Strategy Shift Mentor considers spinning off Precedence, Exemplar By M. Santarini, R. Goering, EE Times Wilsonville, Ore. -- Signaling a major strategy shift that would permit it to refocus on its core businesses, Mentor Graphics Corp. is said to be weighing the spinoff or divestiture of several design-automation business units, including simulation-backplane specialist Precedence Inc. (Campbell, Calif.) and FPGA-synthesis provider Exemplar Logic (Alameda, Calif.). Though Mentor denied that any active spinoff discussions are taking place, rumors about an Exemplar move apparently drove Mentor's stock to 13 1/8 on Aug. 27, just shy of its 52-week high, several analysts said. Independently, sources close to Mentor and Precedence said that the companies are negotiating Precedence's freedom and that an initial public offering could result. For Precedence, independence could help it proliferate its simulation-integration technology more widely. For Mentor, the action would permit it to return to its roots. In the case of an Exemplar Logic spinoff, Mentor would effectively quit the synthesis business because Mentor has transferred its synthesis R&D to that company. Any such reshuffling by Mentor would signal that its recent acquisitions have apparently hampered its attempts to return to profitability. In the company's most recent financial statement, Wally Rhines, president and chief executive officer, said that Mentor "will continue to deal with the effects of the many acquisitions we made in 1995 and 1996. These acquisitions clearly provide a platform for accelerated growth, but in the short term have resulted in significant operating inefficiencies. Progress is being made and will become increasingly evident." "It is no secret that a number of our subsidiaries are set up as autonomous units," said Dean Freed, vice president and general counsel at Mentor. "The autonomous nature of these units means it is relatively easy to do a spinoff, but at this time there is no news and nothing to announce." Mentor acquired Exemplar in May 1995 and Precedence in October of that year, maintaining both as subsidiaries. But some analysts said that Mentor may have overextended itself. "Mentor is looking at all of its assets right now, and part of that process includes deciding to make acquisitions or divestitures," said Rita Glover, president of EDA Today (Tucson, Ariz.). "I believe that the company is strategically positioning some of its assets to be spun out if they so chose in the future. Precedence and also Exemplar are in that position." Precedence, the only company that offers vendor-independent simulation-backplane technology, supports EDA vendors such as Mentor, Cadence, Synopsys, Analogy, Quickturn and Ikos with its SimMatrix offering. With its newly announced SimPrism partitioning software (see Aug. 25, page 56), the company seeks to expand into mechanical design and simulation. When Mentor acquired Precedence, some analysts and competitors were concerned that Mentor's ownership might bias the company toward Mentor's own simulation offerings. Even though Precedence has continued to work with other vendors, independence would put to rest any such fears by EDA providers or customers. Precedence also has momentum in its favor and could fare well as an independent. Currently, the company claims a 70 percent compound annual growth rate and more than 3,200 installed seats. It also intends to expand its product line to ease design reuse and system assembly in an independent environment. In addition, Precedence is breaking away from electronic simulation and venturing into a broader market. Kevin Jorgensen, vice president of marketing, said the company plans to create a simulation backplane for micro-electromechanical systems that would let designers simulate an on-chip mechanical device with the rest of their design. (Next article.) (c) 1997 CMP Media, Inc [This article comes from EE Times in a joint cooperative effort with the Motley Fool. For more articles like it, please look at Fool's Gold every weekend or simply go to the Fool's Gold Mine and page through our back issues, which all have clever and cool EE Times articles in them.]

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