Silvaco Group Inc.  SVCO   $17.00-$19.00 6.0 million shares Underwriters: Jefferies, TD Cowen   Co-Managers: B. Riley Securities, Craig-Hallum Capital Group, Rosenblatt Proposed trade date of 05/09 They are a provider of technology computer aided design software, electronic design automation software and semiconductor intellectual property, or TCAD, EDA and SIP, respectively. TCAD, EDA and SIP solutions enable semiconductor and photonics companies to increase productivity, accelerate their products’ time-to-market and reduce their development and manufacturing costs.

Silvaco Group Inc.   SVCO

• 6,000,000 shares to be offered between $17.00-$19.00 per share
• Underwriters: Jefferies, TD Cowen Co-Managers: B. Riley Securities, Craig-Hallum Capital Group, Rosenblatt
• Proposed trade date of 05/09
• Rating = 3

Click here to view the prospectus.

https://www.sec.gov/Archives/edgar/data/1943289/000162828024019172/silvacogroupincs-1a2.htm

Company Overview

They are a provider of technology computer aided design software, electronic design automation software and semiconductor intellectual property, or TCAD, EDA and SIP, respectively. TCAD, EDA and SIP solutions enable semiconductor and photonics companies to increase productivity, accelerate their products’ time-to-market and reduce their development and manufacturing costs. They have decades of expertise developing the “technology behind the chip” and providing solutions that span from atoms to systems, starting with providing software for the atomic level simulation of semiconductor and photonics material for devices, to providing software and SIP for the design and analysis of circuits and system level solutions. They provide SIP for systems-on-chip, or SoC, integrated circuits, or ICs, and SIP management tools to enable team collaborations on complex SoC designs. Their customers include semiconductor manufacturers, original equipment manufacturers, or OEMs, and original design manufacturers, or ODMs, who deploy their solutions in production flows across their target markets, including display, power devices, automotive, memory, high performance compute, or HPC, internet of things, or IoT, and 5G/6G mobile markets.

EDA offerings, including their solutions, enable companies to streamline their IC design workflows, develop complex IC designs in a cost-efficient manner, and maintain acceptable IC manufacturing yield, by providing interoperable tools that capture and simulate designs from concept to analysis. Their TCAD device and process simulation tools provide compatible data structures that can be used with their EDA modeling, analysis, simulation, verification and yield enhancement tools. Further, their EDA tools are used for designing SIP and IC designs that can be managed and validated by their SIP management tools.

They are a global leader in TCAD solutions for the power devices and display markets. Their TCAD solutions are designed to provide complete, fast, and accurate simulations and modeling of semiconductor and photonics device behavior, allowing their customers to design original, value-added processes and devices, explore trade-offs in performance, power, size and reliability and optimize their final design for manufacturing. By reducing the need to run expensive and time-consuming experiments in manufacturing, TCAD solutions enable companies to rapidly bring their products to market. Their TCAD solutions have been adopted by 3 of the 10 largest semiconductor companies by revenue in 2023, by 8 of the 10 largest flat panel display companies by revenue in 2023, and by 4 of the 10 leading power semiconductor devices companies in 2023.

Their EDA solutions provide analog custom design flows that bring electrical and physical layout views together with circuit simulation and physical verification including sign-off at select foundries to help ensure correct-by-design and high-yielding products before committing to final silicon. They provide device characterization and modeling solutions that enable their customers to generate accurate, high-quality models for use in simulation and analysis of analog, mixed-signal and radiofrequency, or RF, circuits across their target markets. Their EDA solutions have been adopted by 6 of the 10 largest semiconductor companies by revenue in 2023 and by 7 of the 10 largest flat panel display companies by revenue in 2023.

Based on a report conducted by Electronic System Design Alliance, in 2022 they ranked second worldwide in the TCAD market based on revenue. Their solutions, many of which can be used in tandem with their competitors’ tools, have been adopted by some of the leading power devices and display providers. These customers use their design software to address certain design challenges. They believe that their positions in the TCAD and power devices and displays markets are strengthened by their EDA product line capabilities. They believe that they have a competitive advantage in these markets in part due to their investment in advanced semiconductor and photonics TCAD solutions, including investments in atomistic simulations, process etch, process deposition and design of experiments, or DOE, that are artificial intelligence, or AI, driven.

IPO Detail

This is the initial public offering of Silvaco Group Inc., and no public market currently exists for its common stock. Silvaco Group Inc. is offering 6,000,000 shares of common stock as described in the prospectus. The company expects the initial public offering price of its common stock to be between $.00 and $.00 per share. The company has applied to list its common stock on the NASDAQ Global Market under the symbol “SVCO.”

Use of Proceeds

They estimate that they will receive net proceeds of approximately $94.6 million (or approximately $109.6 million if the underwriters exercise their option to purchase additional shares of their common stock in full) from the sale of the shares of their common stock offered by them in this offering. They currently intend to use the net proceeds from this offering for general corporate purposes, including working capital, selling and marketing activities, research and product development, general and administrative matters, the repayment of outstanding debt, and capital expenditures. They also may use a portion of the net proceeds to acquire complementary businesses, products, services or technologies. However, they do not have agreements or commitments for any specific acquisitions at this time.

Additionally, they intend to use a portion of the offering proceeds to repay the 2022 Credit Line, from which they have drawn $2.0 million as of December 31, 2023, payable to Ms. Ngai-Pesic, their controlling stockholder and the chair of their board of directors, and any amount drawn under the East West Bank Loan, from which $4.3 million was drawn as of April 26, 2024.

Competition

Market Opportunity

According to Grand View Research, the global aggregate EDA software market was valued at $11.1 billion in global revenue in 2022 and is expected to reach $22.2 billion in global revenue in 2030, representing a 9.1% compound annual growth rate, or CAGR, driven in part by the growing complexity of semiconductor and photonics designs and increasing challenges associated with advanced materials and shrinking process technology nodes across the EDA market. Based on Electronic System Design Alliance’s breakdown of the EDA market, including SIP, which was valued at $17.0 billion in global revenue in 2023, they believe Silvaco’s solutions compete in portions of the EDA software market representing $3.1 billion of the current global aggregate EDA software market. They believe these trends will increase the need for TCAD, EDA and SIP solutions that accelerate time-to-market at reduced development and manufacturing costs and deliver processes and devices with better operating performance, lower cost, reduced power and improved product yield.

Target Markets

Focus on large, growing markets where they have cemented themselves as a reliable solutions provider. They seek to continue and expand their presence in the display, automotive semiconductor, memory device and IoT markets by capitalizing on the growth of their existing customers.

By increasing their Research and Development expenditures, they plan to expand their presence in established market segments, which include fin field-effect transistor (“FinFET”), low-geometry CMOS technology, new specialized SIP, fabrication technology process co-optimization, and photonics. Historically they have not participated materially in these markets.

Continue their history of strategic acquisitions to accelerate growth and expand their market footprint. Historically, they have focused on acquisitions that provide them with technology (e.g., Purdue Atomics simulation tools, commercialized under their Victory Atomistic tools), technical talent, and revenue in new markets. They intend to continue to target acquisitions that allow them to expand their solutions portfolio to better service their customers’ needs.

Leverage their technology in TCAD, EDA, SIP, and SIP management software. They plan to continue to invest in the technology that differentiates them and where they can establish or expand their leadership position, such as TCAD for power devices, display, and photonics, simulation of large panels with complex device models, parasitic analysis and reduction, SIP management and fingerprinting, device characterization tools and services, and development of additional SIP.

Optimize their competitive advantage by addressing unique customer needs. They pride themselves on research and development agility, allowing them to design capabilities specific to customers’ requirements and, where appropriate, integrate those capabilities into their software solutions.

Focus on a portfolio approach to the licensing and sale of their software platform. They seek to differentiate themselves through the breadth of their software and SIP offerings, addressing the full design cycle needs of their customers across applications and industries.

Expand their customer base through increased investment in sales and marketing. They believe their serviceable market is under penetrated and that they can expand their customer base by increasing their marketing and sales resources, particularly in growing segments such as automotive and IoT.

Establish, maintain and expand relationships with key technology providers and academic partners. They maintain successful relationships with SIP providers, foundries, design service companies, EDA companies, their commercial customers and academia. They plan to continue to expand their ecosystem to maximize their reach, integrate into established flows and offer world-class solutions.

Company's Unique Strengths

Enabling companies to accelerate IC and photonics designs to efficiently optimize devices. Companies use TCAD solutions to model the fabrication process and devices used in semiconductors, including low-geometry CMOS, memory and photonics, thus potentially accelerating the time to develop technology and ramping to yield, reducing the need to run wafers, and optimizing devices, all of which can contribute to lower development costs. They develop their EDA design and simulation solutions and SIP to be tailored to specific technologies and market segments, to enhance design flows that optimize Power, Performance and Area-Cost, or PPA.

Enabling growth industries like AI, automotive, and high-performance computing: Their solutions enable their customers’ memory devices, power devices and display technologies to play a crucial role in AI and other advanced applications. Their customers’ power devices are used in designing power systems for things like computers, cars, and servers, enabling them to run smoothly and efficiently. Their display technologies make it easier to interact with technologies like AI, virtual reality (“VR”), and augmented reality (“AR”), improving user experiences.

Early mover advantage in vertical markets. For decades they have focused on vertical markets, such as display and power, and have developed industrial and academic partnerships that enable their agile and fast development of solutions aligned with market needs, such as their TCAD and EDA software solutions tailored for use in the display and power markets.

Leading point tools complement existing chip design flows. Point tools include Jivaro (parasitic reduction, often included in circuit simulation), Viso (parasitics analysis, often included in extraction), and Varman (statistical variation analysis, used in advanced technologies for cell and memory characterization).

Production-ready, also known as silicon-proven, SIP for SoC design. They provide production-ready SIP to their customers including standard cells, memory and I/O SIP that is developed in-house. In addition, they provide SIP and design management tools that enable SIP validation at SoC level, potentially streamlining design workflows.

Development and support of their customers’ specific needs. Their size and focus on specific market segments allow them to develop highly agile solutions and to work with their customers with a goal of developing solutions that meet their specific needs. Through their collaboration with their academic partners such as Purdue University and Christian Doppler Labs at the Vienna University of Technology, their TCAD and EDA tools are made ready for the next generation of processes, materials and systems.

Interoperable product Portfolio among TCAD, EDA and SIP. Their tools have compatible databases across all of their products for seamless scaling of customer designs.

Cost-effective end-to-end solutions. They offer complete solutions for device characterization, compact model development and circuit simulation; analog custom design, including schematics, layout, extraction and design rule check, or DRC, and process and device TCAD. They believe that their software solution pricing is competitive, which is derived from factors such as costs associated with research and development, inflation, licenses mix, number of licenses per product and number of years per TBL, as well as required license maintenance and services.

Company's Unique Risks

They face significant competition from larger companies as well as from third-party providers who may deploy their resources to develop IP solutions internally.

Substantial, prolonged economic downturns in key industrial sectors and in major economic regions in which they operate, including China, may result in reduced software solution sales and lower revenue growth. Their sales are based significantly on end user demand for their software solutions in the display, power devices, automotive, memory, HPC, IoT, and 5G/6G mobile markets. Many of these markets periodically experience economic declines. 

The cyclical nature of the semiconductor and photonics industries may limit their ability to maintain or improve their revenue.

If they are unable to deliver new and innovative software solutions or software license enhancements ahead of rapid technological changes in the market, their revenues could be materially adversely affected.

They may have to invest more resources in research and development than anticipated, which could increase their operating expenses and negatively affect their operating results.

Consolidation among their customers and within the industries in which they operate may negatively impact their operating results.

Their international sales and operations constitute a substantial portion of their revenue and business operations and could be negatively affected by disruptions in international geographies caused by government actions, trade disputes, direct or indirect acts of war or terrorism, international political or economic instability or other similar events. A significant portion of their revenue comes from outside the United States. For example, for the years ended December 31, 2022 and 2023, 68%, and 70%, respectively, of their revenue was from international customers.

They face risks associated with doing business in China. They face increased regulatory uncertainties with respect to their China-based operations, including their wholly foreign-owned enterprise operating in China, any joint ventures they may form or contribute IP or other resources to in the future and sales to China-based customers. For each of the years ended December 31, 2022 and 2023, 23% of their revenue was derived from their China-based operations. Their operating expenses in China were $2.8 million, and $3.2 million, respectively, for the years ended December 31, 2022 and 2023.

Their employees, consultants and third-party providers have in the past and may in the future engage in misconduct that materially adversely affects them. Their employees, consultants and third-party providers have in the past and may in the future engage in misconduct that materially and adversely affects them. For example, a former employee in China impermissibly used their computers and software to write and configure software for other companies.

If they are unable to protect their proprietary technology and inventions through patents and other intellectual property rights, their ability to compete successfully and their financial results could be adversely impacted.

Upon completion of this offering, they will be a “controlled company” within the meaning of the Nasdaq listing rules and as such are exempt from certain corporate governance requirements. As a result of Ms. Ngai-Pesic and the SMIK Grantor Retained Annuity Trust, of which Ms. Ngai-Pesic and members of her immediate family are beneficiaries, or SMIK Trust, collectively holding more than 50% of the voting power of their company, following the completion of this offering, they will be a “controlled company” within the meaning of the Nasdaq listing rules.

Bottom Line

They had total revenue of $29.7 million, $34.4 million, and $39.3 million and net loss of $1.8 million, $3.9 million and $316 thousand in 2021, 2022, and 2023, respectively.

They are a provider of technology computer aided design software, electronic design automation software and semiconductor intellectual property, or TCAD, EDA and SIP, respectively. They provide SIP for systems-on-chip, or SoC, integrated circuits, or ICs, and SIP management tools to enable team collaborations on complex SoC designs. Their customers include semiconductor manufacturers, original equipment manufacturers, or OEMs, and original design manufacturers, or ODMs, who deploy their solutions in production flows across their target markets, including display, power devices, automotive, memory, high performance compute, or HPC, internet of things, or IoT, and 5G/6G mobile markets. EDA offerings, including their solutions, enable companies to streamline their IC design workflows, develop complex IC designs in a cost-efficient manner, and maintain acceptable IC manufacturing yield, by providing interoperable tools that capture and simulate designs from concept to analysis. Their TCAD device and process simulation tools provide compatible data structures that can be used with their EDA modeling, analysis, simulation, verification and yield enhancement tools. Further, their EDA tools are used for designing SIP and IC designs that can be managed and validated by their SIP management tools. They are a global leader in TCAD solutions for the power devices and display markets. Their EDA solutions provide analog custom design flows that bring electrical and physical layout views together with circuit simulation and physical verification including sign-off at select foundries to help ensure correct-by-design and high-yielding products before committing to final silicon. In 2022 they ranked second worldwide in the TCAD market based on revenue. Their solutions, many of which can be used in tandem with their competitors’ tools, have been adopted by some of the leading power devices and display providers.

The global aggregate EDA software market was valued at $11.1 billion in global revenue in 2022 and is expected to reach $22.2 billion in global revenue in 2030, representing a 9.1% compound annual growth rate, or CAGR, driven in part by the growing complexity of semiconductor and photonics designs and increasing challenges associated with advanced materials and shrinking process technology nodes across the EDA market. Based on Electronic System Design Alliance’s breakdown of the EDA market, including SIP, which was valued at $17.0 billion in global revenue in 2023, they believe Silvaco’s solutions compete in portions of the EDA software market representing $3.1 billion of the current global aggregate EDA software market. They believe these trends will increase the need for TCAD, EDA and SIP solutions that accelerate time-to-market at reduced development and manufacturing costs and deliver processes and devices with better operating performance, lower cost, reduced power and improved product yield.

They seek to continue and expand their presence in the display, automotive semiconductor, memory device and IoT markets by capitalizing on the growth of their existing customers. By increasing their Research and Development expenditures, they plan to expand their presence in established market segments, which include fin field-effect transistor (“FinFET”), low-geometry CMOS technology, new specialized SIP, fabrication technology process co-optimization, and photonics. They intend to continue to target acquisitions that allow them to expand their solutions portfolio to better service their customers’ needs. They plan to continue to invest in the technology that differentiates them and where they can establish or expand their leadership position, such as TCAD for power devices, display, and photonics, simulation of large panels with complex device models, parasitic analysis and reduction, SIP management and fingerprinting, device characterization tools and services, and development of additional SIP. They pride themselves on research and development agility, allowing them to design capabilities specific to customers’ requirements and, where appropriate, integrate those capabilities into their software solutions. They seek to differentiate themselves through the breadth of their software and SIP offerings, addressing the full design cycle needs of their customers across applications and industries. They believe their serviceable market is under penetrated and that they can expand their customer base by increasing their marketing and sales resources, particularly in growing segments such as automotive and IoT. They maintain successful relationships with SIP providers, foundries, design service companies, EDA companies, their commercial customers and academia. They plan to continue to expand their ecosystem to maximize their reach, integrate into established flows and offer world-class solutions.

They develop their EDA design and simulation solutions and SIP to be tailored to specific technologies and market segments, to enhance design flows that optimize Power, Performance and Area-Cost, or PPA. Their display technologies make it easier to interact with technologies like AI, virtual reality (“VR”), and augmented reality (“AR”), improving user experiences. For decades they have focused on vertical markets, such as display and power, and have developed industrial and academic partnerships that enable their agile and fast development of solutions aligned with market needs. Their leading point tools complement existing chip design flows. They provide production-ready SIP to their customers including standard cells, memory and I/O SIP that is developed in-house. Their size and focus on specific market segments allow them to develop highly agile solutions and to work with their customers with a goal of developing solutions that meet their specific needs. Their tools have compatible databases across all of their products for seamless scaling of customer designs. They offer complete solutions for device characterization, compact model development and circuit simulation; analog custom design, including schematics, layout, extraction and design rule check, or DRC, and process and device TCAD. They believe that their software solution pricing is competitive.

They face significant competition from larger companies as well as from third-party providers who may deploy their resources to develop IP solutions internally. Substantial, prolonged economic downturns in key industrial sectors and in major economic regions in which they operate, including China, may result in reduced software solution sales and lower revenue growth. The cyclical nature of the semiconductor and photonics industries may limit their ability to maintain or improve their revenue. If they are unable to deliver new and innovative software solutions or software license enhancements ahead of rapid technological changes in the market, their revenues could be materially adversely affected. They may have to invest more resources in research and development than. Consolidation among their customers and within the industries in which they operate may negatively impact their operating results. A significant portion of their revenue comes from outside the United States. For example, for the years ended December 31, 2022 and 2023, 68%, and 70%, respectively, of their revenue was from international customers. They face increased regulatory uncertainties with respect to their China-based operations, including their wholly foreign-owned enterprise operating in China, any joint ventures they may form or contribute IP or other resources to in the future and sales to China-based customers. For each of the years ended December 31, 2022 and 2023, 23% of their revenue was derived from their China-based operations. Their employees, consultants and third-party providers have in the past and may in the future engage in misconduct that materially and adversely affects them. For example, a former employee in China impermissibly used their computers and software to write and configure software for other companies. If they are unable to protect their proprietary technology and inventions through patents and other intellectual property rights, their ability to compete successfully and their financial results could be adversely impacted. As a result of Ms. Ngai-Pesic and the SMIK Grantor Retained Annuity Trust, of which Ms. Ngai-Pesic and members of her immediate family are beneficiaries, or SMIK Trust, collectively holding more than 50% of the voting power of their company, following the completion of this offering, they will be a “controlled company” within the meaning of the Nasdaq listing rules.