Maneuvers at Mentor Graphics

Electronic News, Sept 22, 1997 by Chad Fasca, Dylan McGrath

Campbell, Calif.--As rumors swirled last week at the PCB Design Conference East in Boston about the possible break-up and sale of Mentor Graphics, a Mentor subsidiary, Precedence, Inc., announced a restructuring plan last week that will reduce Mentor to a minority shareholder by seeking diversified outside investment from venture capitalists.

Precedence management officials believe the electronic design automation (EDA) company could be more successful as an independent company. Too often, they say, the company's relationship with Mentor prevents Precedence from landing agreements with potential customers and business partners. As an independent company, Precedence plans to use its SimMatrix simulation backplane and SimPrism multi-source partitioning technologies in conjunction with direct sales and established network of OEM and technology partners to provide a neutral system design environment.

"Our customers have been faced with the difficulty of needing Precedence technology despite being Mentor Graphics competitors," said Precedence president and CEO Peter Odryna. "Mentor realizes the best way for it to maximize its investment in our company is to become a minority shareholder." From Mentor's perspective, the value of being the exclusive owner of Precedence was limited. The company felt it best to reduce its role. "Precedence's real potential can be gained from reducing the barriers that Mentor's ownership creates," said Dan Guiou, simulation division manager at Mentor. '

"I'm not surprised," said Jennifer Smith, EDA analyst Mentor Graphics Subsidiary In Power Play continued from page 1 at Robertson, Stephens & Co., an investment banking firm in San Francisco. "Precedence has been very successful, but I don't see it as strategic for any one EDA company to own it."

Mentor acquired Precedence nearly two years ago (EN, Oct. 23, 1995). At the time, Mentor transferred to Precedence all of its internal FlexSim backplane technology, which created a center of simulation integration expertise. According to Ms. Smith, while the market for that expertise exists, it is not beneficial for one EDA company to control it.

Meanwhile, at the PCB Design Conference East in Boston last week, rumors centering on Mentor Graphics began to swirl, with several scenarios thought to be in the works. The international scenario rested on Zuken-Redac buying the printed circuit board (PCB) design software products of Mentor Graphics. Another scenario suggested that Synopsys had looked into swallowing Mentor whole, but rethought its position based on Mentor's cash position at the time. By this theory, rather than devour Mentor entirely, Synopsys is supposedly planning to split Mentor with Cadence Design Systems. Synopsys would take the front-end business, while Cadence would buy the back end.

Rhines Closing Deal

Further rumors focused on Mentor Graphics president and CEO Walden C. (Wally) Rhines. Several sources indicated that Dr. Rhines may have taken a six-week sabbatical in Japan this summer. Mentor's response to this was that Dr. Rhines was being used to personally close business deals, according to one source. A call placed to Dr. Rhines' office did not yield any new information. His secretary said that Dr. Rhines had returned to the U.S. several months ago, but was out of the office. A spokesperson for Mentor Graphics later said that Dr. Rhines was in France on business.

With Zuken-Redac, it was suggested that Dr. Rhines would be tapped to head the acquired Mentor PCB business. Zuken-Redac's response was that the rumors are "completely false," said a company spokesperson, who added that no discussions have taken place and no decision had been made. Several analysts questioned whether the hypothetical deal would have any benefit for Zuken-Redac, given that they considered Mentor's PCB business as a non-growing unit. Some openly questioned the business sense to the Zuken-Redac/Mentor Graphics scenario, wondering how closely the two companies' product portfolios could fit. One industry analyst didn't see it. The analyst noted that Mentor is pulling out of what they can, but seems quite focused on IC layout, hardware/software codesign and because of this would probably not want to part with engineers in its PCB unit.

Unavailable For Comment

As for the rumors about Synopsys and Cadence splitting Mentor up, neither Synopsys nor Cadence could be reached for comment. One analyst believed the rumors involving Synopsys have been floating around since Mentor made a number of announcements involving its Inventra intellectual property business unit at the Design Automation Conference (DAC) this June. Conclusions that led to this round of innuendo-swapping could have been drawn from that, the analyst thought. The benefits of this scenario also appeared suspect from the analysts' point of view. While Synopsys picking up the front end seemed the most plausible, the idea of Cadence picking up the back end, given the effort the company has put into its Vampire product, seemed less logical or likely unless a huge performance difference existed between Mentor's Calibre and Excalibre products and Cadence's Vampire, according to one analyst.