VOL. XCIV, NO. 247
★ WIDE MOAT STOCKS & COMPETITIVE ADVANTAGES ★
PRICE: 0 CENTS
Tuesday, December 30, 2025
Cadence Design Systems, Inc.
CDNS · NASDAQ
Weighted average of segment moat scores, combining moat strength, durability, confidence, market structure, pricing power, and market share.
Request update
Spot something outdated? Send a quick note and source so we can refresh this profile.
Overview
Cadence Design Systems is an engineering software company focused on electronic system design enablement, reporting three product categories: Core EDA (71% of FY2024 revenue), Semiconductor IP (13%), and System Design and Analysis (16%). Its core moat is workflow and design-in lock-in reinforced by tightly integrated suites and multi-year time-based licenses, with substantial contracted future revenue (remaining performance obligations) and, in IP, royalty tailwinds after design wins. Competition is concentrated among a small set of incumbents (notably Synopsys and Siemens EDA), while key risks include export controls/geopolitics, renewal repricing pressure in downcycles, and technology shifts that lower switching costs (cloud delivery, interoperability, open tools).
Primary segment
Core EDA
Market structure
Oligopoly
Market share
29%-31% (estimated)
HHI: —
Coverage
3 segments · 7 tags
Updated 2025-12-29
Segments
Core EDA
Electronic design automation tools for semiconductor IC design and verification (digital, custom/analog, signoff, functional verification)
Revenue
71%
Structure
Oligopoly
Pricing
strong
Share
29%-31% (estimated)
Peers
Semiconductor IP
Semiconductor intellectual property (IP) licensing (interface IP, silicon subsystems, embedded IP) and related maintenance/royalties
Revenue
13%
Structure
Oligopoly
Pricing
moderate
Share
—
Peers
System Design and Analysis
System verification (emulation/prototyping) and multiphysics / computational software for electronic systems, packaging, and boards
Revenue
16%
Structure
Competitive
Pricing
moderate
Share
—
Peers
Moat Claims
Core EDA
Electronic design automation tools for semiconductor IC design and verification (digital, custom/analog, signoff, functional verification)
Revenue share is from Cadence FY2024 Form 10-K revenue-by-product-category table: Core EDA contributed 71% of revenue.
Data Workflow Lockin
Demand
Data Workflow Lockin
Strength: 5/5 · Durability: durable · Confidence: 4/5 · 2 evidence
EDA tool flows become embedded in customers' design methodology (scripts, libraries, signoff flows, PDK integration), making toolchain changes costly and risky once in production.
Erosion risks
- Standards and interoperability improving reduces toolchain friction
- Cloud/SaaS delivery lowers switching barriers over time
- Open-source EDA tooling improving in selected niches
Leading indicators
- Renewal and expansion rates in enterprise license agreements
- Foundry signoff certification breadth at leading nodes
- Net revenue retention / recurring revenue mix
Counterarguments
- Large customers can multi-source tools and standardize internal flows to reduce vendor lock-in
- Peers offer comparable end-to-end suites, limiting differentiation to performance and price
Suite Bundling
Demand
Suite Bundling
Strength: 4/5 · Durability: durable · Confidence: 4/5 · 1 evidence
Integrated tool suites (implementation + signoff + verification + adjacent categories) reduce the appeal of point tools and simplify procurement and support for large design teams.
Erosion risks
- Best-of-breed point tools outperform in niche workflows
- Bundling discounts compress price realization
Leading indicators
- Share of revenue from multi-product agreements
- Attach rates across signoff/verification/tools
Counterarguments
- Sophisticated customers may prefer unbundling to optimize cost/performance by task
- Integration benefits may be replicable by other incumbents
Long Term Contracts
Demand
Long Term Contracts
Strength: 4/5 · Durability: durable · Confidence: 5/5 · 2 evidence
Multi-year time-based licenses and contracted remaining performance obligations provide recurring revenue visibility and reinforce renewal-based customer relationships.
Erosion risks
- Renewal repricing pressure during semiconductor downcycles
- Export controls / geopolitics reduce certain customer demand
Leading indicators
- Remaining performance obligations (RPO) and deferred revenue trend
- Bookings vs revenue growth
- Net revenue retention
Counterarguments
- At renewal, customers can renegotiate scope and price; contracts are not permanent lock-in
- Large customers can shift spend between vendors over multi-year horizons
Semiconductor IP
Semiconductor intellectual property (IP) licensing (interface IP, silicon subsystems, embedded IP) and related maintenance/royalties
Revenue share is from Cadence FY2024 Form 10-K revenue-by-product-category table: IP contributed 13% of revenue.
Design In Qualification
Demand
Design In Qualification
Strength: 4/5 · Durability: durable · Confidence: 4/5 · 1 evidence
Once an IP block is selected and integrated into a customer chip, changing vendors typically requires redesign and re-qualification, raising switching costs until the design cycle resets.
Erosion risks
- Standards-based IP becomes more commoditized
- Major customers insource more IP development
- Foundry or platform partners favor alternative IP ecosystems
Leading indicators
- New IP design wins and backlog
- Reuse rate of IP across customer generations
- Attachment of maintenance to new licenses
Counterarguments
- Design cycles reset frequently at leading nodes, creating opportunities for competitors
- Some interface IP categories are price-competitive with multiple qualified suppliers
Installed Base Consumables
Demand
Installed Base Consumables
Strength: 4/5 · Durability: durable · Confidence: 4/5 · 1 evidence
Royalty-bearing IP creates a long-tail revenue stream tied to customers unit shipments after a design-in win.
Erosion risks
- Customer products underperform, reducing unit volumes and royalties
- Contract terms shift away from royalties toward fixed fees
Leading indicators
- Royalty revenue trend and concentration
- Customer end-market shipment cycles
Counterarguments
- Not all IP is royalty-bearing; much revenue can be upfront and contestable
- Customers can dual-source or switch IP on new programs
IP Choke Point
Legal
IP Choke Point
Strength: 3/5 · Durability: medium · Confidence: 3/5 · 1 evidence
Cadence IP portfolio is protected by patents/copyrights and is licensed under nonexclusive agreements, supporting monetization and limiting direct copying.
Erosion risks
- IP litigation or invalidation of key patents
- Open standards reduce the uniqueness of certain interface IP
Leading indicators
- Patent portfolio activity and IP-related legal disputes
- Average selling price and gross margin of IP offerings
Counterarguments
- Legal protections rarely prevent functional substitution by alternative implementations
- Nonexclusive licensing means competitors can often offer similar functionality
System Design and Analysis
System verification (emulation/prototyping) and multiphysics / computational software for electronic systems, packaging, and boards
Revenue share is from Cadence FY2024 Form 10-K revenue-by-product-category table: System Design and Analysis contributed 16% of revenue.
Suite Bundling
Demand
Suite Bundling
Strength: 4/5 · Durability: durable · Confidence: 3/5 · 1 evidence
Cross-category integration (EDA + SD&A + IP) enables a system-level workflow that can reduce tool sprawl and speed design closure for advanced packaging and system verification.
Erosion risks
- Customers buy best-of-breed simulation tools outside the Cadence stack
- Interoperability and open formats reduce benefits of single-vendor suites
Leading indicators
- Share of SD&A sold as part of broader enterprise agreements
- Adoption of multiphysics capabilities by existing EDA customers
Counterarguments
- Many engineering orgs already standardize on competing simulation suites
- Integration claims may not outweigh feature gaps in specific physics domains
Capex Knowhow Scale
Supply
Capex Knowhow Scale
Strength: 3/5 · Durability: medium · Confidence: 3/5 · 1 evidence
High-end emulation/prototyping platforms combine specialized hardware and software; scale supports continued investment, manufacturing relationships, and product iteration.
Erosion risks
- Hardware commoditization or shift to purely cloud-based alternatives
- Supply constraints for key components (FPGA/compute) and subcontractor capacity
Leading indicators
- Hardware bookings and utilization (including cloud access)
- Gross margin trend in hardware-related revenue
Counterarguments
- Competitors can source similar hardware building blocks and differentiate with software
- Customers may reduce on-prem hardware spend in favor of cloud compute
Service Field Network
Supply
Service Field Network
Strength: 3/5 · Durability: medium · Confidence: 3/5 · 1 evidence
Complex deployments benefit from a large applications engineering and field support organization, improving time-to-value and retention for enterprise customers.
Erosion risks
- Customers shift toward self-service SaaS with lower support needs
- Support cost inflation reduces leverage of field org
Leading indicators
- Customer satisfaction and support ticket resolution metrics
- Professional services and support attach rates
Counterarguments
- Peers also maintain large field engineering organizations
- Support quality may be table-stakes rather than a differentiator
Evidence
The 10-K describes highly complex design workflows and tightly integrated product categories; this supports an inference of high workflow switching costs in Core EDA.
Cadence names Synopsys and Siemens EDA among its most frequent competitors, consistent with an entrenched EDA oligopoly where incumbent workflows matter.
These categories are tightly integrated
Supports a bundling/suite moat across Cadence product categories that reinforces Core EDA adoption.
We primarily license our software using time-based licenses.
Direct support for a recurring licensing model (Cadence indicates typical terms are 2-3 years).
Contracted but unsatisfied performance obligations were approximately $6.8 billion.
RPO indicates substantial contracted future revenue, consistent with long-term customer commitments.
Showing 5 of 12 sources.
Risks & Indicators
Erosion risks
- Standards and interoperability improving reduces toolchain friction
- Cloud/SaaS delivery lowers switching barriers over time
- Open-source EDA tooling improving in selected niches
- Best-of-breed point tools outperform in niche workflows
- Bundling discounts compress price realization
- Renewal repricing pressure during semiconductor downcycles
Leading indicators
- Renewal and expansion rates in enterprise license agreements
- Foundry signoff certification breadth at leading nodes
- Net revenue retention / recurring revenue mix
- Share of revenue from multi-product agreements
- Attach rates across signoff/verification/tools
- Remaining performance obligations (RPO) and deferred revenue trend
Curation & Accuracy
This directory blends AI‑assisted discovery with human curation. Entries are reviewed, edited, and organized with the goal of expanding coverage and sharpening quality over time. Your feedback helps steer improvements (because no single human can capture everything all at once).
Details change. Pricing, features, and availability may be incomplete or out of date. Treat listings as a starting point and verify on the provider’s site before making decisions. If you spot an error or a gap, send a quick note and I’ll adjust.