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Analysis: Cadence to face 'layoffs' after Fister's farewell

Posted: 17 Oct 2008 ?? ?Print Version ?Bookmark and Share

Keywords:layoffs? resignation? EDA?

The resignation of Mike Fister, president and CEO, Cadence Design Systems Inc., along with the four other top officials, signals the start of a major change at a time when the company faces multiple challenges and is rumored to announce a huge layoff.

"Cadence is in trouble," said Gary Smith, founder and chief analyst, Gary Smith EDA. "I think they have really run out of time for a 'save-Cadence-as-it-is project'. Now it's a rebuilding project."

Fister's tenure may be noted as ambitious and, perhaps, overreaching. His term was characterized by two bold bids that later failed: one to sell Cadence to private equity companies in 2007 and another to buy third-ranked EDA vendor Mentor Graphics Corp. earlier this year.

In July, Cadence slashed off its fiscal year revenue guidance by 25 percent and said it expects to report a Q3 loss of 25 to 27 cents per share. Speculations are circulating that Cadence may cut as much as 25 percent of its workforce.

The departure of Fister is not surprising to the rest of the EDA industry. He was reportedly for months to have been interviewing for other positions, including the top job at Freescale Semiconductor, which eventually went to Richard Beyer, former CEO of Intersil Corp.

"The news was that after Mentor's bid broke off and the company did a substantial guidance reset, his backing from the board was not entirely clear, nor frankly his interest in on what would obviously be a very lengthy turnaround process," said Rich Valera, an analyst, at Needham & Co.

What is more surprising, according to Valera, is that the shakeup includes all of Fister's top executive VPs like Kevin Bushby, James Miller, William Porter and R.L. Smith.

"I've never seen anything like this," Valera said. "I've never seen a company essentially clear the decks like this, certainly not an EDA company," he stressed.

Smith said the executives, with the exception of Miller, had to go. "That was sort of the group that really was responsible," he added.

Clearing the ranks
Valera said the next event anticipated by Wall Street is how much of the workforce will be laid off as part of Cadence's aggressive restructuring. He added he initially thought Cadence would cut 10 to 15 percent of its workers, but noted that there have been consistent yet unconfirmed reports of about 20 to 25 percent of job cuts. Valera said this is rare for a large EDA company to produce cuts of that magnitude.

He added he is expecting the company to release exact numbers during its earnings call scheduled for Oct. 22. "They've basically promised that to The Street," he noted. Valera said he expects the cuts to include the entire company, noting that Cadence has been clear that they will include deep cuts in R&D.

Taking things slowly
Smith wondered if the management shakeup would delay the layoff process. "Cadence may hold off on making deep cuts until a new management team is in place," he said. Cadence has announced an Interim Office of the Chief Executive to oversee the day-to-day activities of the company's operations.

Smith suggested that Cadence might be able to postpone a layoff because the resignations remove some hefty salaries from the company's books. According to a proxy statement filed with the U.S. Securities and Exchange Commission in March, Fister's total compensation was more than $13.5 million in 2007. The total compensation of the five executives who resigned was more than $26 million, based on the filing.

"The San Jose firm also will likely update its outlook on Oct. 22," Valera said, noting that the macroeconomic outlook has probably deteriorated since Cadence provided guidance on its Q2 results.

The end of glory days
Smith said Cadence's days of being the dominant EDA vendor are over, at least for now. "They have to decide what they want the company to achieve in five years," he added. "They have to decide that Cadence is going to be a smaller company until they can get a new strategy in place," he noted.

Smith described Fister's tenure at Cadence, which began in 2004, as "misguided." Before Fister's appointment, Cadence was benefiting from a building and acquisition program under former CEO Ray Bingham that was strengthening the company, according to Smith. "But that program got sidetracked under Fister, and the company lost a visionary when Fister pushed long-time Cadence executive Jim Hogan out the door," Smith said.

"They have to find a new leader and a new vision guy," he added. "Those two are almost never the same guy," he noted.

Still surviving
Smith said Cadence is in good shape in the verification market and has started to come out with some good new tools, albeit late, thanks to an R&D program put in place by Miller. "The quality of the new tools looks good," Smith said, singling out a new ESL synthesizer and some new power tools.

He added that he didn't know if Cadence could save its IC CAD group.

He noted that customers are moving to ESL design and Cadence must follow those customers.

A spokesperson for Cadence said the executives that make up the Interim Office of the Chief Executive are interim executive chairman John Shoven, interim vice chairman Lip-Bu Tan and senior VP and chief financial officer Kevin Palatnik, who are not granting interviews at this time. The spokesman said the company would not comment on rumors about layoffs.

- Dylan McGrath
EE Times

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