Mr. Hinckley: Mentor Graphics Corporation is a pioneer in electronic design automation (EDA), which is software that enables engineers to design semiconductor chips and electronic systems. We apply the computer-aided design (CAD) concepts that have been used in other spaces, such as mechanical CAD for designing automotives, or in architectural CAD for designing buildings, to the electronics industry. We were founded in 1981, and have developed much of the fundamental design technology that enabled the growth of the semiconductor industry and the computer market. Today, the EDA market is about a $3 billion market, growing at about a 15% compound rate. There are three large companies within that marketplace Mentor Graphics, Cadence Design, and Synopsys and these top three account for about a 60% market share. That is up from about 50% 18 months ago, so it is a consolidating industry. One other characteristic of the EDA industry is that while we sell into the generally cyclical electronic industry, as do the semiconductor equipment companies, we tend not to follow the semiconductor cycle. This is not well-understood by Wall Street. The equipment industry, companies like Applied Materials, sell their products to expand manufacturing capacity. Our software tools are purchased to increase the efficiency and productivity of design. So we're not directly related to the volume of chips, but to the number of products designed, and how efficient these designs are in terms of cost per unit. So we tend to be, as an industry, somewhat counter-cyclical to the semiconductor industry. When the semiconductor industry is doing its very best, factories are running at full capacity, and there is somewhat less need for new designs. When the semiconductor industry is doing less well, they look to new designs, and software improvements to cut cost-per-unit and so we do somewhat better.
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