The board tapped CFO Ray Bingham to replace Harding, betting Bingham's solid number-crunching skills would calm Wall Street fears and get the train back on track. "While Cadence has been very successful in many ways, from a broader corporate perspective we have some things to work on," Bingham said the day he was promoted.

He could say the same today.

Four years later, Cadence has lost its No. 1 market share position to rival Synopsys Inc., which was once a third of Cadence's size in revenue. Its stock price is the same as it was at this time last year, while the share prices of Synopsys and Mentor Graphics Corp. have grown 50 percent and 150 percent, respectively, over the same period. Cadence is still believed to be six to 12 months away from completing a seamless IC tool flow to compete head-on with that of Synopsys. And recent acquisitions, which have led to layoffs and brought in management that has shifted the corporate culture, have depressed morale at the San Jose company.

Meanwhile, Joe Costello, the charismatic CEO who left Cadence in 1997, continues to cast a shadow. Costello says he has been approached about taking back the reins but insists he has no plans to do so.

"Cadence employees are pretty miserable these days, especially those who have been with the company for a long time," said one Cadence employee, under condition of anonymity.

Cadence's management counsels patience, arguing that it wants to get the tool flow working properly before it launches a renewed assault on Synopsys and up-and-coming competitor Magma Design Automation Inc. Chairman Don Lucas defends the Cadence board's decisions and the management strategy, saying that Bingham has been "incredibly effective" as CEO.

But the current state of Cadence's tool integration has analysts concerned about the company's near-term success.

The strategy is to integrate Get2Chip RTL Compiler synthesis and Simplex extraction and power technology into the Encounter platform, Cadence executives said in a series of interviews with EE Times. Much of the work has been under way for some time.

Cadence made the acquisitions to counter Synopsys' 2001 purchase of Avanti. They were initiated by longtime Cadence executive Jim Hogan, who is now at Artisan Components Inc., and later-at the urging of Lev-by executive vice president and general manager Penny Herscher, senior vice president; ICD group general manager Ping Chao, and luminary technologist Chi-Ping Hsu. Chao said the company has already successfully integrated Cadmos, SPC and Plato to create the Encounter implementation tool flow. Until Cadence can bring Get2Chip and Simplex tools into Encounter, the company continues to field its Ambit technology for logic synthesis and legacy extraction and analysis tools in Encounter.

The company is taking its time on the Get2Chip integration to "get it right," Lev said. For example, at his own request, Hsu-the technology brains behind Avanti and later the president of Get2Chip-has passed up opportunities to climb the executive ladder, instead focusing on ensuring that the Get2Chip technology works as envisioned in the Encounter flow. The hope is that Get2Chip synthesis will prove so good, it will unseat Synopsys in key accounts.

But Cadence has tried to break Synopsys' stranglehold on logic synthesis twice before-first developing its own synthesis tool, Synergy, and then buying Ambit Design Systems Inc. in September 1998-and has twice failed. The engineers who had created Ambit's Build Gates, which appeared to be a serious threat to Synospys' Design Compiler, left Cadence shortly after the acquisition.

Cadence has been built on the strength of some 50 acquisitions. But it has earned poor marks for how it has handled some attempts to incorporate technology from the acquired companies. "There's been an increasing feeling that the acquisitions are turning out to be less than the sum of their parts," said Bill Frerichs, a financial analyst at DA Davidson & Co.

Then there are the layoffs. While any merger inevitably brings terminations because of job overlap and work force redundancies, that acknowledgement does little to bolster the morale of those who remain.

After a few quiet rounds of layoffs over the past two years-with the most recent, affecting 500-plus employees, coming last month-Cadence employees are more concerned with job security and interoffice politics than with how to catch up to Synopsys in technology and sales execution, said an employee who asked not to be identified.

The company has 134 vice presidents worldwide out of 5,000 employees. But what stings many employees is how many managers from tiny Simplex Solutions, a company acquired in June 2002, have taken over top Cadence management slots.

"We call this 'Penny's reign of terror,' " said the Cadence employee, referring to Penny Herscher, executive vice president and general manager of the design and functional verification division. "We've already lost a lot of good management and good employees and just had a big round of layoffs. Now we are hearing there is going to be another shuffling around of positions."

Herscher and Bingham asserted that less than a handful of Simplex managers have been given high-profile management positions at Cadence. Along with Herscher, they include Aki Fujimura, Cadence's co-chief technologist, and Jim Bailey, vice president and general manager of the verification group.

Bingham acknowledged that the downturn, layoffs and restructuring have had an effect on employee morale but stopped short of qualifying it. The restructuring, while rough, had to be done to make Cadence more competitive in the future, Bingham and Herscher said. Cadence is removing unnecessary layers of bureaucracy from its ranks, but "further layoffs are not planned," Herscher said.

Hovering on the sidelines, as he has been since the minute he left the company six years ago, is Costello, who told EE Times he was approached earlier this year about a leveraged buyout of the company. "I told them if it meant returning to Cadence and going to jail, I'd have to consider how long the jail sentence would be," he said.

"I'm surprised Synopsys didn't jump into the No. 1 spot sooner," Costello added. "That said, I know the president and CEO job at Cadence is extremely tough. I think it requires a person who knows how to sell technology to technologists, backed up by good technology strategists and a strong, motivated and excited team. I'm just not seeing that at Cadence right now."

Costello noted that Synopsys and Mentor are both led by technologists: respectively, chairman CEO Aart de Geus and chairman and CEO Wally Rhines. Bingham, before joining Cadence, was CFO of the Red Lion hotel chain.

But Costello stopped short of blaming Cadence's board or chairman for the company's problems. "If I returned to Cadence-and I'm not going to-I'd still want [chairman Don] Lucas on the board," he said. "He's like my business father."

Lucas, Bingham and Cadence director Alberto Sangiovanni-Vincentelli, a professor at the University of California, Berkeley, all separately told EE Times that the board is happy with Cadence's current management. They attributed Synopsys' lead to two factors: The company has upped its use of subscription licensing and has lengthened the terms of those licenses from three to four (and in some cases five) years, and over the past two quarters it has been in the midst of a renewal cycle for its Avanti tools.

(Next week in part two: Critics don't, but Cadence customers get it.)

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