JB’s Circuit

In the last few days, I’ve run across several stories – one in the local paper and others in blogs – that seem to suggest that Mentor deserves no sympathy in its attempt to fend off the hostile takeover by Cadence since Mentor is itself in a hostile takeover bid for a smaller company called Flometrics. [BTW: Daniel Payne's "EDA Thoughts" blog first raised the issue of Mentor's attempted acquisition of Flowmetrics back in early May.]

This seems like an overly simplistic argument. Let’s face it: Like it or not, hostile takeovers are a way of life in a capitalistic market. They are just another business tool. Instead of focusing on such emotional issues as which company has the nicer CEO or the more engineering-friendly environment, serious journalists and bloggers should try to answer such questions as:

• Why is a hostile takeover technique being used? Have other options been exhausted?
• Why is the takeover being initiated now instead of 6 months ago?
• Is the goal of the takeover to secure market share or intellectual property that clearly fits into the business strategy of the aggressor company?
• Or is the takeover being used to hide diminished earnings or other financial problems, i.e., is the takeover a diversionary tactic to divert attention from a lack of innovation, decreased market share or price share of the aggressor?

Just because a company engages in hostile takeovers doesn’t make it a bad company… or a good one. What makes the aggressor a bad or good company is the reasons behind the takeover bid as well as the past history of similar takeovers.

Testing out the use of my new Flip camcorder. Small, light, very easy to use. In this clip - taken mid-way through the conference - I’m getting grief from Jenna Johnson, my marketing manager. Jenna was running the Flip while I talked to her and Karen Popp, our sales director.

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Several Portland-based news and business publishers are following the Cadence proposed buyout of Mentor:

> Oregon’s Homegrown Technologies Lose Edge: Wilsonville-based Mentor Graphics Corp may become the next corporate headquarters to leave

Covered by long time Oregonian tech reporter Mike Rogoway, who also runs a great blog called “Silicon Forest”
> Portland Business Journal - Mentor bid could be defensive play for Cadence

We can all share a collective sigh of relieve that Mentor has rejected the take-over bid from Cadence. In their response, Mentor’s CEO - Walden Rhines - cited reasons of undervaluation and risk of not gaining regulatory approval for rejecting the offer.

The web has been unusually busy this morning with every voice imaginable questioning the wisdom in Cadence’s take-over bid. Even Portland’s own business report - Aliza Earnshaw - has chimed in with comments directly from Mr. Fister.

Not all comments have been public ones. Several semi-private forums in which I participate have also been unusually active, like the Portland High-Tech google group. Here’s a few highpoints from that group:

I agree with both Daniel and Gabe. I can’t see how this merger is good for anyone and Cadence investors should be outraged. The product overlap is just too great.

Sadly, investors aren’t always known for making strategic business decisions. Many myopically follow the short term bottom line. Hope I’m wrong, since such an acquisition would spell the end of Mentor as we know it. - JB

For the sake of discussion, I’ll take a contrarian view. I agree from an organizational standpoint the merger could be bungled, and that similar past acquisitions have reduced employment. Given the recent struggles that both Cadence and Mentor have had to become profitable, though, one could argue that separately they would each be hemmhoraging jobs anyway, and that the combined company could be healthier in the long run.

I also wonder whether the comments about product overlap are overstated. Several of the product overlap areas noted in Daniel’s blog include area where either Cadence or Mentor has a razor-thin slice of the market share pie chart — e.g., Cadence is much bigger in custom IC design, and while Mentor dominates DRC. The big, honking areas of overlap are PCB design, logic simulation and emulation … and with PCB being one of the least profitable EDA businesses, would it be so bad for the combined company to hand off some of that business to someone else? One could make the argument that even in logic simulation that Mentor dominates FPGA but is a relatively small player in ASIC.

Having said all that, if I were a Cadence shareholder (and I’m not - for my job I don’t directly hold any EDA stocks), I’d be pretty uneasy about this. The disclosed excerpts from Mr. Fister’s letter lacked any specificity that would address a shareholder’s concerns.

[JB] Are both companies really “hemmhoraging” jobs?

[Anon] Maybe “hemmhoraging” is too strong a word, but I have heard of incremental layoffs at both companies over the last 3 months. I’m not aware of wholesale cuts of entire product development teams, though.

[JB] System-level design is another area were Cadence would benefit from acquiring Mentor, tho such tools don’t yet seem very profitable.
[Anon] Mentor has been investing in system design tools in various areas including ESL verification and synthesis. Due to Mentor’s financial reporting format it’s difficult to tell how much they make in this business — for instance, their “New & Emerging Products” category includes test products, embedded software, IP, etc. As for Cadence, they have appeared to steer clear of systems design for some time. Cadence licensed SPW to CoWare earlier this decade and since then has not announced any system design products that I’m aware of.

Bet you think I’m going to complain about being left out? Hardly….

Cadence held a company-wide meeting last Friday (6/13) to inform its employees about Cadence’s latest attempt to acquire Mentor (offer at $16/share). Interestingly, none of the chief editors in the few remaining EDA publications received notification prior to today’s (6/17) wired release. The semiconductor press did receive a phone brief, as did the business folks. In fact, rumor has it that Credit Suisse and RBC Capital Markets have already favorably reviewed the acquisition. Not that the credit market leaders are known for making sound decisions.

I’m not surprised that the EDA press wasn’t informed about Cadence’s proposed acquisition. It may be that Cadence is trying to distance itself from the EDA community as a whole. Their lack of presence last week at DAC certainly supports this idea. Further, Cadence’s chief competitors are also moving beyond the EDA community. Both Synopsys and Mentor have been realigning their long-term goals with the broader semiconductor industry for some time, with Aart now on the board of Applied Materials and Wally leading the GSA. Still, it’s instructive to note how each of the major companies - Cadence, Synopsys and Mentor - decides how best to communicate (or not communicate) their movement beyond the world of only EDA tools. Very telling….

Don’t have time to post my blog on the Bird-of-Feather event at DAC until later. But it really was the meeting of several different types of bloggers. Here are my comments from JL’s observations of the bloggers meeting:

First, I’d like to thank JL and the rest for organizing this event. It’s not the first one at DAC on blogging, but this one brought together a different set of folks that don’t usually interact.

Reading through your comments made me realize that a fair amount of the audience were very new to blogging. I didn’t appreciate that the main function of this event was to talk about the process of blogging - the “ins and outs,” as you say. Had most of the press realized this, we would have asked our questions quite differently, saving our talk about the life/death issues of the changing role in media for another day. I’m sure the next BoF at DAC will go much better. Thx again, JL.

What follows over the next few days will be my quick blogs from DAC. You’ll probably find lots of typos and grammatical errors, but the content will be timely. — JB

Mentor’s press briefing (Mon, 6/9, 10AM) – JoeS talked about the integration of P&R – DFM/DFY – DFT in his Design-to-Silicon division. He gave a quick overview of each areas tool: Olympus (Sierra’s P&R acquisition from last year), Calibre and TestKompress-Yield Assist. This suite of tools address the consumerization of ICs at the lower process nodes, i.e., 45nm and below. “Consumerization,” as opposed to “corporatization,” translates to lower cost, lower power (for mobile devices), integration of multiple radios (really, multi baseband) applications.

No new, revolutionary, seamless technology was introduced at this meeting. (Thank goodness! I really dispise those marketing terms.) Rather, this briefing focused on the integration of three distinct product areas and the detail improvements realized through the hard work of such integration efforts.

Highlights from the Q&A session follow:

Question #1. Standardized language for the integrated tool suite, so big IDMs (like IBM) can levelage these tools?

Joe: Discussion for another time.

Q 2. Designers dealing with manufacturing tools?

JS: Emphasis on tool doing work, not designer doing extra work to address manufacturing variability issues.

Q3. Tapeout customers?

JS: Customers engage us when they can not get chip closure. First, we tend to get involved with optimiation – use existing tool suite. After that, clk tree syn, the router…etc. Significant players in graphcis space

4. What investments have you made. market share in this market?

JS. Joe skirted the answer to this one. I probably would have, too. — JB

5. When will these tools be fully integrated? 2 yrs from now?

JS. DRC and DFM tools are integrated now. We’ll continue to release aspects of integration over two years. addressing customers needs first.