( ESNUG 423 Item 5 ) -------------------------------------------- [02/26/04]
Subject: Wall Street, Business Analysts, Stockholder Types Of Questions
After many more acquisitions over the last couple of months I'm curious
whether they see an EDA world fully dominated by the big two to four
with just a little bit of room to grow a niche company to be acquired once
it is valuable enough or whether they think it will become an EDA world
where small and medium sized companies will have more influence in
the future.
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How many times a day do you check your company's stock price?
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Are you your own worst enemies?
Pro Forma financials (Magma)
Pro Forma press releases (Magma)
Overzealous litigation (Synopsys, Cadence)
Monopolistic behavior (Synopsys)
Cut throat sales tactics (Magma, Synopsys, Cadence)
Or you can just get right to the point and ask boxers or briefs?
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One of the main things I'm concerned about these day is the present state
of the economy and how it is going to look in the future. I'm sure these guys
are also concerned (!). I for one would be very interested what any of
them might have to say...
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-CDN: Appears you've lost a lot of P&R market share to Magma and even
Synopsys and yet you're now talking about 2004 being a good year for
digital design tools. What are your plans to take back the market?
-CDN, LAVA, MENT: Everyone is talking about EDA spending this year being
more back end loaded. Why such a lag in spending given that we are
seeing semi R&D budgets expanding?
-MENT,SYNP: View on cannibalization of ASIC market by FPGA?
-CDN, LAVA: Rajeev mentioned on his earnings call that he has yet to see
the Encounter "platform" in the market place and that he has only seen
point tools competing in benchmarks? When will we see an integrated
platform where the tools are native to the Open Access database?
-All - Does anything to need to change technologically in order to
accommodate the increased globalization of design teams? Does
globalization have a positive or negative impact on the EDA industry?
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There is a lot of talk in the financial community about EDA companies
falling back into the mode of granting perpetual licenses for their
software in order to make their quarterly numbers. Apparently the
move to term licenses in the past couple of years has put the major
public EDA companies in a bind where they cannot hit their earnings
targets consistently.
Is it just a matter of time before the EDA industry faces another
quarterly earnings crisis that will cause PE ratios to slump for
the foreseeable future?
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For these CEOs, I'm sure people would be interested to know their total
compensation, including options, transportion, and other perks that for
anyone else would involve personal expenses.
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Ask each CEO in turn:
Do you believe that you deserve your salary?
Identify some major accomplishments you have personally made to
support your answer.
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Here are a list of products that make more money in the US than than the EDA
industry makes worldwide:
- Cars (toy cars that is)
- Dog food.
- Barbie dolls.
Why is this?
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Is there room for only 2 wall-to-wall EDA companies (Cadence & Synopsys)?
Magma, Synplicity and Forte don't do verification. Is that in their plan?
Analysts think the big growth area is verification.
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On the business side, I'm wondering whether ASIC design starts and EDA
revenue are flattening or declining, and what the EDA vendors think the
consequences will be, given the nanometer-scale design tools need to be very
complex (and expensive to develop).
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What is the likely impact on your future business of the massive
reduction in the number of ASIC designs, and the fact that many
functions that have been implemented in ASICs and ASSPs are today being
implemented in FPGAs?
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Going forward if FPGA design methodology becomes dominant, then what is
the strategy for the EDA companies that mainly relay upon ASIC
customers.
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If the big EDA firms spend so much on R&D and have all their hundreds of
engineers, why do all the clever innovations seem to come from start-ups,
that then end up being acquired by the big players for outrageous sums of
money?
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How are the various companies accounting for stock options these days?
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I think that there are two key strategic issues/challenges that are
challenging the EDA industry. The executives either remain in denial or
don't want to fess up to them. The two challenges:
1) Why has the "duopoly" of Cadence and Synopsys not helped pricing
power for the EDA vendors? Discounting and all-you-can-eat licensing
appears to be even more pervasive than before. Is it because there is
little differentiation in the technologies offered by the vendors?
2) Dataquest's analysis shows that there were 3,700 ASIC design starts
in '03 compared with more than 12,000 ASIC design starts in '96. Even
with higher complexity SoCs dominating these markedly fewer design
starts, why wouldn't spending on EDA be impacted by this accelerated
trend towards FPGAs?
On a more humorous, or tongue-in-cheek, note: why is Synopsys paying
such an egregious premium for Monolithic Systems (20 times forward
sales!)?
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Ask the CEOs about corporate governance issues. Shareholder's rights. The
moving of jobs off shore.
http://www.proshare.org/pi/6-rights.asp
http://www.fool.com/Rogue/1997/Rogue970425.htm
http://home.law.uiuc.edu/lrev/publications/2000s/2000/2000_3/ware.html
http://www.f-secure.com/investor-relations/option-programs/fs-1998.pdf
http://www.pakistaneconomist.com/database1/CapitalMarket/cmarket9.htm
http://www.tiaa-cref.org/pubs/html/governance_policy/shareholders_rights.html
http://www.iccwbo.org/CorpGov/shareholders.asp
http://www.corpgov.net/
http://www.corp-gov.org/news/arch.php3?news_id=1023
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Tremendous improvements in tool performance have come about in the past
year, increasing user productivity. But ground-up designs (starting from
a baseline architecture but no RTL for, say, a 10 M gate chip) still take
about 2 yrs to get to samples; let alone volume production.
If you couple that with a near-flat rate of design starts, you could get
a situation of near-flat revenue $$ coming EDA's way. What is the outlook
on the TAM for EDA? What does the panel think is the next 'killer-app'
for EDA that will drive revenue growth?
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Is the third-party IP business model working or is it time for EDA vendors
to step in and take over (example Synopsys/Mosys)?
Do they think the Structured ASIC/Platform ASIC market is real and are they
developing tools for them?
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