Has Cadence lost the beat?
The concept was simple. Cadence Design Systems
would establish itself as a major player in semiconductor design and construction. How? Get a bunch of cash together, develop some interesting semiconductor manufacturing ideas, and purchase the rest of the puzzle from others. At the end of the day: sheer domination of an incredibly fast-growing field--a sub-micron semiconductor manufacturing technology juggernaut.
Well, something has gone awry on the way to all that market share. In just one ugly October, Cadence has anted up many shares to purchase High Level Design (Share deal worth: about $94 million) and, earlier this week, Cooper & Chyan Technology
(Share deal worth: about $400 million).
Wall Street's response? One big NYET to the whole schmear. Since announcing its second deal of the month on Monday, Cadence shares have tumbled from 38 on Friday to 35 1/4. Even the target firm, Cooper & Chyang, is getting whacked, dropping from 31 + on Friday before the announcement to 28 1/4 on Tuesday.
Traders say institutions think that Cadence, hungry for market position, is overpaying to sate its voracious appetite. Take its purchase price for Cooper & Chyang--a whopping 16 times estimated 1996
. And with computer hardware stocks suffering this week in anticipation of a more sluggish-than-expected Christmas sales environment, few investors have shown much inclination to support Cadence's less-than-certain gobbling-growth strategy. Institutions--which held about 85% of Cadence's stock at the beginning of October--have yet to speak up for the firm's stock.
Cadence has not returned a call for comment, but the big backers' silence is a worrisome signal, since they have in the past been willing to defend Cadence. In late August, in the midst of another decline, Goldman Sachs and SoundView Financial both stepped in to re-recommend Cadence stock. But with the recent Cooper & Chyang announcement--and the subsequent price drop--neither firm has said a thing. Even Robertson Stephens, which trotted out growth fund analyst Emeric J. McDonald on Monday to toast Cadence (among other stocks), has said nary a word since the decline set in.
The silence is deafening.