JB’s Circuit

The problem with hostile take-over attempts is that they expose the aggressor to (perhaps) unwanted attention. I’ll explain the “perhaps” emphasis shortly. But first, consider this scenario which was shared with me by a friend on the financial side of this misadventure.

Cadence is trying to forcibly acquire Mentor. Others are debating whether the move is based on business strategy – namely, to acquire Mentor’s very profitable Calibre tool product line – or to distract Cadence’s investors from recent disappointing earnings. Regardless, the takeover bid has exposed Cadence’s financial position to the larger investment and corporate world.

Some big players in the investment market are now wondering if a bigger fish, like AutoCAD or Dassault Systèmes, will make a play for Cadence. Here’s the reasoning: Cadence had to show their hand in order to make the bid for Mentor. While strong in some regards, Cadence’s financial position is not as firm as many might think. From a financial standpoint, they are under-performing. Twice this year they have pulled back their estimates and are currently revising their guidance for the rest of the year. Perhaps most telling was that Cadence seemed to lack enough of their own cash reserves to secure the $1.6B take-over price offered to Mentor. Apparently, the company is floating $1.1B of the $1.6B by way of a bond aimed at off-shore investors. If true, that means that Cadence is using only $500m of its own money for the takeover.

Now, $500 million is still a nice chunk of walking-around money. Plus Cadence has a reasonably healthy client base. The cash flow needs some help, but that can be improved – in the short term by a take-over of Mentor. All of these factors are catching the attention of several big multinational firms, like AutoCAD and Dassault Systèmes. The big ERP companies – such as SAP or Oracle – are less likely to be interested in EDA companies like Cadence since they already make a mint from the semiconductor fab side of the market.

An acquisition of Cadence by AutoCAD does make sense. Cadence makes several good point tools that would complement AutoCAD’s existing product engines, e.g., in the aircraft, automotive and multimedia markets. AutoCAD has all the 3D modeling, rendering and packaging tools that are coveted by the major EDA companies. AutoCAD is truly a big fish with around $4 ½ B in sales and a market cap of $9B. This makes AutoCAD roughly four times the size of Cadence. So an acquisition of Cadence makes both technical and financial sense.

As I wrote before: This summer promises to be a “fun” time for the usually quiet world of EDA tools! Watch out Cadence.

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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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.

It’s always a pleasant surprise to find another pocket of EDA bloggers, such as Sean Murphy’s site. Unfortunately, Sean appears to belong to the old “Richard Goering is EDA” crowd. Some of you may remember Mike Santarini’s infamous blog titled, “I’m No One Trick Pony,” in which Mike suggested that other editors have covered the EDA space more faithfully than Richard but with far less praise.

Sean’s latest blog attempts to map the EDA blogosphere since Richard left EETimes by providing a list of 60 some folks who currently cover the technical or business aspects of the tumultuous EDA industry. Sean’s comprehensive list includes most of the major players, but there are a few noticeable omissions, like Brian Fuller’s “Greeley’s Ghost,” Brian Bailey’s “Verification Vertigo,” Jeurgen Jaeger’s “F a h r v e r g n ü g e, even Lou Covey’s “State of the Media.” Still, Sean’s list is a good one.

Want to meet many of the above mentioned bloggers? Then I encourage you, as well as all NG (Non-Goering) EDA bloggers and editors, to stop by the informal BoF bloggers event at DAC - organized by JL Gray and others. Also, Sean believes that high tech gurus Steve Leibson, Grant Martin, and George Harper may be presenting 3 minute lightning talks on different aspects of blogging at the BoF event.

Oddly enough, this informal BoF event may well be one of the more memorable experiences of this year’s DAC. If nothing else, it could serve as a good way for traditional journalists, non-traditional journalists (you know who you are), bloggers and the curious alike to get together and mingle – not in online social networks or as Second Life avatars but face-to-face. What a concept?!

Honorable mentions: There are several respected EDA editor’s – like Ed Sperling, EDA Tech Forum’s Paul Dempsey and Electronic Design’s David Maliniak – who faithful cover the EDA market BUT don’t maintain a blog. (Lazy bums!) It’s easy to forget that many of the best brains in our industry don’t blog. But they continue to share their insights through trade journal publication (online and print), as well as professional magazines. Hopefully a few of these folks will join us at the bloggers BoF.

Ah, the joys of meeting with startups! Don’t misunderstand me - I enjoy talking with the engineers and technical folks at startup companies. But the official press briefing of startup companies are often less than helpful. In fact, a handful of such briefings have become classics among editors for their consistent lack of useful information.

Chris Edwards, well-known UK writer, has a great post about the lack of satisfaction in startups briefings in the latest Publitek Media News. Here’s one of my favorite quotes:

… going to startup briefings can be a lot less rewarding than simply surfing the web or turning up to conferences. I’m coming across more situations where the press meeting contains almost no useful information. Yet the CTO is spilling the beans to an audience of engineers in another room.

Press briefings are usually the last thing most startups think about. And it shows.