Warren Savage On: Foxes in the Hen House

Warren Savage

Wednesday 27 May 2009 11:00

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.

- Charles Dickens, from A Tale of Two Cities

As Dickens famously points out, one's viewpoint is invariably influenced by one's vantage point. While there is a lot of pain in the industry at the moment, there are also those licking their chops at the opportunities the market is presenting.

In these times, it's important to be talking to customers and what I am hearing is a consensus that the semiconductor industry hit bottom sometime in Q1 2009 and that we are entering some kind of recovery. One sign of a bottom is the emergence of smart bargain hunters. We saw a few of these in the last weeks with acquisitions of IP companies by both Synopsys (MIPS/Chipidea) and Mentor Graphics (LogicVision).

The "hen house" is particularly unguarded at the moment, with a perfect storm of events creating perhaps once-in-a-generation buying opportunities.

As is well-chronicled, the start of the current worldwide recession started in the US housing market and quickly spiraled into the banking sector to undermine credit and consumer confidence and created a domino-effect from consumers to electronics to semiconductors to EDA to IP.

Further compounding this miserable state of affairs is the effect it has had on the venture capital community who are squeezed on two fronts. On the one hand, their sources for investment are significantly damaged by the collapse of the financial markets, and with semiconductors also in recession there are few attractive exit scenarios in the foreseeable future.

Warren Savage - Investment Activities

The result of this crisis is that weaker companies with good technology find themselves vulnerable to takeover by the stronger companies because their traditional guardians - high market caps for public companies or VC's holding out for high valuations for private companies, are less able to protect them from the clever foxes.

This brings us back to Synopsys and Mentor Graphics taking advantage of market bottom conditions by picking up IP companies outside their mainstay EDA business at bargain prices. Both Synopsys and Mentor Graphics are no stranger to the IP business, co-authoring the seminal book on design reuse more than 10 years ago. Synopsys has been the clear star in the club by gradually building its business and technical capabilities over that time to achieve a position in IP second only to ARM. Mentor's IP business in contrast had waned over time to the point it was shuttered in February 2008. Nonetheless, Mentor had a presence in IP over this critical time in EDA when design starts were dropping and design complexity was increasing and surely they were able to parlay that design experience into something valuable to an EDA company.

Meanwhile, Cadence never really got serious about IP outside Joe Costello's bold steps with its design services forays which disappeared into history as part of the failed Tality spinout. And Magma was simply too focused on its small core business to expand outside that niche.

If we look at the stock performance of these four companies over the last four years, it's a bit telling that the ones with IP-related strategies have fared much better than those without. Despite the current situation with financial markets, Synopsys actually gained ground (+5%), Mentor is down (-40%), and Cadence (-60%) and Lava (-80%) are bringing up the rear.

Synopsys is well-positioned with the acquisition of the analogue division of MIPS (nee Chipidea) to be the power player in the mixed-signal IP market. It gains an additional group of customers and takes a competitor off the market in one fell swoop. Mentor Graphic's pickup of LogicVision appears an equally savvy move to pick up some technology that uniquely complements its DFT EDA business and puts a toe back in the IP water.

One wonders what kind of interesting new business models may come out of EDA with a quiver of IP in its arsenal. Foxes are clever creatures and are sure to take advantage when the hens are unguarded. More to come I'm sure.

Warren Savage, President and CEO of IPextreme, is a well-known and published authority in the field of semiconductor intellectual property.

He has a long history of pushing the envelope of design methodology from his work in fault tolerant computing at Tandem Computers in the 1980's and driving reliable design methodologies into commercial practice at Synopsys for its DesignWare IP product in the 1990s. Much of his thinking became embodied in the seminal book on IP reuse, the Reuse Methodology Manual. Catch him on Twitter at warren_savage and ipextreme

Previous columns

(Nov 07) Warren Savage On: Making the Case for Invented Here

(Dec 07) Warren Savage On: Swiss Cheese Solutions

(Jan 08) Warren Savage On: Collaboration Needed for Success

(Feb 08) Warren Savage On: Knowing Your No

(Mar 08) Warren Savage On: The Next Big Thing

(Apr 08) Warren Savage On: Gumming Up the Works?

(May 08) Warren Savage On: Waiting for Godot

(Jun 08) Warren Savage On: Our Virtual Future

(Jul 08) Warren Savage On: Being Plugged In

(Aug 08) Warren Savage On: The Dog Days of Summer

(Sep 08) Warren Savage On: Samurais, Sedans, and Semiconductors