It turns out, that Cadence (CDNS) has seen a strong stock appreciation over the last two years after its CEO change in 2004 (Mike Fister replaced Ray Bingham, Fister being a veteran semiconductor industry guy, whereas Bingham was visibly uncomfortable with the highly technical nature of this business). However, will this sustain?
The overall EDA market grows very slowly, so much of the existing vendors’ growth comes in the expense of one another. In this round, the company that has taken a beating is Magma (LAVA), with a patent dispute against Synopsys (SNPS) that has not gone in their favor. Magma, at this point, is probably an acquisition target. For a few years, they were a challenger to the big 3, including Mentor Graphics, which I have previously said needs to be purchased by an LBO firm and broken up.
I am curious whether Cadence’s account wins have been coming at the expense of Magma, in which case, Magma’s next few years will be very traumatic.
Finally, the analysts (very few are left who cover EDA) are concerned about special charges due to acquisitions that EDA vendors tend to take, since they largely outsource R&D, and acquire successful innovators. This trend has slowed down tremendously under Fister’s stewardship at Cadence, after a frenzied decade under Costello and Bingham.
If, however, Magma gets purchased by Synopsys, it will again rearrange the dynamics of the industry to a further consolidated picture, allowing Cadence and Synopsys to sustain their growth.
May well be inevitable at this point.