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Archive for February 2nd, 2012

Malapropism: Like Apples and Oranges

Thursday, February 2nd, 2012

As Facebook’s IPO promises at last to move from carrot to stick, let’s take stock of several companies, also working out of Silicon Valley, that make the hardware possible that the leviathan FB sits on. We’ll start with Synopsys.

Synopsys was founded in 1986, went public in 1992, and currently has 6800 employees. According to the company’s November 2011 announcement, Synopsys earned $221.4 million on fiscal 2011 revenues of $1.536 billion, roughly $226 thousand of revenue per employee. Shares of SNPS are up about 8% in the last 12 months, setting the present market cap at $4.28 billion. Now let’s look at Cadence.

Cadence was founded in 1982, went public in 1987 [as ECAD], and currently has 4600 employees. According to the company’s February 2012 announcement, Cadence earned $72 million on fiscal 2011 revenues of $1.150 billion, roughly $225 thousand per employee. Shares of CDNS are up about 23% in the past 12 months, setting the present market cap at $3.17 billion. Now let’s look at Mentor Graphics.

Mentor was founded in 1981, went public in 1988, and currently has 4700 employees. According to Yahoo Financials, Mentor earned $77 million on fiscal 2011 revenues of $1 billion, roughly $217 thousand per employee. Shares of MENT are up about 11% in the last 12 months, setting the present market cap at $1.57 billion. Now let’s look at Magma.

Magma was founded in 1997, went public in 2002, and currently has 700 employees. According to Yahoo Financials, Magma earned $5.3 million on fiscal 2011 revenues of $139 million, roughly $199 thousand per employee. Shares of LAVA are up about 27% in the last 12 month, setting the present market cap at $494 million. Synopsys announced last November that they intend to acquire Magma for $507 million. Now let’s return to Facebook.

Facebook was founded in 2004 and has around 3000 employees. According to the company’s just-released pre-IPO filing, Facebook earned $668 million on 2011 revenues of $3.7 billion, roughly $1.233 mllion per employee. Revenues in 2011 were up over 100% from 2010. Facebook is still privately held, but estimates put the post-IPO market cap at around $100 billion. Famously, the founder dropped out of college, is currently 27, and may soon be worth about $28 billion if investors’ dreams of IPO glory are fully realized.

So let’s think about this, even if at the risk of comparing apples and oranges. How is it that a company like Facebook (started by a guy who doesn’t even have an A.A.), from a revenue and growth perspective is beating the pants off of a suave consortium of Ph.D.s and techno-visionaries, those EDA guys who pride themselves on grasping and advancing the most complex concepts at the interface between hardware and software design, not to mention the business models that support it all? Why aren’t these highly educated/polished EDA guys all worth billions? (Albeit, several may be, but it’s not based of their winnings in EDA.)

Let’s see: Facebook is young, edgy, loose, and unorthodox – or at least, it likes to be seen that way. EDA is many things, but it’s neither edgy nor unorthodox. FB was rolled out across a cascading hierarchy of markets, and now appeals to a vast range of demographics. Nope, that ain’t EDA either. And FB’s success has been piggy-backed on the hottest consumer products of the last decade: smart phones, digital cameras, and streaming everything. Now here, FB and EDA have something in common. All that hardware that FB lives on has come to fruition, in no small part, thanks to the likes of SNPS, CDNS, MENT, and LAVA. Kudos to EDA for that; too bad they don’t have the revenue to reflect it.

Final analysis? Facebook is everywhere and EDA is nowhere, when it comes to name recognition and  investor lust. As for an answer to the implied inequity in this equation, there isn’t one. EDA will continue to be a beast of burden for the consumer industry, and phenoms like Facebook that morph out of it, for the foreseeable future. EDA folks can either live with it, get out of the frying pan, or buy low, sell high.

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Peggy Aycinena is a freelance journalist and Editor of EDA Confidential [www.aycinena.com]. She can be reached at peggy at aycinena dot com.

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