Scottish Industry and Education Minister Brian Wilson explains the significance of the Cadence initiative.

THE San Jose Sharks versus Dallas Stars ice hockey play-off, I was assured, was ''the hottest ticket in America'' last week. I had been invited by the Mayor of San Jose who, earlier in the day, attended the opening of the Scottish Software Centre at the heart of Silicon Valley.

One of my fellow guests was John Paul Bruno, vice-president for real estate worldwide with Cadence Design Systems Inc and, in that capacity, a frequent visitor to Scotland. Notwithstanding the significance of the game, we found ourselves in prolonged conversation about Cadence's future at Livingston, and it was even more exciting than the ice hockey.

The previous day, I had a meeting with Cadence's chief executive, Jack Harding. It was the same story with him. The enthusiasm and vision which underlie this project are awesome. I am not sure whether the full significance is widely understood yet in Scotland but it must be, for the implications are enormous. It's worth placing on record that, in all my discussions with Cadence, they could not find enough good to say about the abilities and professionalism of the people they have dealt with in Scottish Enterprise, Locate in Scotland, and the Scottish Office. We have a superb operation and nobody should talk it down.

The key words in relation to Cadence and the landmark which they represent are ''intellectual property''. This is the commodity in which the company deals. The Scottish public is accustomed to job announcements which flow from inward investment coups, but big numbers of jobs have been associated with manufacturing. This is different.

Cadence will create 1900 jobs, but most of them will be of graduate or post-graduate quality. The project will lead the way in creating a next-generation ''System on a Chip'' design factory. Scotland will thus be positioned as a world centre for

next-generation semiconductor research and design. Manufacturing may well be for someone else to do.

The new technology, widely regarded as the future of semiconductor research and design, will see the functions which are currently carried out by printed circuit boards integrated at systems level on a microchip, resulting in smaller, faster, cheaper, and more powerful electronic products.

There is already evidence of other companies considering Scotland as a base because of the Cadence presence. This is where a key piece of the worldwide action is going to be in the years ahead, and nobody's too sure that they want to be left out of it. The spin-offs from Cadence and Project Alba are going to be plentiful and all come back to those words ''intellectual property''.

Not all the lessons to be learned from the Cadence investment are instantly comforting. The separation of the intellectual end of the exercise from production is not by any means restricted to Cadence. I was struck by the number of times I heard the manufacturing process and ''fab shops'' referred to almost dismissively as something which can be done by someone else, wherever it is cheapest.

As recent announcements have confirmed, we continue to get more than our fair share of new manufacturing projects from inward investors looking for a UK or European base. However, it would be unrealistic to assume that this is going to continue indefinitely. There is going to be an ongoing change in the balance between investment based on knowledge and design,

and those which are primarily

about manufacturing.

Potentially, that is wonderful news. The complaint has long been that too many of the jobs produced by inward investment were at the lower end of the scale, while too few were in research and development. (It was a complaint with limited justification since average earnings from inward investors substantially exceed those paid by indigenous companies.)

However, the advent of Cadence is about to consign that line of argument to the dustbin altogether. Nineteen hundred new jobs, most of graduate and post-graduate quality - and that, by common consent, is only the start.

At that point, however, we have to recognise the vital challenges which this transition brings. Why have Cadence come here, and what do we need to do in order to ensure that we can successfully respond to their needs and those of others who will follow? I have no doubt that the answer lies in two key areas which are referred to over and over again, when talking to companies both in Silicon Valley and the Far East.

The essential assets which have won Scotland this, and many other inward investments, are the quality of our engineers and the reputation of the research capacity in our universities. As the pendulum swings towards ''intellectual property'', both of these assets will have to be safeguarded and reinforced.

Engineers, in all the disciplines covered by that word, must become more recognised and elevated in public esteem. It must be effectively communicated within schools that this is where stunning personal opportunities, as well much of Scotland's economic future, lie. We need to produce not only the highest quality of engineering graduates in the world, but also more of them.

As for the research work that goes on in our universities, and is absolutely integral to Project Alba, we must ensure that it is properly funded and co-ordinated. Companies pay tribute not only to the quality of the work, but also the highly unusual degree of co-operation which exists among our universities. That too is something that can be encouraged and extended.

All of this relates back to the Government's two priorities for Higher Education - to get more money into the system, and to widen access to all who can benefit from it. The current set-up delivers just 11% of Scottish school-leavers from less well-off backgrounds into Higher Education. We can no longer afford to write off the academic potential of the other 89%.