Cadence, Avanti, call it quits, to sighs of relief
SAN MATEO, Calif. - It may not be "the dawning of the Age of Aquarius for EDA," as one analyst joked, but the final settlement of a six-year-old lawsuit over source code theft has lifted a dark cloud from the design automation industry.
Cadence Design Systems Inc. agreed on Wednesday (Nov. 13) to end its civil action against Avanti Corp. and the company that acquired it, Synopsys Inc. The $265 million settlement brings Cadence's total restitution in the matter to $460 million-an amount greater than Avanti's accumulated profits over the course of its history as a company. Avanti's peak cumulative earnings were $345 million.
Just as important, the settlement means "everybody can get back to work and focus on moving things forward, not beating each other up over the past," as Chris Malachowsky, vice president of engineering at Nvidia Corp., put it. Hence analyst Bill Frerichs' quip, "It's the dawning of the Age of Aquarius for EDA." In a desk note issued last week, the D.A. Davidson financial analyst said he hopes that other longstanding legal battles among Mentor, Cadence and Axis will be resolved soon as well.
The final act in a sometimes-ugly dispute stemming from Avanti's theft in the early 1990s of Cadence place-and-route and database source code means the EDA industry can turn its attention from the courtroom to the marketplace. "Now they have to compete on products," said Garo Toomajanian, financial analyst with RBC Capital Markets.
Indeed, Cadence and Synopsys -the top players in EDA-are both striving to solve next-generation design issues: specifically, creating flows that tie logical to physical design with an all-in-one RTL-to-GDSII tool chain.
'Compare the costs'
Accepting a settlement and agreeing not to pursue any more litigation against Avanti or Synopsys seemed the prudent thing to do, Ray Bingham, president and chief executive officer at Cadence (San Jose, Calif.), said last week.
In June of last year, the courts awarded Cadence $195 million in criminal restitution after Avanti itself and six officers-including CEO and chairman Gerald Hsu-pleaded no contest to the code theft charges. At that time, Cadence vowed to pursue civil litigation for damages of more than $1 billion. However, said Bingham, "The fact of the matter is, if you compare the cost of proceeding, the uncertainty of proceeding and the confidence in how long it would take to prosecute this case to perhaps a different conclusion, I think this settlement is the right thing to do."
Bingham also pointed out that in addition to the $195 million and $265 million Avanti and Synopsys must pay in criminal and civil restitution, respectively, those companies had other heavy charges. Avanti had to pay $55 million in legal fees, while Synopsys owed its insurance company, AIG, a $240 million deductible plus a $95 million premium for expenses. Per the settlement, AIG on behalf of Synopsys will pay out $20 million to Cadence on or before Nov. 22, with the remainder-$245 million-due on or before Dec. 16. AIG will then pocket the $70 million balance of the premium. "The total is actually quite large," said Bingham.
Beyond seeing that justice was served, Bingham said that putting the suit behind them will benefit both Cadence and Synopsys, the EDA industry at large and, ultimately, their chip-making customers.
"The fact that we keep reminding people that intellectual property was seriously compromised by this theft doesn't help the image of the industry," said Bingham. The settlement "will allow us to focus on the productivity and invention we bring to customers, to help them solve big problems."
Aart de Geus, chairman and CEO at Synopsys (Mountain View, Calif.), agreed. "It removes the clouds, opens up a new age and closes a chapter of the EDA industry that is best closed," he said.
Cadence said it plans to put at least some of the money it gained from the settlement into its R&D efforts.
News of the end game brought sighs of relief from Synopsys and Avanti customers, some of whom were worried about the impact of a possible billion-dollar charge against Synopsys if Cadence had won all it was seeking in the civil action. "It's a good sign for us. It's the ending chapter of this saga," said Mike Fazeli, director of worldwide EDA strategy for Texas Instruments Inc. "We were concerned about the impact if the damages were going to be beyond what Synopsys, through its own funding and insurance, could come up with."
Gary Smith, chief EDA analyst with research firm Dataquest, said he hopes the end of the lawsuit means that Synopsys and Cadence will now work more closely together on tool interoperability, especially on the OpenAccess project and Milkyway database. As a freestanding company, "Avanti didn't want to share anything with anyone," Smith said. "So now that Synopsys has Avanti's technology, there's a good chance they'll work with the rest of the industry."
Other analysts expressed the hope that EDA vendors can now focus on beating each other in the market instead of beating each other in court.
"EDA has clearly been highly litigious," said Jay Vleeschhouwer, financial analyst with Merrill Lynch. "I think it is good that what has been a material amount of money spent on litigation can now go into research and development, stock buybacks. The amount of money spent on litigation in this industry has not been a trivial percent."
"Competition is great for this industry," said Toomajanian of RBC Capital Markets. "When Ambit jumped into the logic synthesis business a few years ago and challenged Synopsys' synthesis leadership position, the companies started cranking out better technology and Synopsys eventually created physical synthesis. I think we'll see greater competition in technology now that the suit is over."
Analysts pointed out that customers always had reservations about Avanti because of the legal charges hanging over its head, and some refused to license Avanti tools. Most of that customer caution was swept away when Synopsys bought Avanti in December of 2001. This final settlement, said analysts, means there is nothing holding customers back from buying Avanti/Synopsys tools.
The merger of Synopsys and Avanti also poses a viable threat to Cadence's No. 1 position in the EDA industry. Synopsys by itself already owned market share leadership in logic synthesis and static-timing analysis. With Avanti added into the equation, the company also gained a strong position in placement and routing products-perhaps even the advantage, some believe.
At the same time, however, Cadence has been shoring up any missing links in its own tool offerings. Seemingly using the award money from the Avanti criminal litigation, Cadence purchased the popular Silicon Perspectives floor-planning and placement technology and went on to buy next-generation routing technology when it acquired Plato Design.
But the two big companies now have to stitch together point tools to create all-in-one flows that take design from the register-transfer level all the way to GDSII output. Newcomers like Magma and Monterey have built such flows from scratch. But analysts pointed out last week that there is no guarantee successful point tools can be melded into successful all-in-one flows.
The job is made tougher by some of the problems cropping up as chip makers begin to cope with deep-submicron design. New issues such as inductance and IR drop are expected to get worse at 90-nanometer process geometries and downright horrific at the 70-nm node. Elsewhere in the flow, EDA vendors have yet to sufficiently address a slew of other sticking points, such as verification and system-level design.