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Analyst: Cadence/Mentor merger "a bad idea"
Rick Merritt
EE Times (06/17/2008 2:54 H EDT)
SAN JOSE, Calif. — Cadence Design Systems is under pressure and may lose its
top spot in the electronic design automation sector, but its proposed $1.6
billion merger with Mentor Graphics is "a really bad idea," said a veteran
EDA analyst.
"You would be sticking together two companies that have little synergy, lots
of overlap and enough combined debt with the deal to make it hard to keep the
pace in R&D," said Gary Smith, principal of Gary Smith EDA (Santa Clara,
Calif.). "This deal would be like tying a boat anchor to the two companies
and potentially sinking them both," he added.
The two companies have significant product overlap in several keys areas
including IC routing and Design for Manufacturing (DFM) tools, where Mentor's
products are superior, he said. The two also have similar products in chip
verification, an area that has become as critical as chip design itself given
the rising complexity of semiconductors.
Cadence chief executive Michael Fister is under heavy business pressure to
maintain the company's lead in the sector which has seen growth slump. The
company has said its sales may fall four percent this year, but Wall Street
analysts have projected the downturn could be in double digits.
Cadence's two biggest customers—chipmakers Freescale and NXP—are struggling
with their own problems. In addition, Cadence is facing new competition from
Magma Design Automation and Synopsys in the analog and mixed-signal design
area. "Cadence is in trouble, it will have a negative year and may lose its
number one spot in EDA," said Smith. "Fister needs to do something to fix the
company, but this will not fix it," he said.
If Mentor's chief executive Walden Rhines can resist the $16 per share deal,
it could create a shakeup that potentially puts it in the driver's seat for
software to design chips and boards, said the analyst. Mentor's board
rejected the merger after Cadence proposed it at a May 2 Mentor board
meeting.
"Mentor has really become the leader in technology and strategy and they have
been for the last couple years," Smith said. "They were the first to figure
out RTL [register transfer level chip] design was going to go flat and they
had to go above it to ESL [electronic system level] and below it to DSM," he
said.
In addition, Smith said he believes Mentor could be one of the few EDA
companies other than Magma to have a robust 32nm IC router offering, a key
product for next-generation chips.
"Wally s shooting to be number 1, and I would not be surprised if he makes
it," said Smith. "I think Wally's board is pretty good now and they
understand the only reason to do this deal would be to take the money and
run," he added.
http://www.eetimes.com/news/design/showArticle.jhtml?articleID=208700171
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