Cadence announced today that it’s buying Denali Software for $315 million in cash. This is a pretty bold move for a company that was close to circling the drain not too long ago and raises the question, “What was that about?” Not to mention, “Can they afford it?”
With $619 million in cash and equivalents at the end of Q1 and $401 million in current liabilities, Cadence can afford to make a cash offer, which is both prudent (the markets wouldn’t look kindly to their taking on more debt) and smart (don’t let this fish get away). Strategically it looks like a good move for Cadence and financially it’s certainly a win for Denali.
IP acquisitions are all the rage of late, with both semiconductor and EDA firms attempting to diversify out of mature (read: stagnant or shrinking) markets. Being made up mostly of bit players, the EDA industry is bound to consolidate more than it already has—that is if the larger semiconductor IP (SIP) vendors don’t get there first.
On the SIP side Virage Logic got tired of selling just SRAM instances and bought their way into standard cell logic, DDR memory controllers, PHYs and DLLS (Ingot); NVM IP (Impinj); processors (ARC); and CMOS libraries, IP blocks and SoC infrastructure(NXP). Virage is out to become a one-stop IP shop for SoC designers, and they’re well on their way. Only Synopsys has a comparably broad IP lineup. ARM and MIPS have large IP ‘ecosystems’, which effectively passes IP costs and profits along to their partners, with whom they try not to compete.
MIPS Technologies tried to diversify into analog IP with their acquisition of Chipidea, which in retrospect might not have been such a bright idea. Not all acquisitions, while seeming to make sense at the time, are a match made in heaven. Hopefully Sandeep will get them back on track [Full disclosure: I used to work for MIPS.]
On the EDA side Synopsys recently bought CoWare, thereby buying their way back into the ESL market that they pioneered before losing interest (as did Cadence). In addition to a pretty complete tool flow, Synopsys also has a broad IP portfolio that they guarantee works together and with all their tools. This is an attractive argument among SoC designers who cringe at the thought of cobbling together ‘black box’ IP and models from a dozen different sources.
Mentor Graphics, who have consistently pursued ESL, still holds the lead there. In the past 12 months alone Mentor has acquired embedded Linux and Android IP (Embedded Alley); BIST, ATPG and test pattern compression (LogicVision); automotive electrical and electronic systems IP (Freescale); and PCB design for manufacturing IP (Valor). While placing a large marker in the embedded space, Mentor’s acquisitions seem primarily aimed at strengthening their current tool offerings.
Hampered by its former financial problems, Cadence is playing catch-up in the acquisitions game. The Denali ‘merger’ makes a lot of sense, adding the industry’s leading memory models and IP to Cadence’s product offerings. With only $43 million in annual revenues but a 30% operating margin, Denali was a prime acquisition target. My only question is why no one bought them sooner.
My prediction: The Denali party at DAC this year will be wilder than ever, with Sanjay leading the conga line. Sanjay: Where’s my ticket, dude?!