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Fister's resignation: Pain or relief?

Posted: 20 Oct 2008     Print Version  Bookmark and Share

Keywords:Michael Fister  all-cash proposal  business pressure  EDA sector 

"Fister needs to do something to fix the company," a veteran EDA analyst recently stated. Michael Fister, President and CEO of Cadence Design Systems, Inc. since 2004, has made a radical decision: he has resigned.

In his 4.5-year tenure at the San Jose company, Fister has had ups and downs but business pressures have accelerated in recent months. It would be too easy to invoke bad luck. A fine mix of arrogance and ambition has energised him to come with a "a really bad idea," according Gary Smith, principal of Gary Smith EDA.

In June, Cadence indeed submitted a proposal to the board of directors of Mentor Graphics to acquire the company for Rs.688.17 ($16.00) per share in cash. The transaction was valued at Rs.6,881.70 crore ($1.6 billion).

Cadence said its all-cash proposal represented a 30-per cent premium over the closing price of Mentor Graphics' common stock on June 16, 2008, the last trading day prior to public disclosure of Cadence's proposal, a 59-per cent premium over the closing price of Mentor Graphics' common stock on May 2, 2008, when Cadence presented the terms of the proposal to Mentor Graphics, and a 46-per cent premium over Mentor Graphics' average closing price for the past 30 trading days.

In his letter to Walden C. Rhines, Mentor's chairman and CEO, Fister explained why such acquisition made sense. He wrote: "Combining Cadence and Mentor Graphics and aligning the creative talents of our respective hard-working and innovative employees will deliver more comprehensive cutting-edge solutions and an entirely new level of customer experience and satisfaction. Together we can accelerate the rate and efficiency of customers' innovation by making it possible for them to develop products that better meet end user needs."

After several bids, Cadence finally issued a statement in August, saying that Mentor continued to reject the takeover plan.

It is little to say that reason has prevailed especially after giving a retrospective look at the Daisy Systems Corp. acquisition of Cadnetix Corp. and the bankruptcy the resulting combine filed within a year.

Fister has been under heavy business pressure to maintain the company's lead in the EDA sector which has seen growth slump. Cadence's main customers, namely chipmakers Freescale and NXP, are also going through hard times. In addition, Cadence is facing new competition from Magma Design Automation and Synopsys in the analogue and mixed-signal design area.

For the second quarter 2008, Cadence reported poor results with revenue of Rs.1,415.05 crore ($329 million), compared to revenue of Rs.1,681.71 crore ($391 million) for the same period in 2007. The net income was Rs.21.51 crore ($5 million), or 0.86 paise ($0.02) per share on a diluted basis, compared to net income of Rs.258.06 crore ($60 million), or Rs.8.60 ($0.20) per share on a diluted basis, in the same period in 2007.

At that time, Cadence said it expected revenue to be in the range of Rs.1,010.75 crore to Rs.1,053.76 crore ($235 to $245 million) for the third quarter and in the range of Rs.4,817.19 crore to Rs.4,903.21 crore ($1.12 to $1.14 billion) for the entire fiscal year. Year-end backlog was then anticipated to be approximately Rs.8,602.12 crore ($2.0 billion) with order levels at approximately Rs.4,731.17 crore ($1.1 billion).

The day following Cadence's financial quarterly results and expectations, the stock fell over 30 per cent, reaching a 13-year low of Rs.300.64 ($6.99). This was the beginning of the descent into hell. Indeed, shares of the company, which have lost three quarters of their value over the last 12 months, were down 11.89 per cent to Rs.200.86 ($4.67) Wednesday (Oct.15) according to MorningStar.

Cadence did not comment on Fister's resignation but specified that it was in mutual agreement with the board.

In May 2004, Cadence recruited Fister to succeed Ray Bingham, who was elected chairman of Cadence's board of directors. Previously, Fister was senior vice president at Intel and general manager of the enterprise platforms group, which designs, markets, and supports building blocks for enterprise computing. He was responsible for the design, development, and marketing of IA-32 processors, including the Pentium Pro, Pentium II and III, Celeron, and Xeon processors.

Bingham had been subject to criticism because of his lack of an engineering background, and because Synopsys had bypassed Cadence to claim the number one spot in EDA industry revenue.

In the spring of 1999, Cadence Design Systems Inc. was in turmoil. The EDA company was still smarting from its long, emotional court battle with Avanti over code theft. Its stock was sliding, and its CEO, Jack Harding, had fallen from favour. The board tapped CFO Ray Bingham to replace Harding.

Harding, Bingham and Fister: If bad things happen in threes, good things will too. Let's hope so!

-Anne-Francoise Pele
EE Times Euopre





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