The news that Mentor Graphics has downgraded the guidance for its quarter revenue has generated much talk in the EDA community, and people are busy trying to figure out if this is a signal of more fundamental changes in the industry.
Personally I have maintained for many years, that the financial markets are too focused on short term results at the expense of more fundamental issues that necessarily have longer term impact. As Wally Rhines stated in the Mentor press release the results were impacted by a lag of revenue versus booking over the calendar quarter boundary.
What is important is to recognize how dependant EDA vendors are to large corporate accounts for their financial health. This dependency is rooted not only in the business practices the industry has evolved during its existence, but more importantly by the necessity of establishing technology partnerships among design teams, tool vendors, and semiconductor foundries in order to successfully solve key issues inherent in very deep submicron designs.
Cash flow between customer and vendor is governed by many factors that are not directly connected with the technology being transferred. We live in a worldwide economy effected both by exchange rates and local banking concerns, so delays are to be expected and companies like Mentor, who rely on the results of market specific divisions are even more susceptible to revenue recognition slipping by a few days or a few weeks.
Mentor has recognized this and through both internal development and acquisitions is working to be able to offer a complete flow independent of other EDA tools suppliers, while, at the same time, continuing its leadership role in the development and implementation of standards that lower the obstacles to integrate tools from various EDA vendors into a usable and effective design flow.
Designers should not come to the conclusion that the Mentor results are a sign of a fundamental weakness in the EDA industry. Instead they are just a manifestation of the fact that business of EDA has been changing in the last few years and financial results are becoming more dependant on the cash management of all the partners in the development chain.