Unbreakable Mentor Mentor refocuses, confirms Exemplar spin-off By Richard Goering, EE Times Wilsonville, Ore. -- Concern about Mentor Graphics Corp. has grown so strong in recent weeks that persistent rumors have predicted the company's breakup and sale. Although top executives emphatically deny these rumors, they acknowledge that Mentor--hit by a sales slump--is refocusing on selected core areas, and may soon spin off synthesis subsidiary Exemplar Logic. Once the leading EDA vendor, Mentor this year slipped to No. 3, behind Cadence Design Systems and Synopsys. Hobbled by declining sales of some of its legacy products, the company is projecting 1997 revenue growth of only 5 percent. The overall EDA industry is growing at 16 percent or better. Some observers also believe that Mentor is suffering from acute indigestion after acquiring some 15 companies in the past two years. Precedence Inc. (Campbell, Calif.) recently announced it is spinning off by reducing Mentor's ownership to a minority share, and speculation has focused on a similar move for Exemplar Logic. Precedence and Exemplar (Alameda, Calif.) were initially set up so they could be spun off, and that might have given rise to the breakup rumors, said Wally Rhines, Mentor's president and chief executive. But Rhines called rumors of dissolution absurd. "No such thing has ever been contemplated or discussed," he said. Greg Hinckley, both chief financial officer and chief operating officer at Mentor, hinted that Exemplar may soon follow Precedence. "FPGA synthesis tends to be sold through a very complicated distribution channel, and we just don't get the leverage from it," he said. "So it is likely that we will do some kind of [Exemplar] spinoff, and it's more likely to happen sooner rather than later." Both Rhines and Hinckley emphasized that Precedence and Exemplar represent just a few percent of Mentor's revenues. The real story, they said, is one of quiet but steady recovery--and of building backlog for a more-robust 1998, with a focus on system verification, design reuse through IC intellectual property and selected areas of design creation. "Mentor Graphics, like most of the industry, is in the process of rationalizing its product lines," said Gary Smith, analyst at Dataquest Inc. (San Jose, Calif.). "I think you'll see some spinoffs from Mentor, but at the same time I think you'll see some acquisitions. Things are really starting to move for them." Mentor's fortunes have certainly changed from its heyday in the mid-1980s, when it enjoyed annual growth of about 40 percent. Its current problems date to the late 1980s, when Mentor diverted enormous resources to create its 8.0 Falcon framework. "It was late, there were problems and it ended up taking a disproportionate share of the company's resources," said Rhines, who was not with Mentor at the time. "It didn't introduce new design tools; it was old tools in a new environment." At the same time, Mentor stopped reselling workstations and lost a big chunk of its revenues. Despite creating new products through acquisitions and internal efforts, Mentor still carries a large portfolio of legacy products predating 1993. A few, like the Board Station pc-board CAD layout system, are selling well; but many ASIC design tools are "long in the tooth," said Hinckley. Sales of these products, including gate-level simulation and full-custom IC layout, are rapidly declining. (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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