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Can Cadence Take a Bite Out of the Apple Model?

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As investors, we're on a never-ending quest to find that next great idea of a company with potential not seen in its share price. Unfortunately, most companies are unlikely to stand out simply by doing what everyone else does. It's generally too tough to compete like that.

It seems Cadence Design Systems (Nasdaq: CDNS  ) wants to do precisely that, however. The company is aiming to strike gold the same way Apple has, fostering a home for smaller, independent software developers. Cadence has come up with OrCAD Capture Marketplace, which runs like the Apple App Store.

What does Cadence do?
Cadence is an electronic design automation, or EDA, vendor. That's important because the EDA industry has been playing a pivotal role in the development of the overall semiconductor business.

EDAs are software tools used in the design of electronic systems like printed circuit boards and integrated circuits. Chipmakers use these tools to design and analyze semiconductor chips, some of which are of prime importance in devices such as the iPad. The designers, when offered an easy access solution to resources such as those offered on the OrCAD marketplace, will surely flock to it. This is similar to how software developers have flocked to Apple's App Store as a means to show off their creative talent, albeit in a much more advanced field.

Other ventures
So, Cadence has done an excellent job providing the environment for this development. As a testament to that, Cadence, recently tightened its relationship with Taiwan Semiconductors Manufacturing (NYSE: TSM  ) to provide design for manufacturing services for TSMC's clients. At this time, only Cadence is a certified design vendor within TSMC's client base.

Early this month, Cadence also unveiled its System Development Suite, which consists of two new products, which are the company's first offerings in the field of virtual prototyping. With this move, Cadence cranks up the competition against companies like Synopsys (Nasdaq: SNPS  ) , which has acquired several design firms that provide virtual prototyping.

Cadence also has been working its way through the competition in other areas. Recently, it took over Altos Design Automation, which is also an EDA vendor. Here, Cadence stands to gain from Altos more than 30 clients, of which 11 are among the top semiconductor manufacturers.

With all these moves, Cadence is improving its product portfolio and expanding its product base to new areas in its continuing battle for EDA supremacy against rivals like Magma Design Automation (Nasdaq: LAVA  ) and Mentor Graphics (Nasdaq: MENT  ) .

A Fool's take
If you can remember only one takeaway from this article, remember this: In a world where consumer electronic devices are fast becoming the most sought-after technologies, firms like Cadence stand to gain significantly. Since the recession receded, demand for these devices has gone through the roof.

Chipmakers like Intel and Texas Instruments continue finding brisk business in the robust market for consumer technology. EDA vendors who work as support for these companies are following right behind them, which is where Cadence comes in.

Cadence can be good buy for fellow Fools given its entrenched presence in the semiconductor industry. As long as demand for electronic gadgets is on the rise, companies like Cadence will continue to reap profits.

Thoughts on the EDA industry in general or who's pulling ahead? Leave a comment in the comments area below.

Arunava Dedoes not own shares in the companies mentioned in this article. The Motley Fool owns shares of Texas Instruments. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 31, 2011, at 8:25 PM, circuitsimguy wrote:

    But Orcad is a quasi-autonomous unit of Cadence and has next to nothing to do with the other things you mentioned (TSMC, SNPS, Altos, LAVA, MENT, INTC, TXN.)

    Other than they compete with the PCB bit of MENT and there's a slender chance that INTC and TXN may use Orcad (for eval board or prototype sub-system design.)

  • Report this Comment On June 02, 2011, at 11:54 AM, Weeb59 wrote:

    Nice try. CDNS stock may rise over time, but EDA is way more complicated than this article portrays it. No one in the industry uses the term "EDAs", btw.

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