My colleague, Richard Goering, and I spent time with Cadence CEO Lip-Bu Tan to get his thoughts on the company, on the EDA industry and electronics business, and design trends in general. In part 1 of our coverage, Tan talks about the company's evolution, its burgeoning IP business, and its acquisition strategy.

Here, in part 2, Tan addresses larger industry issues. Specifically, how do we energize semiconductor design to attract the next generation of engineering students, and how do we grow the global TAM and increase value all the way along the design chain?

Q: What do you see as some of the electronics industry's biggest challenges?

A: If you look at the bigger picture, the semiconductor industry has not grown for the last few years and actually it's declining. That's troublesome for me. If the industry is not growing, it becomes a dog-eat-dog business. The industry needs to wake up. As leaders, we need to look both at our company's performance, and at the industry as a whole.

Cadence CEO Lip-bu Tan

In my view, there are areas that are very challenging, and I have taken it upon myself to help and contribute to them in a small way.

One important one has to do with attracting young engineers. The good students from MIT, Carnegie Mellon, Stanford, Berkeley...they're going to the Googles and the Facebooks of the world. I would like some of the best talent to come to the semiconductor industry rather than go to the social media, Internet world. There is a lot of very important innovation going on here in the chip world.

That's why we're reaching out to all the best students. Recently, I met a PhD student from Carnegie Mellon. The moment I saw him, I sent a note to all my executives and said "We should hire this guy." And it turns out we already had. It made my day. And not only do we now have him but we have his professor working with us. So as an industry, we have to do what we can to attract the best talent.

Q: At this year's DAC, you spoke of doubling and tripling down on your semiconductor investments. But you're almost a lone wolf in that regard these days. How do we spur more investment in electronics?

A: I used to have 25 guys I could count on to invest in semiconductors. Now, there are almost none, and that worries me. The semiconductor and system guys are sitting on $440 billion in cash. But it's hard to do disruptive innovation in big companies.

That's why I'm excited to see some semiconductor companies going IPO, getting acquired, and providing liquidity. So hopefully we'll get more VC investment. InPhi went public. Montage just filed, and there are other companies ready to file. We are starting to see more innovation and the capital is going to flow in. At the end of the day, the venture guys have to invest in semiconductors. One day soon, the mutual funds have to get back to liking the semiconductor industry to buy the stocks, so we can grow that $300 billion semiconductor market to $500 billion.

Q: How do you see EDA companies extracting more value from their technologies?

A: I talk to my friends Wally [Rhines, Mentor Graphics CEO] and Chi-Foon [Chan, Synopsys president and co-CEO], and say "We should not be fighting each other; we should grow the pie." We are so critical to design and we have to continue to provide more value. In the last three years, we all look good in terms of stock performance. But if one of us misses the numbers, all three get dragged down. So we have to look at the big picture: How can we help the system guys to grow? Because right now, the system guys are becoming double-digit growth customers for Cadence.

So I say, let's grow the pie. Let's grow the industry. Let's provide the value.

Look at the semiconductor TAM right now: It's $300 billion. The three of us--80 percent of the [EDA] market--are still a tiny percentage of their design spend and their value. Should we get more of that? Absolutely. We need to deliver the best IP and tools and price accordingly. I'm very bullish about EDA.

Brian Fuller

Related stories:

Interview with Lip-Bu Tan, Part 1 - How Cadence is Positioned to Build Upon Success

Cadence CEO at DAC 2013: 'I've Doubled, Tripled Down on Semiconductor Investment'

Lip-Bu Tan at CDNLive 2013: Opportunities and Challenges for Electronics, and How Cadence Can Help