A New Deal at Cadence: Harding exit follows poor outlook

Electronic News, May 3, 1999 by Ann Steffora

San Jose, Calif.-The departure of Jack Harding as president and chief executive from Cadence Design Systems Inc. last week confirmed entrenched problems which had recently bubbled to the surface in the form of a grim forecast for the rest of this year.

Few in the EDA industry were surprised by the shakeup, which eerily resembled the purge at Compaq Computer a few weeks earlier: announcement of a poor outlook followed closely by the dismissal of the CEO. Cadence's share price had plunged as financial analysts downgraded the company's stock. Those same analysts seemed relieved by the appointment of Ray Bingham as CEO. He had served as chief financial officer at Cadence for the past six years, and some felt he should have been given the job when Joe Costello left as CEO in late 1997.

"The biggest problem," observed Jennifer Smith, vice president and financial analyst at BancBoston Robertson Stephens, "was that during the downturn in the semiconductor market last year, all of the EDA companies reset their numbers, except Cadence. That confused investors and Wall Street. Credibility had a big impact," Smith said.

Harding's performance during Cadence's last conference call also didn't inspire confidence in the financial community. "He was completely off the cuff," said Smith.

"It became increasingly clear that from a leadership standpoint and from a Wall Street perspective that Jack had to go," said Erach Desai, financial analyst at Credit Suisse First Boston Corp.

One competitor thinks more bad news could soon follow. "They were saying zero percent growth this year, but that was before they changed CEOs," said Aart de Geus, CEO of Synopsys. "I bet you the new guy will lower expectations. Customers vote with their feet pretty quickly."

Accompanying Bingham's ascent to Cadence's chief executive role last week was his appointment of Shane Robison as president of the Design Productivity Group, and John Olsen to president of the Design Realization Group and Corporate Development. Both Robison and Olsen have been with Cadence for a number of years now, and Bingham believes this team can lead Cadence to a better focus on the company's strategic direction.

"The three of us have worked together and have been successful and that extends to the team around us. There is a lot of positive energy around this working combination," Bingham explained. "We realized recently that our focus and frenzy for the services business, and building that new business was drop-dead different in market, and that had taken the focus away from Cadence's technology business. While we can't focus on technology exclusively, it's still part of the picture," he said.

"We are changing that with the new organizational structure and addressing more resources and attention to marketing and telling the technology story," Bingham asserted.

Bingham is receiving praise from industry analysts and competitors alike. "Ray is an excellent operations executive, not just a CFO, and I have high confidence on his executive team," Desai of Credit Suisse said.

"Ray will be a terrific CEO," said Walden Rhines, president and chief executive of Mentor Graphics Corp. "I have worked with him for a long time and he is capable, insightful, and likeable. I believe he will focus Cadence on its core business," Rhines continued.

In addition, Rhines believes Bingham will be a more active participant in the Electronic Design Automation Consortium, since Harding was the only top CEO that was not on the EDAC board," he said.

Cadence needs to sit down and decide what the core business is, said Smith of Robertson Stephens. "Cadence needs a soul-searching for its core competency, whether it is technology, consulting for electronically-capable, or consulting for the electronically- challenged," she said.

Synopsys' de Geus doubts Cadence will change its business strategy. "Ray (Bingham) was one of the key proponents of the service model in the first place. It's an integral part of who they are.

"I think they'll have a hard time getting back on track because they sort of almost missed a generation of technology," de Geus added.

Robert Ristelhueber contributed to this story.