harry … the ASIC guy

While growing up in the concrete jungle of New York (Brooklyn to be exact), I developed an interest in the natural world that I got to see too little of. I almost never missed a Sunday night episode of Marlon Perkins and Jim Fowler on Wild Kingdom.  And now, of course, there are dozens of regular shows on the Discovery Channel, National Geographic Channel, and on and on and on.

If you’ve watched any of these shows then you know that there is a universal truth in nature. Where there is water, there will be life.  Find a stream and you will find water which nourishes plant life which is food for small animals which are food for larger animals. A stream becomes an oasis of life … a little ecosystem that supports itself and flourishes.

Once they find such an oasis, animals won’t leave on their own.   Even if there may be something better far away, it’s not worth the risk of the trip, because they have all they need. But sometimes nature intervenes. Perhaps there is a drought and the water dries up and the plants fade away. Then the animals have no choice but to look for “greener pastures”.

When animals were first domesticated, shepherds understood this principle and concerned themselves primarily with the care of the flock (imagine some pristine image of David). They knew that the sheep would not stray as long as they were provided for. Ranchers understood this as well, but eventually the they started to worry about other ranchers rustling cattle.  So they built fences to keep the cattle rustlers out and to keep their cattle from straying.

In business, companies have a choice … to focus their time and efforts on creating streams that satisfy their customers’ needs or to create fences to keep the customers in and the competition out. In EDA, the industry leaders have done both.

• More than a decade ago, Synopsys was an innovator by creating SolvIt! (now Solvnet), a 24/7/365 available knowledge database that enables uncountable designers to solve problems on the weekend or in the middle of the night. I have spoken to several Synopsys customers who cite Solvnet as one of the key reasons they stay with Synopsys tools. Solvnet is a stream.
• Just a few months ago, Cadence launched it’s Online User Community. Extended from it’s existing user forums, this community offers access to Cadence and designer tool expertise and interaction with those driving the direction of future tools. This is also a stream.
• Over the last several years, Synopsys has resisted customer requests to offer short-term (e.g. monthly or weekly) licenses for peak use, so that customers could match their license usage with peak needs. They feared that such an offering would jeopardize longer term sales and  lower switching costs for customers. This is a fence. (To be fair, Synopsys has recently started offering short-term e-licensing options)
• Cadence recently kicked dozens of competitors out of its Connections Program. This is a fence.

I’m not such an idealist to think that EDA companies will focus entirely on creating streams and not consider the competition.  That would be foolhardy. But there is a corporate culture, a corporate mission, that is either focused on the customer or focused on the competition.  That’s a key difference.

There has been a lot of discussion lately about Cloud Computing and Software-as-a-Service for EDA. Some feel it is inevitable. Others point out all the barriers that exist.  Ultimately, I think it boils down to one simple question:

• Does the EDA industry as a whole, and do EDA companies individually, see their mission as creating streams or building fences?

If just one company sets as it’s mission to build a cloud computing stream, a SaaS oasis, to nourish the design community, then it’s going to happen. And designers and customers will come.

On the other hand, if the EDA industry focuses on building fences to lock customers into long-term agreements, to discourage interoperability, and to squash standardization efforts, then nothing will change and the industry will dry up and die.

It’s up to you. Go build a stream.

harry the ASIC guy

Last Friday, I took the 45 minute drive from Torrance to Montrose to have coffee with Gary, a successful entrepreneur who is one of the founders of a fledgling IP company. I was introduced to Gary by a friend at Synopsys who suggested that I meet him because he’s had great success and has a lot of insight into how to run a successful business.

Gary brought along his partner, Art, and we had a very good conversation, almost an hour and a half. We discussed what I was working on, what his company was working on, and my revolutionary ideas about the EDA industry. Gary has a lot of experience and he provided some insights I had not heard before:

• How can EDA companies provide flexible pricing to smaller customers and not to their biggest customers?
• Software-as-a-Service works for cookie cutter processes like sales and HR and expense reports but not for customized processes like EDA tool flows

And he enforced some feedback that I had heard before:

• Why would a large EDA company want to cannibalize their long-term license sales with short-term licenses?
• It’s been tried before and failed.
• The guys with power have no reason to change the status quo.  They are holding 4 aces.

In short, my discussion with Gary amounted to this … your idea has tremendous value to the end user, the designer, the customer, the small startup or design services company … but the big boys, who have all the power, have no incentive to play ball, and every incentive to leave everything as it is. Gary never came out and said this verbatim, but the message was clear … “you don’t stand a chance!”

_______________

As I drove back from my meeting with Gary, a little discouraged, yet grateful for the honest feedback, I turned on the audiobook version of Seth Godin’s new book Tribes : We Need You To Lead Us, which I wrote about in my last post. Somewhere around downtown LA, near Chinatown, I heard the following:

“All you need to know is 2 things.

• The first thing you need to know is that individuals have far more power than ever before in history. One person can change an industry. One person can declare war. One person can reinvent science or politics or technology.
• The second thing you need to know is that the only thing holding you back from becoming the kind of person who changes things is this: lack of faith. Faith that you can do it. Faith that it’s worth doing. Faith that failure won’t destroy you.

… More and more people, good people, people on a mission, with ideas that matter, are stepping forward and making a difference … An individual, or a small group, has the power to turn an existing system on its head. Now, most of the time, we call heretics, leaders. The heretics are winning. You can, no, you must, join them.”

In short, Seth Godin’s book “Tribes” amounted to this … the technology that is available today via the internet (blogs, podcasts, social networks, etc, etc, etc)  provides the leverage to enable one person to initiate and lead a movement that can change the world. All that is necessary is to conquer the fear, to selflessly lead a tribe of people where they already want to go, to enable them to work together to achieve the goal. The message was clear … “you can do it!”

 _______________

So, who’s right, Gary or Seth? This will sound like a cop out, but they are both right.

Gary is right about all the challenges that exist to keep a change from happening.  In EDA, as in many industries, the status quo has tremendous inertia. Those who benefit from the status quo are usually those who have the most tangible power. And they will use that power to maintain the status quo. For all the reasons that Gary gave me.

And Seth is right, that despite all the reasons that change is hard to initiate, change can be ignited from a single spark. And long established industry giants can fall.

Look at the music industry, where the accessibility of music production and distribution capabilities has made the record companies increasingly irrelevant. Independent artists can self-produce and self-distribute their work, without have to sell their futures to the record companies.

It will be the same in the EDA industry. Independent EDA tool developers will be able to self-produce and self-distribute their work, without having to look to an acquisition by one of the “big 3″. I’d like to lead this movement, but I need to be honest … I’m a little scared.

• Scared for my reputation as a reasonable level headed person.
• Scared for my relationships with people in the EDA industry who stand to lose out from this change.
• Scared that I’ll waste several years chasing something that is never going to happen.

I’d like to know that I am not alone. That others will offer their support, their time, their effort, to make this happen. That we can build a Tribe that can change the industry.

If you agree with me … if you feel the same as I do … then let me know. Encourage me so I can encourage you.

And we’ll change the world. (Well, at least the EDA industry).

 harry the ASIC guy

At the end of last Sunday’s Chargers-Bronco’s game, Referee Ed Hochuli blew a call that cost the San Diego Charger’s the football game.  Here’s a somewhat comical look at what happened:

Probably not so comical if you’re a Charger’s fan

Well, last week I got a chance to do some more “research” into the Cadence announcement of a SaaS offering. Although I got the substance of the call correct, in haste I also got one important detail incorrect.  (As, Mark Twain once said, “a lie can travel halfway around the world while the truth is putting on its shoes.” Today, a lie can travel around the world several hundred times while you put on your shoes).

I had inferred from the use of the term “Software-as-a-Service“, that the Hosted Design offering would include a “pay per use … pay as you go” or similar on-demand licensing model. Upon further review … this is not the case.  Here are some of the things I found out:

1. No on-demand licensing, no eDACard … only monthly granularity for licensing. If you want to scale the size of the hosted environment, several weeks lead time may be needed to obtain and configure the additional CPUs unless they are otherwise available.
2. The “flows” that are offered are the Cadence reference flows (e.g. Low-Power Design Flow), not a production flow that Cadence may or may not be developing.
3. Cadence says that it can host any third party EDA software … just license it to Cadence’s hostid.

Despite some limitations, this is still a big step. Small companies can now obtain the necessary hardware, software, and IT support to do chip design at a lower initial cost than building their own infrastructure. The VCs should like that.

But there are some limitations.  First, although the Cadence VCAD chamber provides security, it lacks the instant scalability and on-demand pricing that cloud computing would provide. Second, although reference flows are provided, it lacks a real production design environment that designers can just pick up and use.  Third, despite Cadence’s assurances that they will allow other EDA tools to be hosted, competitive tools likely will be discouraged since the ultimate objective is to further lock customers into an all Cadence tool flow.

So, the question now is … What Will Synopsys Do (W.W.S.D)?

Before that, we have to ask What “Has” Synopsys Done?  You see, Synopsys tried and then abandoned a similar idea about 7 years ago. At the time, companies were not “comfortable with the idea that their computers and data were in a remote building operated by a third party”.  But they are now (at least more than before).  At that time, Synopsys had no production design environment available to offer. They do now.

Synopsys could probably go one better and offer a superior solution if it wanted to, combining their DesignSphere infrastructure and Pilot Design Environment.  If fact, they have done this for select customers already, but not as a standard offering. There is some legwork that they’d need to do, but the real barrier is Synopsys itself. They’ve got to decide to go after this market and put together a standard offering like Cadence has.

And while they are at it, if they host it on a secure cloud to make it universally accessible and scalable, and if they offer on-demand licensing, and if they make it truly open by allowing third party tools to plug into their flow, they can own the high ground in the upcoming revolution.

What do you think?

harry the ASIC guy

I can’t sleep at night.

This Idea has been bouncing around in my head for the past few months. I can’t shake it. If you know me, then you’ve probably heard me talk about the Idea or ask your opinion about the Idea or whether I’m crazy. I’ve been itching to blog about this Idea, but haven’t been able to figure out the right way to approach it.

Then, the other day, Ron Ploof gave me a way to approach the Idea in my blog. Please read Ron’s post on the Birth of a New Media Revolution first before continuing. It’s damn good, you’ll get something out of it, and it gives context to this post.

OK … done? Good.

Ron’s main point is that a revolution can’t happen until all the enabling pieces are in place. New media required easy-to-use publishing tools, simple syndication (i.e. media distribution), and low-cost bandwidth.  Once those were in place, new media hit the tipping point.

Well, I’m going to go out on a limb today with a prediction:

The pieces are coming together for a revolution in EDA. Like most revolutions, it is starting small, hardly noticed by the big guys on the block. In the next 5 years, it will change our industry forever by leveling the playing field, allowing smaller EDA companies to compete with larger ones, giving customers greater flexibility on how and when they access tools and which vendor’s tools they use.

It’s going to happen.  And just as with new media, there are three barriers that will need to come down before we hit that tipping point.  They are:

1. The high cost of sales, marketing, and support.
2. Licensing models that lock-in customers.
3. Lack of comprehensive standards for tool interoperability.

If you’ve been staring at the EDA horizon like I have, you’ve already seen that all of these barriers are starting to come down:

1. A week ago, a company called Xuropa launched an online tradeshow platform that could greatly reduce the cost of sales for EDA companies and enable greater access to designers to evaluate tools.
2. For several years now, Cadence has provided access to short-term licenses through their eDACard model and Synopsys will introduce a similar offering before the end of the year. Cadence also provides a service through their consulting organization called “hosted VCAD” whereby customers can access software and hardware on a Software-as-a-Service basis. How long before the other vendors follow?
3. As Karen Bartleson noted on her blog yesterday, the EDA industry has moved into an “Age of Responsiveness” with regards to tool interoperability where tools are expected to be open and inclusive.  As witnessed in the latest OVM / VMM standards war, open standards are required as the price of admission and “woe be to those” that do not heed this call.

I’m a realist. This EDA revolution is just beginning and will take some time.  It won’t happen without a fight from those who stand to lose out. But I believe that the revolution is inexorable.  And the sooner the EDA companies learn to swim with the tide, the better off they will be after the revolution.

There’s a lot more that I need to say before I can sleep at night, but too much for one post.  Stay tuned.

harry the ASIC guy

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

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

About 5 years ago at Synopsys, I set up an internal email alias so that everybody working with one of our top customers, Qualcomm, could communicate important information to the entire team. All get on the same page. Make sure the left hand knew what the right hand was doing. Make sure we were communicating the same data and recommendations. Account managers … applications engineers … consultants … R&D … all working as one well oiled machine. I must say, it was a great idea … on paper.

One morning, after driving down to the San Diego office, I hopped onto a 10 AM conference call and logged into my email. As I watched my Inbox load, I noticed that there were about half a dozen messages sent that morning back and forth between two individuals who reported to me on the Qualcomm team. All regarding the same subject. Each one sent less than 5 minutes after the previous email.

As I settled into the conference call, I took a look at the latest email in the thread to get a sense of what was going on. Apparently, there was a disagreement between two members of our team as to the correct approach to addressing some methodology issue.  That’s fine.  People disagree.  But this was different.

Have you ever been at a party and a couple starts arguing in front of everyone?  At first you ignore it and make believe you’re not aware.  But then the tone gets angrier and the language gets personal and the voices get louder. Until you can’t ignore it and everybody stops what they are doing to watch in embarrassment what is happening in public that should have been private.

That’s exactly what was happening on this email thread.  As emails 7, 8, and 9 came in, the tone got angrier and the language got personal and the voices got LOUDER. And thanks to the email alias I had set up, there were now about 25 other people watching this “couples spat”.

I had to stop this, but I was stuck on this damn conference call !!!

Forget about the actual issue. This was now a matter of saving these two individuals from the ridicule of others on that email alias that were witnessing this boxing match. I sent urgent emails to the two individuals asking them to stop the emails and that I’d speak to them at 11 AM.

Email #10. #11. #12.

Mercifully, the call ended a little early and I was able to reach the consultants on their cell phones. One of the individuals was a contrarian, so from my previous post on the subject you know that:

1. If everyone else wants to take road A, he wants to take road B.
2. If everyone else wants to take road B, he wants to take road C.
3. If you’ve got a plan, he’ll tell you why it won’t work.
4. Once he takes a stand on an issue, he’ll never give up.
5. He doesn’t really care what others think about him.
6. Every battle is worth fighting … to the death.

Bottom line, he thought there was nothing wrong with “having it out” over email with everyone else copied.  In fact, this was good documentation since everybody on the team could now see the rationale of how this decision was arrived at. He was just trying to get to the right answer and can’t be bothered about having to worry about other people’s feelings.

The other individual just couldn’t resist replying to the emails since they came so fast. And he totally forgot that everyone else was being copied. He was pretty embarrassed.

In the end, the damage to these individual’s reputations was not that bad. As it turns out, the one individual already had a reputation as a hothead and contrarian and the other was more the victim than the aggressor. Still, I overheard comments in the office that day about this “tiff” and, in the end, the issue was not really addressed.

The morale of this story is that there are two rules:

1) If it takes more than 3 or 4 emails back and forth, then pick up the phone or walk over to the other person’s office. Email is a very inefficient and slow way to have a discussion or solve a problem compared to good old fashioned talking about it. Still, sometimes, and this was apparently one of those times, people just find the allure of the quick email response too appealing to resist.

2) If you break rule #1, don’t be stupid enough to copy everybody else.

harry the ASIC guy

Not to be outdone, but with much less fanfare and ballyhoo than Synopsys’ donation of its Verification Methodology Manual (VMM) class library to the Accellera Verification IP (VIP) Technical Subcommittee, Mentor Graphics last week donated it’s Unified Coverage Database (UCDB) to the Accellera Unified Coverage Database Interoperability (UCIS) Technical Subcommittee.

Although not as hot a topic in the press and in the blogosphere, this represents a firm step forward in the standardization of the overall coverage driven verification methodology, whether you pray from the OVM or from the VMM hymnal. Whereas ratified or defacto standards already exist for the testbench languages, the requirements and coverage capture tools and formats are still proprietary to each of the 3 major vendors. This prevents the verification management tools of one vendor from being used with another vendor’s simulator. Having a UCDB standard will facilitate portability and enable more innovative solutions to be built by third parties on top of this standard.

Although Synopsys and Cadence have their own unique UCDB format, the basic elements of this standard should be much easier to agree upon without the political wrangling slowing the VIP subcommittee. I also think this is an opportunity for Synopsys, Mentor, and Cadence to show that they really can cooperate for the benefit of their customers and win back some of the goodwill lost in the OVM vs. VMM battle

harry the ASIC guy

I just spent the last hour+ listening to to Cadence Q2 earnings conference call. (You can listen to the call here and read the transcript here).

Ouch!!!

As I write this at 12:30AM PDT on Thursday morning, I don’t know for sure how the markets are going to react. But I expect, as do all of the analysts, that Cadence shares will be down. Here are the lowlights that I took away:

1) Cadence revised their revenue and earnings guidance for 2008, not by a little, but by a lot. Analysts were projecting ~$1.5B revenue and Cadence is now projecting ~$1.1B, or ~25% less. (Note: This is in part due to a change in license mix as described below).

2) Cadence is increasing it’s license mix to 90% ratable going forward. Simply put, more of their revenue will be recognized over time rather than up-front (at the time of the booking).  That means lower revenue in Q3, although by design. (Note: This is the same thing that Synopsys did when it missed a quarter badly several years ago.  The change in license mix helps to obscure the real financials to the investment community. Bottom line: if you have bad news, put it all in one quarter).

3) Cadence has started the regulatory approval process and acquired 4.7% of Mentor common stock in the open market and they say they are committed to the acquisition, but Mentor has not returned any calls.

So, how did the analysts react? Not well.

Much of the analyst part of the call was devoted to cordial debate over whether this “weakness” was due to poor economic conditions, economic uncertainty, and delayed migration to new technology nodes within the customer base (as Cadence contends) or to a more inherent weakness in Cadence’s business (as the analysts seemed to believe). For instance, one analyst asked “did the environment deteriorate that quickly that your bookings outlook could have gone from $1.5 billion down to $1.1 billion in one quarter?”

There also seems to be a belief that Cadence “over-consolidated”. When they did “all-you-can-eat” deals with some big companies, they basically “drained the pipe”, leaving them without an option to sell new technology.

And customers are just holding out and deferring purchases until they get a better deal.

There was also quite a bit of discussion concerning EDA Cards which represent half of Cadence’s business. Customers are demanding even more flexibility in when, what, and how they purchase software and hardware.

Lastly, Cadence will continue to look at expenses, i.e. expect some attrition.

Bottom line: No way to sugar coat this…it was a rough quarter and figures to be a rough year for Cadence.  Question is how much will Cadence be punished by the investors and how much will their EDA brethren (Synopsys, Mentor, Magma, etc.) be punished. We’ll find out tomorrow.

harry the ASIC guy

One of the shortest but most relevant exchanges during the Cadence analyst call concerning the Mentor acquisition was an exchange between Sterling Autry of JP Morgan and Kevin Palatnik, CFO of Cadence.

About 27 minutes into the conference call, Sterling Autry asked why Cadence was estimating only $50M in operating income benefit considering Mentor’s operating income in 2007 was $120M. Indeed, $1.6B to acquire $50M in income seems like a poor deal indeed.

Kevin Palatnik’s response included the following, “the industry has had a history, from a customer perspective, of trying to get more and include features and not pay for it. So I think we just have to be able to demonstrate value to the customers. So I think, in the short term, I think, there is always the customers asking for the combination and not paying for it.”

The crux of the issue is simple math: 1 + 1 = ??? …how much will Cadence-Mentor be able to charge for their combined products?  If  1+1 > 1.5, then the combined company will be in pretty good shape.  If 1 + 1 < 1.5, then it will be difficult to “extract the value” of the acquisition. In that case, expect lots of layoffs, products being scrapped, and products being sold off.

From my experience, Kevin Palatnik is only partially correct that “the industry has had a history, from a customer perspective, of trying to get more and include features and not pay for it”. When I started with Synopsys in 1992, their flagship tool was Design Compiler. Synopsys added new features and voila…DC-Expert.  Then DC-Ultra. Now DC-Graphical. Each one sold at a premium to the predecessor and customers would pay for the upgrades.

But not without voicing their displeasure, both privately and also publicly on places like ESNUG. It often seemed arbitrary and self-serving to customers what Synopsys deemed an “update” (covered by their tool support) and what they deemed an “upgrade”.  And they felt they were being nickel-and-dimed.

On the other hand, people need to eat, and the EDA tool developers are no exception. They do not work for free. It seems unique to the EDA industry, that customers expect, once they buy a tool, to get any and all improvements to the product for free. This is not the case when I buy MS Office or most any other desktop application, but it is definitely a reality in EDA.

To add to the confusion, I can now download almost any desktop application I need for free as open-source (e.g. Open Office), or use it for free online (e.g. Google Docs), and get access to upgrades for free as well. This has changed customer expectations dramatically.

I’d like to know what you (EDA vendors and customers) think about this:

1. Should customers pay more for EDA tool enhancements or should they be part of the tool “support”?
2. How do you decide what is an “update” and what is an “upgrade”?

harry the ASIC guy