Jim Hogan, 2009, and the Audacity of Design
He laughed again, “Not surprisingly, I knew exactly where the springs were on seat 2A between San Francisco and Tokyo. In fact, I’m still traveling off of those miles!”
After Japan, Hogan served as Corporate VP of Marketing and Corporate VP for Field Operations (working with those AEs), before leaving Cadence to become Senior Vice President of Business Development at Artisan Components. What prompted the move?
Hogan responded, “How did I end up at Artisan? Well, there comes a time in your career at any company … Ray and I agreed I needed a break, a sabbatical really. That’s how I got to have my first 2-week vacation in my life. My kids were all home at that point. Everybody was spending the summer on our farm, we had adopted a kid, and we had had our first grandchild. We’ve got four kids, one grandkid, plus a couple kids we’ve ‘adopted’ that hang out at our house, so we’ve always had a lot of animals and a lot of kids. My wife’s a really great gal – I actually live vicariously through her! – so that summer we just had a great time.
“I loved hanging out that with the kids, who then were in their early twenties. Believe it or not, we were spending $300 on groceries every couple of days! Anyway, at that time, I was serving on the Board of Nurlogic in San Diego and got chartered to try and sell the company. I ended up selling it to Artisan. After the handshake on the deal, [Artisan CEO] Mark Templeton told me the story of the company. It was clear to me Artisan wasn’t amplified enough in the investment community, so I gave Mark some advice in that area. He asked me to help them out, it sounded interesting, and that’s how I ended up at Artisan.”
Remembering the famous/infamous Artisan strategy of giving things away for free, I asked Hogan if he had been the architect of that mindset at the company. He said, “No, that was before my time. Mark Templeton and Lucio Lanza came up with that. The thing is, you could use the Artisan product [libraries] and license it, and then the foundries paid the company for that use. It turns out that royalties are a high-margin business – the only costs are the audit costs, which run about 5 percent. So, if you can get a royalty business going, you’ve got a real cash-infusion company. We were so successful, we were actually the first tech offering to go public after 9/11. Later, Mark and Lucio sold Artisan to ARM for a pretty good premium, which definitely helped pay for the groceries!"
After Artisan? Hogan said, “My birthday’s in late November and that’s always a time of great reflection for me, a chance to look at what’s happened over the past year and what may happen in the next. [After the sale], I felt my job was done at Artisan and it was time to do other things. I tendered my resignation and looked at a couple of different opportunities. [At that time] Ray Bingham and Don Lucas asked me if I would consider coming to Telos Venture Partners [an early stage investment organization started by Cadence].
“I’d never been on the VC side of things before, and it seemed Don, Ray, and Bruce Bourbon would be good guys to work with. Cadence put $50 million into the thing [to start with] and invested in new companies. One was Clear Shape, which was bought by Cadence, and one was Ponte, which was bought by Mentor Graphics.
“The way it works in venture capital – if you have one or two exits, it pays for everything. So the Clear Shape and Ponte deals were those two exits. Alongside those [events], I was also fortunate enough to have been an independent investor in Brion, a company with a really interesting DFM story. [Brion was purchased by ASML in 2006.] They were part of the move to consider manufacturing variation in design, which had also [provided the motivation for] Ponte and Clear Shape. So all three – Brion, Clear Shape and Ponte – were bought. I’m pretty proud of that. Also, Xpedion was bought by Agilent, so everything I was responsible for at Telos was bought. It may have been beginner’s luck, but I still feel pretty good about that record.”
Speaking of records, we’re all aware the 2008 earnings for Cadence are pulling up a ‘tad’ short of expectations. I asked Jim if he would candidly evaluate the future of the company.
He answered carefully, “For whatever reason, partly because of their own recognition of revenue, but also because they serve an industry which is down – semiconductors are being consumed at a different rate these days, they’re being consumed more, but not at the same revenue rate – so how do I see Cadence? Well, standing outside of the company as an investor, I see they’ve got all that free cash, [which translates] into a heck of an opportunity. If you could get some of the costs down, plus make your customers happy, you could make a lot of money at the current stock price. It’s all a matter of execution.”
I reminded Jim that the last time he suggested Cadence was a good investment was in a brief conversation we had in the Santa Clara Convention Center on September 10th, when CDNS was selling at $7.50 a share. At the time of our phone call on December 2nd, however, CDNS was selling at less than half that price, and this week has even dipped below $3.
Jim chuckled, “Yeah, I’m not being a Pollyanna here, but look – there are some core assets in the company and you’re just not going to displace Cadence in the market [given] their positions in place and route, custom design, and verification. At the core of the EDA market they’re still a very viable entity. In contrast to Magma, for instance, you see a much broader portfolio with Cadence.
“So what do you do to try to fix things? You continue to try to invest in the technology and you work to satisfy your customers. When the customers invest more, Cadence will make more money, and in a couple of years you’ll see a pretty strong performance once again. From my point of view also, a healthy ecosystem in EDA is good for everybody. [That’s why] I would like to see a strong Synopsys, a strong Mentor, and a strong Cadence. Frankly, however, the market’s not big enough for four [big players]. It may not even be big enough for three, but [if we move in the right direction], EDA will be able to get some value back.”
I asked Jim if Cadence owns some of the blame for the devaluation of the tools through their widely reported tool bundling strategies. He replied, “All [of the vendors are] guilty of commoditizing things. Logic verification, for instance, is pretty commoditized. The only thing that saves it is that there’s an enormous amount of simulation required today, so the market is not convinced it’s as commoditized as it could be.
“Meanwhile, in the classic EDA world, logic verification and functional verification will continue to be the number one problems for designers, handing off the design to manufacturing is still going to be challenged with DFM effects – second-order effects that impact yield – and place and route will continue to be challenged by Moore’s law, so the need for a strong router will always be there.
“The reality is, there will not be that many leading-edge designers in the world going forward, but there will be lots of customers behind the leading edge. So, when you ask me if Cadence contributes to the problem [by devaluing the tools], it’s an unintended consequence of going after market share that results in a bundling effort that [effectively] commoditizes the products.”
“If you step back far enough, EDA is actually an IT function, and look what’s happened in IT. The industry has responded to a variety of forces – Sarbannes-Oaxley for example. It’s an enterprise function managed by big companies and implemented by guys like Accenture; a solution is created for non value-added things.
“You have to ask – is semiconductor design necessary? Is it part and parcel of a semiconductor company any more? Or, is it the case that semiconductor companies have got to only run software [as their core business]. Look at Nokia , a great example. They sold their semiconductor unit off to STMicro . Now Nokia does the phone function and the power requirement, ST and TI build the chips, and Flextronix builds the phones. Increasingly, the system company has a set of [partners] that helps them solve the problems of product development. However, the question remains: Can you maintain 60-percent gross margins, because you have got to make those kinds of margins to attract additional investment.”
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