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.

Greenland's Importance to the World

Jim Folger, National Geographic, June 2010:

Greenland is warming twice as fast as most of the world. Satellite measurements show that its vast ice sheet, which holds nearly 7 percent of the world's fresh water, is shrinking by about 50 cubic miles each year. The melting ice accelerates the warming—newly exposed ocean and land absorb sunlight that the ice used to reflect into space. If all of Greenland's ice melts in the centuries ahead, sea level will rise by 24 feet, inundating coastlines around the planet.

Whoa.

Monday, May 31, 2010

Will Arizona be a Democratic State by 2035?

The GOP doesn't realize it yet, but Arizona will be a Democratic state within 25 years. Under our Constitution, every child born in Arizona is an American citizen, regardless of his/her parent's immigration status. Also, children are able to sponsor their parents for citizenship, so the parents that Arizona wants to deport will one day become citizens through their American-born children.

Later, when the children of Mexican immigrants grow up, they will be able to vote. American citizens won't support a political party that wanted to deport their parents. And don't forget: the children of Mexican immigrants go to public schools and will make numerous friends of all ethnicities. Anyone who thinks that second or third-generation American children who grow up playing with their Mexican-American friends will share the same thinking as their parents doesn't understand generational shifts. Put simply, new generations always rebel.

Just look at North Carolina--who would have thought the same state that elected Jesse Helms would one day elect John Edwards?

As for me, I keep wondering when Goldwater/Eisenhower Republicans will create the third party that America desperately needs. Wouldn't most Americans vote for a political party that supports fiscal conservatism, a humble executive branch, and non-interference in our private lives?

Bonus: according to the Brookings Institution, nearly 25% of Americans younger than 18 have at least one immigrant parent.

Sunday, May 30, 2010

Film Rec: Wait Until Dark

Audrey Hepburn delivers an incredible performance in the thriller, Wait Until Dark. This film is an absolute must-see, especially for Alan Arkin fans. A very young Alan Arkin plays one of the best villains of all time, "Roat, Jr."

Saturday, May 29, 2010

David Einhorn on Keynesian Economics

In "Easy Money, Hard Truths" (5/26/10), David Einhorn--in the NY Times--delivers some interesting facts:


Government employees are expensive and difficult to fire. Bloomberg News reported that from the last peak businesses have let go 8.5 million people, or 7.4 percent of the work force, while local governments have cut only 141,000 workers, or less than 1 percent.

Public sector jobs used to offer greater job security but lower pay. Not anymore. In 2008, according to the Cato Institute, the average federal civilian salary with benefits was $119,982, compared with $59,909 for the average private sector worker; the disparity has grown enormously over the last decade.

Modern Keynesianism works great until it doesn’t. No one really knows where the line is.


So much wisdom in one article. I recommend you read the entire article by clicking on the link above.

Friday, May 28, 2010

Grand Jury Report: Gov Employee Costs "Unsustainable"

Check out the latest report from Santa Clara County's Grand Jury ("Cities Must Rein in Unsustainable Employee Costs"):


The first priority in any government office should be to reduce undefined, unsustainable costs--such as taxpayer-guaranteed pensions.

Thursday, May 27, 2010

Nepotism, Racism, and Fairness

As a California employment lawyer, I've represented people of all races--Caucasians, Africans, African-Americans, Asians, Southeast Asians, etc. After eight years of litigation, I am realizing that most employment issues revolve around a lack of communication. Usually, problems begin when the boss doesn't explain tasks properly or clearly; the employee fails to adapt to a personnel change or new methods; or the employer fails to correctly identify or reward the hardest working employees.

Overall, some of the most difficult cases I've seen involve promotions, especially government promotions. One "hot" current legal battleground is challenging the methods used to test into a particular job, such as a police officer or firefighter.

In San Jose, CA, the police department promotes officers based on several factors, including diversity. After a series of interviews and questions, the SJPD will draft a list of the top applicants and then choose from any of the top ten finalists, regardless of their actual placement. In other words, placing first does not necessarily give someone an advantage over the tenth place applicant. In practice, this "Rule of 10" allows the SJPD to promote based on various subjective factors, including friendships, peer reviews, personal relationships, diversity, etc. Other Bay Area police departments do not utilize the "Rule of 10" but still have diverse police forces; even so, most people would agree that the "Rule of 10" has increased racial diversity with the SJPD. Two questions come to mind: 1) "What about the people getting passed over on the promotion list when the SJPD reaches down and selects a lower-ranked applicant based on subjective factors?" and 2) How do we ensure that taxpayers receive the best employees based on merit, not nepotism?

Prior to answering the above questions, we should consider three interesting background issues. First, some people believe that diversity in hiring and promoting is important because local residents pay taxes and therefore deserve at least some commensurate ethnic representation in local agencies. Having an all-white police force in Oakland, CA or an all-black police force in Newport Beach, CA may appear problematic for various reasons and may weaken the credibility of the agency.

Second, most recent court cases involving promotions and testing deal with public safety officers. This development is not surprising. The cost of a police officer or firefighter has increased exponentially over the past decade due to positive sentiment post-9/11, as well as aggressive unionization. Today, a police officer hired in San Jose has won a lottery ticket. Over the course of his or her career, s/he stands to make millions of dollars in salary and benefits, including unique benefits such as job security, lifetime medical care for the entire family, and a pension of up to 90% pay. It is no wonder that public safety positions are much sought after. However, the more expensive a position, the fewer positions taxpayers can afford, which increases competition.

Hence, the third issue is basic economics: the more expensive you make something, whether it's emeralds, gold, or cops, the more likely it will be scarce. (This is a variation of the usual economics rule that there is an inverse relationship between price and supply.) Thus, as public safety positions become more expensive and more demanding, the number of available positions decreases, which increases competition. (As prices goes up, supply goes down, which increases demand and therefore competition.) Consequently, agencies must formulate tests to weed out some applicants, even deserving ones. Furthermore, although residents often want more officers, they may not be able to afford them in a time when training and hiring an officer has become a multi-million-dollar proposition. In some cities, such as Campbell, California, over half of the entire budget goes to the police and fire departments, much of it to retirees who no longer provide any services to local residents. [See here for more (page 8).] The lesson: price and scarcity are related, and the more expensive you make something, the less of it you can have.

Where does that leave us with respect to answering our two original questions? Stating one of them another way, "How does an agency create a fair test that doesn't slight a deserving person who is passed over?" I originally thought the test should be completely objective, like a multiple choice quiz. But then I realized that many government employees, especially officers, have to deal with the public, which requires social skills and anger management skills, which are difficult to measure in a purely objective test.

Yet, the minute we accept that hiring will be based on some subjective factors, how do we agree on the particular subjective factors to be used? After all, once we get to the top ten applicants in any widely-publicized position, most or all of them are probably capable of doing the job. How, then, do we determine which intangibles to use when it comes to selecting someone who has made the cut? Too often, I see nepotism being used in close calls. Someone golfs with someone else, or knows a mutual friend, etc. None of the aforementioned factors has anything to do with merit, such as an advanced degree, grades, or hours of training. At the same time, no law prevents nepotism, which forces spurned applicants to allege racism or some other element related to a protected class to get legal relief. Consequently, what should be a discussion about formulating a fair test becomes a supercharged discussion about race.

Even so, once we accept that subjective factors such as a person's demeanor, peer reviews, nepotism, or personal connections may be legally used to hire or promote someone, we open the door to other subjective factors, like diversity or race or gender. There's no way around it--one person's subjective factor is another person's public policy goal or another person's unfair reason. Realizing that we cannot use a purely objective test, how do we prevent a person being passed over from thinking that his race or gender caused him to lose the promotion or the job? How do we ensure that everyone is treated as an individual, regardless of his or her race or gender?

Fairness is the problem cities and counties face when hiring and promoting government employees, especially public safety officers. If taxpayers demand the best person for the job, what is the most fair way of making such an evaluation? What subjective factors may someone use during the testing process? Courts are ill-equipped to handle these questions, but applicants must continue to rely on allegations of racism or reverse racism to gain access to an impartial judge, and judges continue to rely on disparate impact numbers to overturn or approve testing procedures. Yet, the most important question of all--how do we make the most fair test?--continues to go unanswered, perhaps because the general public and our elected officials don't know enough about particular government jobs to demand that only certain factors be used. That means that government jobs have become the new cultural and racial playground, which is unfortunate for the applicants as well as taxpayers, who deserve better.

One solution is to make the entire promotion and hiring process transparent and public. We demand Supreme Court nominees go through a qualification process in public, but we allow local officials to hire employees behind closed doors. Yet, it is far more likely that a local police officer, firefighter, county counsel, etc. will have more of a direct impact on your life than a Supreme Court justice. The government hiring system currently lacks accountability because most employees are hired without any public scrutiny or public access to data.

On a lark, I once applied for a Social Security contact/service rep position. This job paid about $34,881 a year and required answering phone calls from people with questions about their statements, etc. The federal government told me that I was unqualified for this position--despite the fact that I've graduated law school and run my own law firm for several years, where I handled all phone calls personally.  I've applied for other government positions, and sometimes, I will get an email indicating I've made the initial cut. Unfortunately, that's all I usually get. Then, I won't receive anything else, not even a rejection letter or email. In one case, I actually received an interview, which required a written test beforehand. I ended up answering the test in a way that was correct but that exceeded the examiner's expected scope on one question. During the interview, my detailed answer appeared to embarrass the examiner in front of his peers, who realized the examiner had not considered other possibilities. The interviewer decided to use the interview to verbally joust with me. Predictably, I made the initial cut, but did not get the position. In another case, I applied for a job and never received anything indicating they had received my application. By the time I finally received a rejection notice, I learned that the agency had chosen its top candidates months ago.

The public and aspiring government employees deserve better. To make the system more fair, we should demand the government's testing and hiring process be open and exposed to public scrutiny. Otherwise, without some check on its power and discretion, the government will continue to mishandle taxpayer monies and weaken morale in existing and aspiring government employees. Over time, if our current nepotism-based hiring and promotion process continues, the government will lose credibility, and citizens may eventually lose faith in their country's representatives.