Shares of Synopsys and Cadence Design Systems rose in premarket trading after the US eased export rules on chip design software to China, with Siemens also gaining in Frankfurt.

The policy change allows the three firms to resume selling electronic design automation (EDA) tools to Chinese customers.

Synopsys and Cadence shares jumped 5.9% and 5.4%, while Siemens saw a 1.3% gain.

The three companies holds over 70% of China’s EDA software market, which is critical for making semiconductors used in smartphones, cars, and computers.

The US also dropped a licensing rule on ethane exports to China, signaling a shift from previous trade restrictions.

🔗 Source: Reuters

🧠 Food for thought

1️⃣ EDA tools are the unsung kingmakers of the semiconductor industry

The lifting of restrictions on electronic design automation (EDA) software carries significant importance because these tools are the essential foundation of all modern chip design.

Synopsys, Cadence, and Siemens collectively control over 90% of global EDA revenue, with the first two alone accounting for 70% of industry revenue in 2022 1.

This software market’s concentrated structure explains why even modest trade policy changes can significantly impact these companies’ stock prices, as evidenced by the immediate 5-6% jumps following the announcement.

The EDA market is projected to grow from $15.25 billion in 2021 to $31.45 billion by 2028, driven by increasing chip complexity and demand for AI applications 2.

These tools are particularly crucial for cutting-edge technologies like generative AI chips, which are expected to represent a market exceeding $150 billion within the semiconductor industry’s projected $697 billion total by 2025 3.

2️⃣ Export controls created substantial collateral damage for US tech companies

The Biden administration’s semiconductor export controls, which began in 2022, triggered significant financial consequences for American technology firms.

Studies estimate that affected US companies experienced approximately $130 billion in market capitalization losses following the implementation of these restrictions 4.