Wednesday, October 22, 2008

Software is different from Hardware

To someone who spent 20 years in semiconductor and EDA, the recent meltdown of Cadence and removal of the executive team is a sad story. It's the end of a long story of great products, explosive growth, customers as partners, smart acquisitions and market leadership that was slowly eroded as the business model got ahead of the fundamental growth of the business.

Gabe Moretti, a veteran journalist who covers the EDA industry wrote a thoughtful opinion piece on what happened in the last 4 years in EETimes Asia, and he raises interesting points about the strategy mistakes which he believes were made. But there is one he missed (which I have posted on before here about revenue recognition and here about the impact on investors again) and that is the issue of business model - or revenue and cash model. Not only is Cadence not Intel - which is Gabe's premise - but EDA is software and not hardware. Software business models and revenue treatments are complex areas and you can get very different top line results based on the nuances of how contracts are written.

So the short term question for the key stakeholders: employees, customers and investors is whether the underlying business, if you stripped away the continuous changes in business model, is still healthy or whether the Cadence products and technologies have fallen behind the competition? That will make all the difference in the long term to the role the company plays in the world of chip and system design.

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