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Cadence/Mentor merger 'a bad idea'

Posted: 20 Jun 2008     Print Version  Bookmark and Share

Keywords:electronic design automation  chip design  IC routing  Design for Manufacturing 

Cadence Design Systems is under pressure and may lose its top spot in the electronic design automation sector, but its proposed Rs.6,403.37 crore ($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 per cent 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 analogue 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 Rs.640.34 ($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.

- Rick Merritt
EE Times





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