EDA companies prepare for layoffs

Magma Design Automation has said it plans to lay off some of its staff amid a downturn in the market for design tools. And Cadence Design Systems is likely to follow when it announces its quarterly results in mid-October.

Magma’s move follows an analysis of the company’s business in May, which resulted in the cancellation of some of its design-for-test projects. In a statement, the company said the layoffs and restructuring will “better align its resources with business opportunities and improve operating efficiencies”. The layoffs will cost up to $3.5m: the company did not indicate what savings it would make although Magma president and chief operating officer Roy Jewell claimed the moves would “restore profitability on a non-GAAP basis by our fiscal year end”. Magma is currently in its second fiscal quarter, having shifted its financial reporting periods back by a month at the start of the calendar year.

At a September conference organised by Deutsche Bank Securities, Cadence chief financial officer Kevin Palatnik indicated that the company would make layoffs this year in a bid to improve operating margins. “I believe we can get back to 25 per cent [operating] margins. In the near term, we are very focused on expense management. So, we are looking at resizing the company. Our goal is, in the Q3 earnings call, to be public about our expense management actions. We will resize the company to the lower [sales] base plus the lower growth that we see in the next three to four years.”

Palatnik said attempts to improve pricing for EDA tools, in a market where tool complexity is increasing but the user base is not, did not pay off: “[CEO] Mike Fister came into the company in 2004 and one of his early initiatives was to stratify pricing by product capability, so we had good, better and best pricing...We stratified that [pricing] based on feature and function. Frankly, it has been moderately successful at best. Our larger customers buy large amounts of software. We have very little pricing power or they have more leverage with pricing. We see some benefits [from stratification] at the high end in some sub-segments of our business but, overall, business has been relatively flat.”

Asked whether consolidation in EDA remains likely, even after the withdrawal of Cadence’s offer for Mentor Graphics, Palatnik agreed: “I think the industry needs it. If you look at the markets we serve, that market is consolidating. The number of mouths they can feed is diminishing.”

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