10/19/2008 4:21 PM
The “goings on” in the Electronics Design Automation (EDA) industry have frequently appeared in blog entries here. The last entry appeared as recently as October 17, 2008, entitled, “Autodesk and ESCCAD”, which discussed the latest example of the unmistakable trend of merging Mechanical CAD and CAE with Electronic Design Automation. Prior to that article, a related entry appeared on October 10, 2008 called, “Mentor and Flomerics - Tighter EDA/MCAD Collaboration.” And before that an associated entry appeared on September 19, 2008, entitled, “More EDA and MCAD Collaboration.”
Other recent blog entries in this space commented on the possible deals between EDA vendors themselves. See for example the August 16, 2008 entry called, “The Big 3 EDA Vendors to remain the Big 3 – for now!”
It turns out that the central topic of that August 16 blog submission, which dealt with the failed attempt of Cadence to take over Mentor this summer, is directly connected to the fresh news that broke on October 15, 2008, that the CEO of Cadence Mike Fister and four of his top executives have “resigned” from Cadence.
Shares of the company, which have lost three quarters of their value over the last 12 months, immediately went down another 12% percent to $4.68 upon the news release October 15. (Cadence closed at $4.51 per share on Friday October 17, leaving a dismal market cap of $1.17 billion).
Combined with the deteriorating revenues, earnings, and stock price endured by Cadence in recent quarters, the failed takeover of Mentor meant that top management changes at Cadence were arguably inevitable. It is said by EDA insiders that Mike Fister was already out interviewing other companies for a new position for the last several months. In addition to the aborted Mentor bid, Cadence's inability to sell itself to a private equity firm in 2007 and an expensive Cadence share buyback are also causes for Fister's resignation.
It can fairly be said that Cadence also made some poor product decisions during Fister’s four-year reign. It did not focus on expansion into key areas such as system level design nor into FPGA markets. Cadence also cut back its involvement in EDAC and halted its appearances at the industry’s main trade show, the Design Automation Conference. Finally, EDA industry analyst Gary Smith claims that Fister shifted the Cadence away from industry-standard two- or three-year product & service license contracts toward five-year agreements, enabling Cadence to book more revenue up front. The shift to longer contracts "insulated their actual earnings for three years. At the end of three years, the bubble popped," Smith asserts.
(Of course, Bush 43’s current second economic recession didn’t help Cadence either. Indeed, Mentor’s market cap has deteriorated to only $761 million as of October 17, 2008, and even rival Synopsys’ market cap has declined some, although it is still a very healthy $2.63 billion).
Collateral damage at Cadence: Some analysts are predicting that Cadence will soon be forced to lay off up to 1500 of its 5000 current employees. But Cadence might be able to postpone a layoff or at least mitigate its depth, because the October 15 resignations do eliminate some giant salaries. According to the Cadence proxy statement filed in March 2008 with the S.E.C., Fister's total compensation exceeded $13.5 million in 2007. Even if not increased since the filing, the total annual compensation of the five executives who resigned on the Ides of October 2008 was more than $26 million.
Cadence may provide more details on possible layoffs when it discloses exact financial numbers during its Q2 earnings call now scheduled for October 22, 2008. Or Cadence may wait till the new management team is installed before announcing cost reduction moves.
Bad days at Cadence San Jose HQ…maybe another company will just step up and buy Cadence…if not another EDA enterprise, maybe even an MCAD vendor!