Tuesday, June 1, 2010

Cadence Annual Shareholder Meeting (2010)

Around forty people attended Cadence's 2010 annual shareholder meeting. Coffee and some pastries were available. For some reason, the doors to the meeting room had been locked, which meant that if you were a few minutes late, someone with a key had to come by and give you access. (Cadence didn't intend to lock out anyone, and someone did come by within a few minutes to let everyone in.)

CEO and President Lip-Bu Tan (picture above) handled the informal portion of the meeting, which included a slideshow. Some highlights:

-- 46% of Cadence's revenue comes from the Americas, followed by Europe. Mr. Tan said that "last year [2009] we had to survive, but this year [2010] we are breaking out" and doing better.
-- Cadence has $619 million in cash (Q1 2010), with a 2009 backlog of $1.6 billion.

A shareholder asked questions about lost revenue due to overseas IP infringement. He wanted insight into business in China and licensing fraud. He said that he's heard small companies in China will buy one Cadence license and then allow multiple users or affiliates to use the license, costing Cadence additional customers and revenue. Mr. Tan said that Cadence was "making good progress in China," but IP issues would take time. [From what I've seen, it isn't unusual for tech companies to tolerate not maximizing revenue to gain a foothold or market share in China.]

Another shareholder asked about debt and upcoming debt payments. Cadence said it would consider all options but had plenty of money to make the upcoming payments.

I asked about Magma Design (LAVA), a competitor. Mr. Tan said that Cadence "will aggressively compete" against Magma Design. He referred my question about differences in the two companies' products to Dr. Chi-Ping Hsu, Sr. VP of the Products Group. Dr. Hsu said that Cadence was "doing quite well against" Magma Design and felt confident that Cadence's newer product lines would distance Cadence from Magma. Some people have mentioned that Cadence might buy out Magma; however, I saw no obvious signs that Cadence was actively thinking about acquiring Magma.

Mr. Tan also said that Cadence tries to be the full EDA (electronic design automation) solution for companies, referring to the "EDA 360" plan: 1) engage the customer early; 2) help the customer get to market first; and 3) use excellent customer service to prevent commodification. Mr. Tan emphasized that "time to market is essential" for Cadence's customers, because the faster Cadence helps them launch their products, the higher the premium/margin the company can charge in the marketplace. In short, Mr. Tan was saying that Cadence's customer service and complete solutions differentiate it from competitors such as Magma, Synopsys (SNPS), and Mentor Graphics (MENT).

I enjoyed meeting CEO Lip-Bu Tan and Sr. VP Chi-Ping Hsu. Both men carried themselves with confidence and yet without any trace of arrogance.

Disclosure: I own an insignificant number of Cadence (CDNS) and Magma Design (LAVA) shares. I do not plan on buying more shares of any EDA provider. Competition is intense, and companies must constantly innovate to survive. EDA is a very difficult business to be in.

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