Analysis of what might be Cadence next step.
Being a large and until recently successful company has its disadvantages: one is being in the News a lot. And so Cadence is now going through the type of experience a successful company that has hit a few hurdles is bound to endure. This is particularly evident this time of the year, when product announcements and even hard news are few. Recently the News was once again dominated by Cadence. We learned that three of their people had been promoted to executive management, that the NASDAQ had warned the company that it was not in compliance with its rules, and that a number of companies had been "booted" from its Connections program. Taken together they created a confusing picture, at least at first look.
What I find intriguing is the reason for this apparent lack of direction. Since the resignation of Mike Fister, whether voluntary or forced may be irrelevant, the company seems adrift, taking decisions that seem disconnected and short term. Clearly the "Office of the Chief Executive" is a short term position, since a triumvirate cannot govern effectively for very long, destined to be replaced by a real Chief Executive when one is found.
Then came the very predictable "cut in costs" activity. Cutting costs is an action that is meant to signify that executive management has both a grip on reality and an understanding of the business reality. As a mater of fact, cutting 10% out of almost 7000 employees, is relatively easy to do, although the after shocks are difficult to manage.
What followed is the most troubling part: an announcement that reporting of the 3Q financial results were postponed to a "yet to be named" date, and the recent official notification by NASDAQ that the company is not in compliance with market rules.
In the mean time three Cadence employees where elevated to the rank of corporate officer: Chi-Ping Hsu, Tom Cooley, and Nimish Modi. Either these three people are very brave, or they know something no one else does, or they were late stepping back when volunteers were called.
And, just when we all needed some respite from the saga, we have a public forum on the actions taken by Cadence with respect to its Connections program by not renewing a non trivial number of corporate memberships.
The Connections debate
Many EDA companies have a partnership program, certainly Magma, Mentor and Synopsys do. Having such a program does not mean that the company is open to cooperate with another company or with industry organizations. It just means that there is a strategic reason to be able to claim a partnership with a specific company when trying to keep or gain a customer.
Larger companies have a number of ways to "collaborate" outside of the partnership program. The Open Verification Methodology (OVM) between Cadence and Mentor is a good example of a collaboration that goes well beyond what would be possible in the Connections program. In my experience, programs like Connections are used more by the marketing departments of smaller companies that are members, than by the company that has instituted the program. In the days of mergers and acquisitions, a program like Connections was quite useful to Cadence, not only as a formal introduction, but more importantly as vehicle to test both the integration of tool and the integration of the sales organizations. It was a way to test how well things would work when the two companies became one. I can therefore believe that in most cases, Connections is a drain of resources for Cadence now, a necessary cost to compete, especially with Mentor and Synopsys. After all, I would think that OpenAccess is all the "connections" Cadence really needs!
The New Executives
Why would these three individuals accept a promotion to positions that have corporate fiduciary responsibility during troubled times? Are the financial difficulties not as serious as someone as judged? And can we read any corporate direction from such appointments? The second question is easier to answer; and the answer is NO. We still find that product development is split between front end and back end families, at a time when in the market Cadence operates is becoming imperative to have a complete and integrated flow from design conception to release to manufacturing. Chi-Ping major technical expertise is in both logical and functional synthesis, an area Cadence has not distinguished itself as a leader.
Nimish Modi is an Intel person who has been involved in processor development for most of his career at Intel and although he has executive management experience, may have a reasonably longer learning curve than required, especially when the hard decisions on what will Cadence look like when it restarts itself are needed.
Far be from me to prejudge Tom Cooley, but I am a bit confused by his promotion. He was in charge of world wide sales and started the Global Accounts Program at the company before his promotion. Did I not just get the memo that revenue are down due to sales being lower than expected this calendar year? And yet he gets promoted and given added responsibilities?
If we believe that Cadence will continue as a publicly held company, these are not appointments that were made considering the long term as they do not seem to contain any thought toward how Cadence will rebound with a new approach, a new product portfolio, a slimmer but more focused enterprise. They look like someone is more interested in dressing up the present, waiting for a more significant event to force another reorganization.
The financial picture>
Postponing reporting financial results and in fact taking so much time as to be in breach of market rules, is not something a publicly traded company does lightly. So what is so complicated with Cadence's books? Are we looking at money laundering schemes, skimming of profits, or other illegal activities? Or are accountants so busy dealing with the overhead of the layoffs that "they just have not had enough time?"
Probably the answer is none of the above. The most likely answer is that the company is trying to develop the best possible financial situation in order to enact the decision that has already been taken with respect to its future. Since the longer it waits the more complex its present situation becomes, continuing as the corporate entity it is at present seems the least of the possible options. A sale of the company, or taking the company private is a more likely scenario.
In the case of a sale, Cadence will want to clean up as much as possible before it offers itself on the market. You know, a coat of paint here, a flower pot there, balancing the checkbook, the little things that add value. But in this case, not paying attention to the NASDAQ rules is not a good idea: the price of the stock gets depressed, stockholders get less money, legal action ensueswell not a pretty picture.
But if you want to take the company private, then promoting some internal people that obviously have money to invest given their careers, is not a bad decision. They can be part of the investment syndicate and their membership is very valuable. They would bring reassurance that the company is worth investing in, since they are insiders who have been successful in the past and are willing to risk their own money (or at least some of it), and are willing to stay and see the venture to a successful conclusion.
The members of the "Office of the Chief Executive" certainly have the knowledge, capability, and contacts to build an investment team. The uncertainty in the financial markets may be the only major thing that is keeping the process from reaching its conclusion.
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