Russ Henke

Will the ‘Big 3’ EDA Vendors soon become the ‘Big 2’ ??

russ.henke@cyonresearch.com — Sun, 29 Jun 2008 15:43:00 GMT

Mergers & Acquisitions are hardly rare in the world of Computer Aided Engineering (CAE) or Computer Aided Design (CAD). Indeed, seldom does a quarter pass without one Electronic Design Automation (EDA) vendor buying another. The same is true in the Mechanical CAE and Mechanical CAD/PLM industries.

Indeed, being acquired by one of the top three vendors in EDA or in MCAD is a favorite exit strategy for small start-ups that develop a specialized or breakthrough technology. This exit path is especially attractive as the IPO market for venture-backed companies dries up.

While EDA companies usually buy smaller EDA companies, and MCAD companies likewise, it’s not unheard of for crossover to occur. For example, MCAE vendor ANSYS recently acquired EDA vendor ANSOFT.

More unusual, however, is for one of the leading EDA or MCAD vendor companies to acquire one of the other members of their respective oligopolies.

Such a possibility recently surfaced in the news, wherein CADENCE (San Jose, CA) is reportedly pursuing MENTOR GRAPHICS (Wilsonville, OR). CADENCE, SYNOPSYS, and MENTOR are currently the Big 3 EDA vendors, in that order size-wise. Founded in 1981, MENTOR reported revenues in 2007 of about $850 million. CADENCE was founded in 1988 and sported revenues of more than $1,600 million in 2007.

Rumor has it that CADENCE approached MENTOR on a friendly basis some months ago regarding an all-cash acquisition, but CADENCE was rebuffed. One June 17, 2008, CADENCE revealed that its offer to MENTOR was for $16 per share, a 30% premium over MENTOR’s closing price on June 16. Industry sources say CADENCE is now pursuing a hostile takeover of MENTOR.

MENTOR issued a statement rejecting the CADENCE offer on two grounds - that it was too low and that the merger would have trouble passing federal antitrust review. "For these and other reasons, our board unanimously rejected the proposal," wrote MENTOR CEO Dr. Walden Rhines. (Dr. Rhines joined MENTOR in 1993 from TI).

For its part, CADENCE downplayed the possible antitrust issue. CADENCE also said the merger “would lower software costs and benefit electronics makers because CADENCE and MENTOR could “share” sales and administrative staffs”. Further, CADENCE CEO Mike Fister argues that the software products of CADENCE and MENTOR are “complementary”. (Mr. Fister joined CADENCE in 2004 from Intel).

It would be highly unusual if this merger, like many others, did not result in significant numbers of employee layoffs, should it eventually be consummated. Moreover, there are several product lines at both EDA vendors that are arguably directly competitive.

But hey, hostile takeover attempts are the signs of our times (think Microsoft-Yahoo, Staples-Corporate Express, Electronic Arts-Take Two, InBev-Anheuser Busch, …).

Indeed, it was reported in the Portland Business Journal on June 24, 2008, that MENTOR itself is pursuing British company Flomerics Group PLC with an offer that Flomerics' board ironically says is too low. Flomerics is a vendor of Computational Fluid Dynamics (CFD) simulation software. MENTOR extended until July 2, 2008 its offer of about $47.1 million for Flomerics, whose market cap on June 24 was $47.8 million. Flomerics' board has urged shareholders to reject MENTOR’s offer. MENTOR already owns almost 30% of Flomerics, having purchased just over 20% of Flomerics' outstanding shares in March 2008.

Oh yes, there is one other complication. Flomerics revealed it is also in talks with AUTODESK (San Rafael, CA). Flomerics announced on June 12, 2008 that AUTODESK had informed the Flomerics board that any offer would be all cash.

All this M&A talk sounds like fun! Except maybe for the employees who may lose their jobs, and except maybe for the vendors’ customers who may face unwelcome product transitions.

Stay tuned!

Just in time for the 2008 Summer Solstice

russ.henke@cyonresearch.com — Fri, 20 Jun 2008 01:12:00 GMT

The latest the AP-Ipsos survey results are just in, measured in mid-June. And guess what! More Americans than ever say the country is going in the wrong direction! Seventy six percent (76%) now say the country is definitely on the wrong track. That's up from 71% in April and 66% near the end of 2007.

Some 17% still (inexplicably) insist that the country is going in the right direction. That’s the lowest percentage of die-hards ever recorded by the survey.

The overall level of US pessimism is the worst in almost 30 years, worse than Bush 43’s first recession, worse than Bush 41’s recession, and worse than Reagan’s economic dips. Consumer confidence alone is now the lowest it’s been in 28 years. Most blame the current rising food and gas prices, falling home values and unending war. Imagine that! Asked about Bush 43’s handling of the US economy, 72% said they disapproved.

"For the average American, everything's going wrong. I think there's a lot of reasons for households to be pessimistic," said Mark Zandi, chief economist of Moody's Economy.com.

EEK !! – US Economic News keeps getting worse…

russ.henke@cyonresearch.com — Sun, 08 Jun 2008 18:16:00 GMT

Friday June 06, 2008 marked the latest low point in the steadily sinking US economy of Bush 43’s second recession, with a one-day triple dose of bad news.

Ongoing unregulated speculation and still more Middle East tensions (e.g. an Israeli official threatened military action against Iran's nuclear installations) drove the price of a barrel of crude oil to a record level above $138, up 13% in just two days. On June 06 alone, crude-oil prices spiked $10.75, the largest one-day gain ever recorded.

Regular gas, now at a record $4.00 per gallon average across the country, will surely and quickly follow the oil spike (CA regular is already at $4.40 per gallon). Ordinary US citizens are not the only ones being squeezed. Truckers and airlines are also suffering. Indeed, any businesses that use raw materials made from oil, like tires, toiletries, paper towels, bath tissues, plastic packaging, paint, mobile phones, light bulbs, cushions, mattresses, car seats, carpets, steering wheels, polyesters, computer screens, etc., are all watching their costs skyrocket, and they have or will find themselves forced into price increases.

And the June 06 US Labor Department report added to the gloom. The US jobless rate leaped to 5.5% in May from 5%, the largest one-month jump in 22 years. Payrolls outside the farm sector shrank by 49,000 in May, the fifth consecutive month of job losses. US Manufacturing continued its long string of losses, shedding another 26,000 jobs in May alone. The US economy has lost 324,000 jobs in just 5 months, according to the government's survey. Also, originally-reported job losses in March & April were revised still lower by another 15,000 people.

As Peter Goodman said in the New York Times, “For tens of millions of Americans struggling to pay bills, the jobs report added an official stamp of authority to a dispiriting reality they already know: A deteriorating labor market is eliminating paychecks just as they are needed to compensate for the soaring cost of food and fuel, and as the fall in house prices hacks away at household wealth and access to credit.”

Completing the triad of bad news, the sense of a downward spiral seized Wall Street on June 06. The Dow Jones industrial average fell 394.64 to 12,209.81, the index's biggest one-day point loss in 15 months.

Meanwhile, of course, Bush 43 remains in denial. "We’re beginning to see the signs that the stimulus may be working," he said in the face of the June 06 economic news.

Bear Stearns disappearing into JP Morgan Chase

russ.henke@cyonresearch.com — Sun, 01 Jun 2008 18:23:00 GMT

The most recent blog entry in this space dealt with Topic #4 from the following May 29 news list:

   1. Scott McClellan’s new memoir about the Bush 43 White House
   2. Bear Stearns disappearing into JP Morgan Chase
   3. SPAM sales on the rise
   4. Q1 GDP being revised up from 0.6% to 0.9%

Today we’ll tackle Topic #2.

On May 29, 2008, Bear Stearns and JPMorgan Chase announced that the stockholders of Bear Stearns, at a special May 29 meeting, approved the merger with JPMorgan Chase. Approximately 84% of shares voted in favor. The merger closed on May 30, 2008. Each outstanding share of Bear Stearns common stock was converted into 0.21753 shares of JPMorgan Chase common stock, and Bear Stearns became a subsidiary of JPMorgan Chase. Also, the NY Federal Reserve Bank and JPMorgan Chase agreed that they will complete the previously-announced sale of $30 billion of assets by subsidiaries of Bear Stearns and the related financing on or about June 26, 2008, a time period “to help ensure the smooth transfer of this large portfolio.”

Ho-hum…just another smooth and uneventful Wall Street deal? Well, not quite.

Lest we forget, in this deal, Bear Stearns shareholders are receiving only a measly $10 a share for a stock was worth some $154 per share only 12 months ago. Also, keep in mind that some 7000 Bear Stearns employees will have lost their jobs in the process

Not that Bear Stearns itself was not culpable. In 2007, as part and parcel of the wide-ranging atmosphere of relaxation of financial regulations by Washington, two of Bear Stearns hedge funds got into trouble with heavy investments in subprime mortgages, forcing billions in write-offs. Then this year, rumors of Bear Stearns poor cash position drove it to near bankruptcy.

Bear Stearns of course was not alone; indeed, since 2007, investment banks around the world have been similarly forced to write down almost $250 billion of debt. In the US alone, nearly 65,000 people have lost jobs at banks, brokerages and mortgage companies in the past 10 months, to say nothing of the general havoc the overall subprime fiasco has caused across the entire US economy.

So what was different about Bear Stearns? Why did the US Federal Reserve suddenly decide to intervene and quickly orchestrate its sale to JP Morgan Chase? The Fed’s Bernanke said his intervention was solely to prevent fallout from Bear Stearns possible failure from “hurting the rest of the global financial system.”

Others disagree. They say the Fed’s intervention sets a dangerous precedent. Where will such interventions stop? How many other similar bailouts by the US government (read over-burdened US taxpayers) will be needed?

The approval of the Bear Stearns merger on May 30, 2008 will not end this story. Also, there are rumors that the SEC is launching an investigation; so we’ll watch to see what if anything results.

Moreover, another, perhaps more lethal danger is emerging. The possible failures of some “standard” US banks in the months ahead. But that’s the subject of a future blog entry.

May 29 News

russ.henke@cyonresearch.com — Fri, 30 May 2008 01:01:00 GMT

So many things to comment on today; too little time…

1. Scott McClellan’s new memoir about the Bush 43 White House
2. Bear Stearns disappearing into JP Morgan Chase
3. SPAM sales on the rise
4. Q1 GDP being revised up from 0.6% to 0.9%
5. …and many more

We’ll leave most of these to another time soon, although #3 is immediately tempting, mostly due to Monty Python and to the fact that dinner time is near.

No, today we’ll talk about #4.

I just have one question: Do you feel luckier, now that the Q1 GDP was actually 0.3% higher in Q1 2008? Well, do ya?

Not I !!.

The number of US jobs lost in Q1 2008 remains at 240,000. There were still 7.6 million US people unemployed at the end of Q1, up from 6.8 million unemployed only a year earlier, and estimates still say US unemployment is gonna get worse. Oil & gas prices are still through the roof. Inflation is still too high. Consumer Confidence is still at a 16-year low. Sales of new US homes are still at their lowest level in 17 years. US housing prices still dropped during Q1 2008 at the sharpest rate (-14.1%) in two decades. Residential investments still fell in Q1 at an annual rate of 25.5%, the fastest drop since late 1981. Meanwhile, US wages and benefits for those with jobs in Q1 2008 were still down. What little strength there was in Q1 2008 came mostly from (a) higher levels of US exports, (b) Bush 43’s war-related spending and (c) a small change in inventories, and was not due to strong domestic consumption and investment. Final domestic sales for the US actually fell 0.1% in Q1 2008, the first decline in such domestic demand since the Bush 41’s recession in 1991.

No, I for one am definitely not feeling luckier because of today’s GDP news.

Break out the Champagne?

russ.henke@cyonresearch.com — Wed, 28 May 2008 00:54:00 GMT

On Tuesday May 27, 2008, the price per barrel of oil dropped from the mid-$130’s that it “achieved” last week, to end trading below $129. Hallelujah?

Well, maybe not! Just as General Petraeus recently warned us all to keep the champagne in the back of the fridge when it comes to IRAQ, maybe likewise we’d better hold off on the “economic toasting” for awhile.

Because the latest economic news is not good, my friends.

While the price of oil did close down a few percentage points on May 27, US average gas prices hit another record high at almost $3.94 a gallon of regular, according to a survey of stations by the AAA and the Oil Price Information Service. Now, enterprising thieves have added puncturing gas tanks and gas lines to steal gasoline to their previous nefarious methods of either siphoning gas, or just driving off without paying after fill ups at gas stations.

While the Dow ticked up a tad (+0.6%) on May 27, the Dow lost a startling 3.91% just last week — its worst showing since February 2008. Other indexes showed similar declines.

Also on May 27, The New York-based Conference Board reported that its Consumer Confidence Index dropped to 57.2, down from a revised 62.8 just last month. The May reading marks the fifth straight month of decline in US Consumer Confidence and is now lower than it was during Bush 43’s first recession in 2001. In fact, it is the lowest reading since the index registered 54.6 in October 1992 – you know, 16 years ago, when the US economy and the citizenry were suffering during Bush 41’s recession.

The downbeat news about Consumer Confidence arrived May 27 just as we also received apparently mixed news about the US housing market. The Standard & Poor’s/Case-Shiller index released May 27 showed that US housing prices dropped during Q1 2008 at the sharpest rate (-14.1%) in two decades, indicating that the US housing slump is still worsening. This index is now at its lowest level since its 1988 inception – you know, the year Bush 41 was elected.

Meanwhile, the US Commerce Department reported May 27 that new US home sales unexpectedly rose 3.3% from March to April. It was the first increase in six months and might seem like a harbinger of happier days ahead. But perhaps the May 27 housing news isn’t “mixed” after all! April's new home sales looked better mostly because of a large downward revision to the March 2008 numbers! And the median home price fell 4.2% last month. Alas, even after the slight uptick in April 2008, sales of new US homes are still at their lowest level in 17 years.

No, better keep that champagne in the back of the fridge for awhile. That is, if you can still afford to pay the electricity bill.

Economic Data Continue Grim

russ.henke@cyonresearch.com — Mon, 19 May 2008 00:48:00 GMT

Here are a few more data points that have emerged since the last blog entry in this space:

In 1993, the richest 1% of American families pocketed 14% of the nation’s income. By 2006, their slice had grown to 23%.

In a new US corporate IT spending survey by ChangeWave Research in April 2008, 25% of the respondents said their company will spend less on software in coming months. This figure is 3 points higher than a study ChangeWave conducted in January and 11 points higher than one completed in October 2007, indicating a deepening trend.

Consumer prices increased a hefty 0.6% in April 2008, the US Labor Department said on May 15, 2008, if you take out seasonal adjustments. Of course, if one does not eat or drive (i.e. ignoring price increases in food and gas), April consumer prices increased only 0.2%. During the last 12 months, overall consumer prices increased 3.9%. Food alone has risen 5.1%; gasoline has risen 20.7%.

The government also reported that oil imported in April 2008 cost 67% more than oil imported a year earlier — but the trend in import prices is clear even if energy prices are ignored. For all non-petroleum imports, prices in April were up 6.2% from a year earlier. That is the fastest rate of gain in almost 20 years.

According to the May 16, 2008 Wall Street Journal, "US economic reports released May 15 are keeping recession worries afloat, showing continued weakness in the labor market and a struggling manufacturing sector." The Federal Reserve announced on May 15 that "US industrial production plunged a sharp 0.7% in April 2008, as output of motor vehicles and parts plummeted 8.2%." US industrial production had risen 0.2% percent in March but also dropped 0.7% percent in February.

The Reuters/University of Michigan index of US consumer confidence dropped to 59.5 in May 2008 — the lowest level since June 1980.

The president of Alliance for Excellent Education, in a new book, “Raising the Grade: How High School Reform Can Save Our Youth and Our Nation”, stated the following: “We can’t even keep our (US) kids in school. A third of them drop out. Half of those who remain go on to graduate without the skills for college or a decent job. International comparisons rank the United States a stunningly unimpressive eighteenth for high school graduation rates, a lackluster ranking of fifteenth for high school reading assessments among 15-year-olds in developed countries, and an embarrassing 25th for high school math.”

April Jobs Report – the Worst is Over!

russ.henke@cyonresearch.com — Sat, 03 May 2008 16:23:00 GMT

Yesterday, May 2, 2008, the US Labor Department issued its monthly Jobs Report for April 2008. The Report estimates that “only” 20,000 more US net jobs were lost in the month. Hey, the recession is over, right?

Not so fast!

Lest we forget, April marked the fourth consecutive month of declining US jobs. During that 4-month period, 260,000 net jobs were lost –- an average of 65,000 jobs lost per month. Since it takes 127,000 new jobs every month just to stay even, that means the US has fallen behind some 192,000 jobs in each of the last four months, or 768,000 for the 4-month period.

And as usual, April’s mix of jobs lost & gained was telling: 46,000 US manufacturing workers were laid off last month; 326,000 such positions have been lost over the last year. Construction lost 61,000 jobs. In April alone, that’s 107,000 more workers lost in these two key wealth-producing sectors where CAD/CAM and AEC must succeed.

Then how did the US lose only 20,000 net jobs in April? Health care added 37,000. Restaurants and bars added 18,000 jobs. Business services added 39,000 jobs, and of course the government again added workers.

At the end of April 2008, there are 7.6 million US people unemployed, up from 6.8 million unemployed only a year ago.

The US economy barely grew at an estimated snail’s pace of just 0.6% in Q1 2008. It marked the second quarter in a row of such feeble growth. Meanwhile, US wages and benefits were down 0.6% in Q1 2008.

Also, US consumers have understandably turned more cautious. Their spending rose at just a meager 1% clip in Q1 2008, as soaring energy and food prices are straining everyone's wallets. That’s down from a 2.3% growth rate and was the slowest since Q2 2001 -- when the US was suffering through W’s first recession.

No wonder a growing number of economists believe the US economy is now in recession and is contracting.

Don’t spend those “stimulus” rebate checks all in one place, folks!

Finally, we cannot let May 1st go by without noting that it was the dubious anniversary of W’s declaration of “Mission Accomplished in IRAQ” … just 1825 days ago and still counting. An increase in American forces last year initially produced a temporary decline in insurgent attacks. But such attacks in April 2008 killed more than 50 US troops — the highest US death toll for a single month since last September. Nevertheless, W is still paying some 70,000 Iraqi insurgents $10 a day each not to fight Americans.

"Slowdown" or "Recession" ??

russ.henke@cyonresearch.com — Fri, 25 Apr 2008 14:31:00 GMT

Despite mounting evidence to the contrary, the current administration continues to deny that a recession is abroad in the land. Just a few days ago, Bush 43 rejected claims that the nation was in a recession, instead saying only, “We are in a slowdown.”

If the economic facts in my April 23, 2008 blog entry were not enough, here are some more depressing data points on the US economy --- data just released late on April 24:

Sales of new homes dropped by 8.5% last month to a seasonally adjusted annual rate of 526,000 units, the slowest sales pace since October 1991 (during Bush 41’s reign). The median price of a new home sold in March 2008 dropped by 13.3% compared with March 2007, the biggest year-over-year price decline since a 14.6% fall in July 1970 (during Nixon’s first term).

New home sales were down in all regions of the country in March 2008: Northeast minus 19.4%, West minus 12.9%, Midwest minus 12.5%, and South minus 4.6%.

Orders to US factories for durable manufactured goods fell for a third straight month in March 2008, the longest string of declines since Bush 43’s first recession in 2001.

US economic growth slowed to a near-standstill in Q4 2007. Most economists believe the country has now fallen into full-blown recession. Let’s hope Bush 43’s denials don’t extend for the next the nine months till he’s out of office (thus avoiding any need for anti-recessionary actions). For by then, we may be debating the “D” word instead of merely the “R” word.

The US Economy -- not so good...

russ.henke@cyonresearch.com — Thu, 24 Apr 2008 00:55:00 GMT

Well, the US economy sure hasn’t improved any since my last blog entry in February 2008. Unfortunately, we are all sinking deeper into W’s second recession.

Rising gasoline prices again tightened the squeeze on US drivers on Earth Day April 22, 2008, jumping for the first time to an average $3.50 a gallon of regular across the country - with no sign of relief. (Drivers here in the San Francisco Bay Area paid an average of $3.98 a gallon for regular).

Crude oil set a record for the sixth day in a row on April 22, this time closing at $117.48 a barrel on the New York Mercantile Exchange. Diesel prices at the pump also struck a record of $4.20 a gallon, according to AAA and the Oil Price Information Service. That will add add to truckers' costs and drive up the price of food, clothing and other goods shipped by truck.

It’s difficult to find good news anywhere across the US economic landscape.

For example, it was revealed today (April 23) that Toyota took the global sales lead from General Motors in the first quarter, selling 2.41 million vehicles in the January-March 2008 period, compared with General Motors’ 2.25 million.

US venture capital investments fell to $7.1 billion during the 2008 first quarter, from $7.5 billion during the same period in 2007, according to the National Venture Capital Association and PricewaterhouseCoopers. The number of initial public offerings backed by venture capitalists, is also way down. Only five companies - just one a technology company - went public in the first quarter, the lowest quarterly figure since 2003.

The euro set another record high on Earth Day, crossing US$1.60 for the first time. The US dollar also fell against the Japanese yen and the British pound.

Then take the US labor market … please! The Labor Department reported on April 4, 2008 that US employers slashed 80,000 more jobs in March 2008, the most in five years and the third straight month of losses. At the same time, the national unemployment rate rose from 4.8% to 5.1%, the highest in 2.5 years. This report underscored the damage that the ongoing US crises in the housing, credit and financial sectors have inflicted on companies, jobseekers and the US economy as a whole. “The labor market has indeed turned south,” said Joel Naroff, president of Naroff Economic Advisors. “That (the labor market) was the one last bastion of hope to stay out of a recession. Now the question is how deep and how long it (the recession) will last.”

US job losses were widespread in March 2008. Construction and manufacturing again racked up big losses. Those losses overwhelmed any meager gains in non-value-added sectors, including in education, leisure, hospitality and government.

Job cuts in both January and February 2008 turned out to be deeper than originally reported. US employers dispensed with 76,000 workers in each month. Moreover, the elimination of 80,000 jobs in March was the most since March 2003, when the US labor market was still struggling to recover from W’s first recession in 2001.

And if the most recent so-called ‘good times’ have really ended, they were never that good to begin with! Most American households are still not earning as much annually as they did in 1999, once inflation is taken into account! The median US household earned $48,201 in 2006, down from $49,244 in 1999, according to the US Census Bureau.

Over the last year, the number of officially unemployed in the US has risen by 500,000, while the number of people outside the labor force — neither working nor looking for a job — has risen by 1.3 million! Employment has risen by 100,000 over the last year, but even that comes with a caveat: there are also 600,000 more people who are working part time because they cannot find full-time work, according to the US Labor Department.

But, hey, those rebate checks are a-coming! The Treasury Department will begin sending out rebate checks — of up to $1,200 for couples, plus $300 per child — in May 2008, as part of the much-heralded ‘stimulus package.’ In fact, the IRS has spent $42 million of your taxes merely to send us all letters to tell us the checks are coming, for crying out loud. These rebates will fix everything, right?

The Fed has already cut its benchmark short-term interest rate six times since September 2007, and more cuts are planned. These cuts will probably not work any better that the previous ones. The Fed’s problem is that its main weapons against a downturn — lower interest rates and easier money — are ill-suited to a crisis that stems from collapsing confidence about unregulated credit quality. And meanwhile, good luck if you are trying to live off your personal savings – your interest rates are far lower now and inflation is rampant – a deadly one-two punch.

Indeed, the Fed has taken a number of really extraordinary actions recently — slashing interest rates, providing financial backing to JP Morgan’s takeover of troubled Bear Stearns, and opening an emergency lending program for ... big investment houses. These actions have helped the stock market some, but the vast majority of US people remain in trouble.

Oh yes, since my last blog entry, the self-inflicted US war in Iraq entered its sixth year with no end in sight. I share with you a quote from Nobel Prize-winning economist Joseph Stiglitz at a congressional hearing on February 28, 2008: “Because the Bush administration actually cut taxes as we went into the current Iraq war, when we were already running huge deficits, this war has, effectively, been entirely financed by deficits. The national debt has increased by some $2.5 trillion since the beginning of the Iraq war, and of this, almost $1 trillion is due directly to the Iraq war itself ... By 2017, we estimate that the national debt will have increased, just because of the war, by some $2 trillion.”

One last factoid: Crude Oil was ~$20 a barrel when W first took office in January 2001.