8/29/2007 – Electronic Business

Commentary: “Open-minded” France attracting EDA companies
A new president, a jolt of R&D incentives courtesy of the French government, and an infusion of new startups are boosting the EDA industry in the country.
By Luc Burgun, EVE — Electronic Business, 8/29/2007

The environment for investing in France is getting significantly better and should have a positive impact on the French EDA industry.

Last year, foreign companies—mostly US-based—invested more in France than in any other country in Europe, including the United Kingdom.

Why? The French government recently introduced R&D investment incentives via a modified fiscal tool—CIR (Credit Impôt Recherche or French Research Tax Credit)—and the new JEI (Jeunes Enterprises Innovantes or Young Innovative Companies) program.

The CIR is one of the best means to reduce R&D expenses, especially when companies are expanding their R&D teams. Through the CIR, 45% of the incremental R&D expenses and 5% of the basic R&D expenses can be deducted from the annual taxes. Further, through the CIR, an unprofitable startup can recover losses at the end of a fiscal year, reimbursed by the government.

The JEI, meanwhile, allows innovative companies to be exempt from tax and social contributions for the first eight years of a company’s life.

CIR and JEI have been key to propelling France to the forefront of European innovation. More important, their advantages are available even after a company goes through an IPO or gets acquired.

New president, new views on corporations

Even though the Euro is quite strong against the dollar today, R&D salaries are still 40% lower in France than in the United States. This is especially true in the EDA industry, and even more so in the electronics and computer-science industries.

France enjoys a large pool of well-educated and creative engineers with a strong focus on hardware/software integration, a critical aspect to the usability of consumer electronics. The productivity of French engineers is strong in comparison with other countries as well. It should be noted that the 35-hour work weeks only apply to blue collar jobs. And France, followed closely by Ireland, is the leading country in Europe in terms of birth rate for more than a decade, with 1.9 newborns per family, giving it a promising future.

Lately, France has shown a desire to change its old structures and enter into the XXI century with an open mind. The French recently elected Nicolas Sarkozy, a “hyper-energetic” president who intends to implement sweeping reforms as soon as possible. He received a mandate by the majority of the French people to execute this aggressive plan. One of his biggest challenges will be to give more flexibility to companies so that they can hire more employees without being concerned with their future during recessionary periods.

The changing face of EDA in France

How does this affect the EDA industry in France? Let’s look at the history of EDA in Europe to understand the possible impact of this new environment.

Until the beginning of the 1990s, large chip makers such as Bull and STMicroelectronics developed their own internal EDA tools. This has changed over the past 10 years as companies have decreased the size of their EDA teams to focus on strategic tools to support and expand their businesses.

In the mid-1990s, Anacad and Meta-Systems conceived and developed advanced technologies and were acquired by Mentor Graphics. The same happened to IST, acquired by Xilinx, and Telcom WorkBench and Leda, acquired by Synopsys. A large portion of the Compass EDA team merged within Cadence. Back then, the growth of French EDA startups was hindered by a chronic lack of funding essential to promote and sell their tools outside of Europe.

At the beginning of the XXI century, TNI-Valiosys, Esterel and, more recently, EVE and Arteris—all French EDA companies—were the first funded by investors. At the same time, outside of France but in Europe, several EDA companies specialized in hardware-assisted tools sprung up, such as Hardi, recently acquired by Synplicity, Prodesign and Nallatech. All these companies share an aggressive plan to sell and promote their tools outside of Europe.

The first customers of EVE in 2002 were Texas Instruments in France, Canon CISRA in Autralia and Fujtsu Lab in Japan. Today, EVE has more employees outside of France than at its headquarters in Palaiseau.

More recently, several new startups, including Certess and Cofluent, caught the attention of the venture capital community through solid business plans and promising futures. It should be noted that Certess moved its headquarters to the U.S., as did Arteris, making them U.S. companies with R&D teams in France.

Revenues generated by independent French EDA companies in 2006 are estimated at $40 million, with the same amount coming from those already part of larger EDA groups in France. This is still quite small in comparison to the $4 billion EDA industry, but given the favorable environment for investing in France these days, this amount should grow significantly soon.

It is likely that one French EDA company will be able to apply for an IPO soon, whether at AIM in London, EuroNext in Paris or even at NASDAQ in New York, motivating investors to pour more cash into the EDA space. The experience accumulated by these and other companies will foster new initiatives. Ultimately, the path to success for the French EDA startups will be through a collection of customer success stories.
Luc Burgun is president and CEO of EVE, a provider of hardware-assisted verification solutions, and president of CoFluent Design, which provides integrated solutions to bridge the gap between the specification of an electronic system and its implementation.