesas is a comprehensive device manufacturer that both designs and manufactures semiconductors. This is a hybrid business model that has been making a comeback in recent years. In addition to Japan's emergence as a top manufacturing destination in the East, Renesas is also seeing a resurgence in the electric vehicle (EV) revolution and a myriad of other more mature manufacturing processes, including cutting-edge chips such as data center AI. I'm grateful for that. ) for chips in industrial and power applications.
I wrote about the Renesas deal last year, among several other smaller acquisitions to strengthen its power chip portfolio. wolf speed (wolf -2.81%) This is to purchase silicon carbide (SiC) wafers for use in next-generation applications such as EV motors.
But the acquisition of Altium, a smaller competitor to EDA software giants Synopsys and Cadence, is a completely different story. Australia-based Tiny Altium (which counts Wolfspeed, among others, as a chip design customer) generated revenue of just $139 million in US dollars in the first half of its current fiscal year 2024. Still, Renesas plans to spend A$9.1 billion ($6 billion in U.S. dollars at the exchange rate of April 5, 2024). That's a significant price premium.
The rationale Renesas stated is that many of its customers (such as automakers) are not technical people and may need help implementing next-generation electronics, so the capabilities of the software and digital tools it provides to customers It is to strengthen.
Will there be a big wave of AI?
At the moment, Nvidia's (NVDA 2.45%) Data center AI systems are all the rage as companies look to use data to “train” new AI systems. But over the next decade, all of these AI systems will need to be phased out. where For users to profit from their works.
That's why Renesas sees a huge opportunity by acquiring Altium and competing with Synopsys and Cadence in electronics system design. Thanks to customer interest in embedding intelligent computing systems across a broad ecosystem of devices, from automobiles to automated factory equipment to smart home devices, semiconductor manufacturers are paving the way for sustained growth. I'm putting it in.
Any new AI built into the device itself, rather than housed in a data center, will require far more sophisticated hardware. It will also require more energy-efficient hardware, such as the type Renesas is working on (also under contract with Wolfspeed). By combining not only chips but also software to enable AI devices, Renesas could secure a seat at the competitive table for years to come.
Renesas could become a hidden growth stock in the AI race. The stock trades at about 13 times trailing 12-month earnings and free cash flow, making it a bargain if it continues to build on its leadership in semiconductor manufacturing and design for automotive, industrial equipment, and consumer electronics. There is a possibility that it will happen.
Nicholas Rossolillo and his clients have held positions at Cadence Design Systems, Nvidia, and Synopsys. The Motley Fool has positions in and recommends Altium, Cadence Design Systems, Nvidia, Synopsys, and Wolfspeed. The Motley Fool recommends his Ansys. The Motley Fool has a disclosure policy.