Fister shifted the company away from industry-standard two- or three-year contracts to five-year agreements, enabling it to book more revenue up front, Smith says. The shift to longer contracts "insulated their actual earnings for three years. At the end of three years, the bubble popped," he says. In the electronic-design tools business, Cadence had been a leader. But in recent years, it has fought to hold onto market share against rivals Synopsys ( SNPS) and Mentor Graphics ( MENT), who have pioneered new methods of design as the size of features on chips has shrunk to 45 nanometers and below. "It's going to be a terrible year" for Cadence, Smith says." That's been apparent since late 2007. What we were wondering is what they were going to do about it." What Fister did was to launch a hostile takeover bid in June for Mentor. But Cadence backed off Aug. 15 after it could not arrange financing on beneficial terms. The Mentor bid came too late to save Cadence's faltering 2008 performance and "brought out all the dirty laundry," Smith says. Smith predicts the board will close down or sell off some product lines and make layoffs. He says that Cadence could itself become a takeover candidate -- not by a rival firm but by one from the allied mechanical design industry, dominated by Dassault Systemes ( DASTY) and Parametric Technology ( PMTC). Some things the outgoing management did were good for the company, Smith notes. "Miller put in a good R&D group," he says.