By Stephen Nellis

(Reuters) – Microchip’s design software manufacturer Cadence Design (NASDAQ) Systems Inc bets on increased demand from chip makers and others who have been hit hard by supply constraints.

Synopsys, Cadence (NASDAQ:) Inc, and Siemens EDA compete in the microchip market shift. Cloud computing providers and software manufacturers who have traditionally bought semiconductors only from a handful of large companies are now looking to create their own chips.

Alphabet Inc (NASDAQ:) Inc and Tesla are the top-ranking companies in house design. Anirudh Devgan of Cadence, who was named chief executive by the company last month, stated that executives across all industries are now paying attention to how custom chips can differentiate products. He also noted that his firm includes key clients such as Apple and Tesla.

While developing a chip can cost around $100 million to develop, artificial intelligence reduces costs. However, traditional semiconductor companies continue raising their prices. Many chips sell for over $100.

“How many cars companies own more than one million units?” “A lot,” Devgan stated in his initial interview as CEO. At some volumes, it’s an easy decision to make because of the cost and schedules, but more important, it allows for customization.

The global supply chain bottlenecks that have hampered automaker production for more than a year are causing companies such as Ford Motor (NYSE) Co and General Motors Co to rethink how they approach chip procurement.

The auto industry consolidates hundreds of tiny micro-controller chips, which have been infiltrating cars over many decades. They are now able to use fewer more powerful and expensive chips.

Tesla is known for its unified approach and results that are sharply in contrast to other automakers. Despite a global chip shortage, Tesla reported record fourth-quarter production https://www.reuters.com/business/autos-transportation/tesla-delivers-308600-vehicles-q4-beating-estimates-2022-01-02, in part because close control of its chip and system designs allowed the company’s engineers to quickly rewrite code https://wtaq.com/2022/01/04/explainer-how-tesla-weathered-global-supply-chain-issues-that-knocked-rivals to use chips that were available.

Cadence provides electronic design automation (EDA), software which converts your ideas into physical layouts for billions of transistors packed onto just a few millimeters. These chips can often be manufactured by third-parties like Taiwan Semiconductor Manufacturing Co.

Cadence had mainly been a customer of traditional semiconductor companies for decades. Jay Vleeschhouwer from Griffin Securities said that the “systems” customer, which create products with chips as a key component, accounts for 40% of Cadence’s current revenue.

Cadence is now able to provide software for customers that can help them design custom chips and make products. Cadence also acquired software to perform tasks like packing chips onto circuit boards, and making sure that the chips don’t overheat or melt.

The allure of such functions “extends to automotive, aerospace, industrial equipment, all of the makers of products” in which chips eventually reside, said Joe Vruwink, analyst with Robert W. Baird & Co.

The transformation of automobiles into computers is almost certain. This means that automakers, as well as other newcomers to the chip design industry, will have stiff competition for the talent of chip architects.

Vleeschhouwer stated that EDA firms were less excited about the automobile market four years ago because of its simpler chips.

He said that EDA companies have made “pilgrimages” to Detroit and other areas of automotive development and are now making investment in these areas. It’s because of the complex nature of automobile systems at chip and system levels that it has been highly motivating.