There's a serious case of irony failure on the Barron's blog that is one of the first stories to appear online (aside from the press release itself) marking the resignation of Cadence Design Systems CEO Mike Fister. "What a surprise," remarked 'John'. The next commenter didn't quite get the joke but laid in with the perceived reasons why Fister got the cho...er, walked.
I didn't see the news until I got out of the radio silence of the underground bit of the BERR Conference Centre in Victoria Street this afternoon and, frankly, I wasn't going to cough up for WiFi in what is meant to be a government building for business. (There are, apparently, two picocells there. If anyone finds them, please let me know.)
It was both a surprise and inevitable. It was clear that Fister was no longer Mr Popular at Cadence, assuming there had been a period when he was. At an analysts event in September, CFO and now co-CEO Kevin Palatnik used faint praise to damning effect on one of Fister's strategies. This was just after telling analysts about the news that hasn't happened yet but will next week during the Q3 earnings call - that Cadence has potentially a lot of layoffs to make. This is from my online story of a couple of weeks ago at the IET's website:
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...We see some benefits [from stratification] at the high end in some sub-segments of our business but, overall, business has been relatively flat.”
When I heard the last bit on the recording, I thought that Fister was a goner. It's odd for a CFO to align his boss with a failed strategy unless that boss is not long for the company. However, rumours suggested that Fister was to be given "another chance" by the board to turn the company around after the failed attempt to buy Mentor Graphics. If Fister was to get another chance, the board clearly changed its mind.
Although we may look back at this in the context of extensive layoffs next week, What was surprising about today's news was the departure of some Cadence stalwarts. Field operations vice president Kevin Bushby and former head of Cadence in Europe is going as is Bill Porter, who had moved out of the CFO chair. Porter and two other veeps are not being replaced.
The guidance that Cadence has given for its Q3 results is the same as the range provided by Palatnik in the Q2 call, including a 26 cents per share or so loss, so no real surprises there. The one to watch out for next week is the full year amount, which was, in the middle of Q3, around $1.13bn in sales with earnings per share around 52 cents.