Synopsys Sitting Pretty in Takeover Bid

The reason for Cadence's revenue decline is the age of its tools, said industry analyst Gary Smith. The developer is "behind on getting to the 65/45-nanometer nodes," while other developers are already preparing for 32/22-nanometer chips. Nanometers refer to the size of the smallest features on a chip, as the technology shrinks with each successive generation.

"The question that never gets asked by Wall Street" is why Cadence's original products are no longer state of the art, Smith wrote recently in a harsh evaluation of the proposed merger.

A buyout will reward Synopsys, as some of Mentor's clients will jump ship rather than stick with the new owner, Smith said in an interview. He observed a similar side effect when Synopsys bought Avant! in 2002.

Cadence executives acknowledged on a conference call June 17 that Mentor's revenue will drop due to "leakage" to competitors. "The cost synergies will be partially offset by potential bookings losses that result, for example, from customer pricing pressure and competition," CEO Michael Fister said then.

Tools developers have lost as much as 70% of business after acquisitions, Smith said. He projects 50% of Mentor's clients will leave because of past dissatisfaction with Cadence's support for tool research. Mentor and Synopsys are clients of Gary Smith EDA.