23 February 2011

Can Carl Icahn change the eda world?

The electronics design automation – or EDA – world is complex, but for one reason and another, it's a world that changes little with time. The big three companies in the EDA industry – Mentor Graphics, Cadence and Synopsys – have been around for years, growing their empires through acquisitions and sniping at each other with predictable regularity. Change, when it does come to the chip design software world, is usually through the removal of competition or innovation; over the years, EDA companies have operated pretty ruthless acquisition strategies .

Now Mentor is back in the spotlight again; billionaire investor Carl Icahn has tabled a take over offer valuing it at more than $1.8billion. Three years ago, Mentor received a similarly unwelcome offer of $16 a share from Cadence. That offer fell through and the fall out saw the end of Cadence chief executive Mike Fister.
Icahn is focused on shareholder value; he wants the stock price to go up. By setting a hare running, he is hoping to invite other offers, forcing the price higher. But who might be interested in Mentor? Would another eda company want to make an offer? Would a private equity company feel itself up to the challenge? And if it did, what would be the consequences if Mentor had a couple of billion dollars of debt to service?
In the absence of another offer, Icahn's approach may well be accepted by Mentor's board and shareholders. If so, what might he then do? There are a number of choices. For example, he could break Mentor up and try to sell the constituent parts or he could install a new president and board and charge them with cutting costs, providing better returns for shareholders.
Despite booming sales of semiconductors, revenues in the eda world remain flat; mainly because these companies sell to a limited and captive audience. Squeezing more money from customers has been a perennial challenge, one generally solved by licensing and maintenance fees. What would make a difference to eda companies is for them to broaden their horizons beyond strict chip design. That's something which Cadence is trying to get underway with its EDA360 vision. Whether Icahn has a similar vision remains to be seen.
But what remains to be seen is whether Icahn's financial manoeuvring will bring any value for users of chip design software.

Graham Pitcher

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