The United States has directed semiconductor design software companies, including Cadence, Synopsys, and Siemens EDA, to stop sales to China without an export license, according to sources familiar with the matter.

The Commerce Department issued notifications on May 23, stating export license requests will be evaluated case-by-case, meaning this is not a complete ban.

A Commerce Department representative declined to comment on the specifics but noted the department is reviewing exports of strategic significance to China.

Following the announcement, shares of Cadence fell 10.7%, and Synopsys shares dropped 9.6%.

Synopsys’ CEO said the company had not received any notice but was aware of the reports. Siemens EDA has yet to comment.

Synopsys and Cadence generate about 16% and 12% of their revenue from China, respectively.

🔗 Source: Reuters

🧠 Food for thought

1️⃣ Targeting software marks a strategic evolution in semiconductor export controls

The focus on restricting Electronic Design Automation (EDA) tools represents a significant shift in U.S. export control strategy, targeting the software that enables chip design rather than just manufacturing equipment.

EDA tools are considered the “true choke point” in semiconductor development according to former Commerce Department officials, as these sophisticated software suites are essential for designing modern chips and are dominated by U.S. companies 1.

This approach builds upon previous restrictions that targeted manufacturing equipment and advanced chips, creating a more comprehensive blockade on China’s semiconductor advancement capabilities 2.

The strategy reflects lessons learned from earlier export controls, where restricting only hardware components left pathways open for technological advancement through design innovation 3.

Unlike hardware, EDA software requires constant updates and support, making these restrictions potentially more difficult to circumvent through one-time purchases or stockpiling 4.

2️⃣ Economic interdependence creates complex impact calculations for both countries

China represents a substantial revenue source for U.S. EDA companies, with Synopsys deriving approximately 16% of its annual revenue from China and Cadence about 12%, explaining why their stocks fell 9-10% following news of the restrictions 1.