Archive for August, 2008

Turbulence

Tuesday, August 26th, 2008

That’s the word Aart DeGeus invoked no less than 7 times to describe the business environment during Synopsys’ Q3 analyst call last week. “Some companies may do particularly well and others poorly … and the same is true in of course our market.”

Indeed, the EDA market is turbulent and there will be winners and losers.  With Mentor and Synopsys announcing earnings last Wednesday, we got a chance to peer ahead and see which skipper could steer his ship through the turbulent waters.

Mentor Graphics

Under cloak of darkness, before the sun rose in Wilsonville and before the market opened on Wall Street, Mentor announced Q2 revenue of $182.4M, exceeding Street expectations of $175M. Even though their core EDA business declined by 10% last quarter, they more than made up for it by quadrupling their business in the vertical automotive market from 5% to 20% of revenue. Mentor admits that this kind of jump is a one quarter fluke, still it looks like Mentor’s focus in this area and a developing focus in aerospace are paying off.

Mentor cited uncertainties in the economy as affecting current and future commitments. One interesting datapoint … for every $1.0M contract that was renewed last quarter, Mentor received $1.06M compared to $1.25M - $1.40M they had seen consistently in the past. This could be an aberration or it could signal that customers are reluctant to make larger or longer term commitments. As a result, Mentor has reduced expenses by cutting 150 jobs so far this year, closing offices, limiting travel and trade show participation, and even deferring replacement of PCs.

Looking forward, Mentor seem to be banking on two strategies. First is their vertical market focus in automotive and aerospace. Second, Mentor is positioning the transition to 45nm as an inflection point and an opportunity to replace existing physical design tools with their Olympus SoC solution, particularly emphasizing the need to handle multi-mode multi-corner design.

Lastly, their was no direct comment concerning the now defunct Cadence acquisition attempt. However, apparently Mentor was able to enact a golden parachute for its executives in case of takeover. They also spent and will continue to spend ~ $1M per quarter on “banking fees” associated with the Cadence offer and possibly looking at other ways to “structure” their business. Nudge, Nudge, Wink, Wink.

Mentor shares closed up 10% Wednesday.

Synopsys

In contract to Mentor, Synopsys announced it’s earning in full daylight and after the markets closed for the day. Q3 revenue was $344M compared to the market’s expectations of $340M, a healthy increase of 13% from last year. Unlike the automotive business carrying Mentor for the quarter, there was no single area that stood out for Synopsys. They signed a significant deal with National Semiconductor that includes access to Synopsys’ analog/mixed-signal and custom IC design tools (code named Orion), now in beta and scheduled for release this quarter.

As far as the turbulent environment is concerned, Synopsys is seeing mixed signals with “some customers racing forward to gain market share while others are holding back on their forward commitments”. Aart noted that in “sales situations that are heading towards closure you suddenly get two, three, four weeks more signature loops … that says typically that the approval is going up one or two levels in a company or that everything goes through the desk of the CFO”. Synopsys expects to benefit from this uncertainty as customers opt for safety, both technologically and financially. Still, they scaled back expectations for revenue growth to 6-7% in 2009.

There were also some interesting product notes. As I mentioned above, Synopsys will complete beta testing and formally introduce its AMS design tool, codenamed Orion, this quarter. Orion will plug a critical portfolio hole so that Synopsys can be a viable choice for key customers looking to consolidate all digital and analog design with a single vendor. On the place and route front, Synopsys claimed a production tapeout for their new Zroute router which implements diagonal routing and also runs multithreaded and faster than their current router.

Synopsys shares closed down 11% Thursday. Apparently, the fact that Synopsys lowered its cash flow forecast for 2009 from $325M to $320M-$325M spooked Terence Whalen of Citibank so much that he changed his recommendation for Synopsys from Buy to Sell. Hard to fathom, considering the slight amount of this change, considering that 2009 is still being planned by Synopsys, and considering Synopsys’ history of generating cash from operations.  Still, it does not take much these days I guess.

Last week, I said that I would be watching for 4 things.  So, what did I see?

  1. The market uncertainty that Cadence noted is definitely affecting Mentor and Synopsys as well, so it is an industry problem, not just a Cadence problem.The waters are turbulent.
  2. Little said about the Cadence acquisition.
  3. Synopsys may be seeing some benefits from the uncertainly caused by the short-lived Cadence - Mentor courtship. Still, too early to tell.
  4. Very little on the Synplicity acquisition except that things are going well.

For some more insight, see Gabe Moretti’s articles on Mentor and Synopsys and Sramana Mitra’s analysis.
harry the ASIC guy

The Week Ahead: All Eyes on SNPS & MENT

Monday, August 18th, 2008

It’s been a rocky month for EDA.

On July 23rd Cadence revised strongly downward its revenue forecast for the last 6 month of 2008. Cadence stock plummeted 30% the next day. As a direct result, Cadence scrapped its takeover bid for Mentor Graphics this past Friday.

On July 24th Rambus reported Q2 revenue down 10% from Q1 and down 25% from Q2′07. Their closing price that day of $14.70 culminated a decline of almost one-third over the previous month. As a result, Rambus has announced its cutting 20% of its workforce.

On August 7th, Magma pre-announced that its Q1 revenue would be 10% lower than expected. Result: $6.77 => $5.45 (-19%).

And just last week, MIPs announced a $100M write-down due to “the softening overall market for intellectual property and delays experienced in realizing expected synergies” (with the Chipidea acquisition). With it, a 15% layoff.

And so, all eyes will be on Synopsys and Mentor this Wednesday. First, Mentor will announce Q2 earnings at a 5:30 AM (PDT) conference call. (Show of hands, who is getting up early for that one). Then, Synopsys will announce Q3 earnings at a more reasonable time, 2:00 PM (PDT).

A few things that I’ll be watching for:

  1. During Cadence’s earnings call, Mike Fister blamed most of their predicted revenue shortfall on their customers’ decision to postpone purchases in the face of uncertainty in their own businesses. This seems to be supported by the subsequent bad news from Magma, Rambus, and MIPs. If that is the case, expect to hear similar bad news and comments from Synopsys and Mentor.  If not, then the finger will point back to Cadence.
  2. What will Mentor say about the withdrawn offer by Cadence? (Note: Mentor stock dropped 25% midday Friday after the news broke).
  3. Several analysts and observers (including myself) felt that Synopsys would benefit from the uncertainty caused by the Cadence - Mentor acquisition battle. I’ll be interested to see if Synopsys’ numbers show that or if there is any anecdotal information of a big customer switching to Synopsys as a result.
  4. This will be the 1st quarter since Synopsys acquired Synplicity, so look to see how that is going.  From what I hear, Synopsys plans to keep the businesses mostly separate through the end of FY08 (October).

It should be an interesting week…

harry the ASIC guy

Email Penalty #4 - False Start

Tuesday, August 5th, 2008

Kiara Orange BeltLast Saturday, my daughter earned her orange belt in Karate. So we decided to treat her to some ice cream at Baskin Robbins.

You would think that an ice cream shop just down the street from the YMCA on a Saturday afternoon in August would be packed with happy chocolate coated faces.  Yet, we were the only customers.  Strange….

As we ate our ice cream and I walked around I started to realize that something was odd.  See if you can guess from these pictures I took with my cell phone…

No Restrooms

No Tipping









Freezer

Cake









Fridge

I’m sure the owner had a good reason for each of these signs. But taken together, the impression I got was that she didn’t trust her employees and she didn’t trust her customers. In short, she didn’t consider how her customers’ might interpret or misinterpret the message that these signs were supposed to convey.

Emails can be the same.

When you write an email, you know exactly what you mean to say. But emails are just words and words are open to misinterpretation. If you write something in haste or just the wrong way, you can give a false impression, even if you don’t mean to. As a simple example, here is an email that I received recently from a former co-worker to whom I had not spoken in over 10 years:

My son’s high school robotics team has a competition at Northridge this week, so we’re going to be in town.  Here is our rough itinerary (below).  Would love to meet you and Joyce and any others at some point on the itinerary.   Please make suggestions for an activity (spice it up a bit — think like a high school kid).

I’m sure that Dave just wanted to catch up on old times.  But I felt like I was being commissioned to plan an activity that was going to keep his high school age son, whom I had never met, from being bored. Not exactly what I had expected.

To be fair, I’ve done this too. What makes email so powerful, is that it is quick, easy, and immediate. And that is also the danger when it comes to misinterpretation.  Back in the “old days”, when we had to hand write and mail letters, we had plenty of time to choose our words carefully and read and rewrite what we had written. With email, you can just hit “send” and off it goes.

So, how can you and I keep from making this mistake?

A good rule of thumb, before sending an email, is to read it and ask “how might this email be misinterpreted”? Read it like you’re reading it for the first time. Put yourself in the shoes of the recipients. Try to anticipate what they might misinterpret and fix it. Especially if the email is important or sensitive. Especially if you are delivering bad news.

Better yet, if there is any doubt, pick up the phone or get off your butt and walk over to have a face-to-face conversation. And if it’s a real sensitive topic, discuss it over an ice cream.

harry the ASIC guy