Tag Archives: Altium

What’s the Deal with the Altium Deal?

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The masses are atwitter over the announced Renesas acquisition of Altium, and for good reason. The $5.9 billion price tag is some real coin.

What’s less clear to almost everyone outside the two companies, however, is the underlying strategy and how the merged entity will look going forward.

In announcing the acquisition, Renesas chief executive Hidetoshi Shibata called it “an important first step into our long-term future.” But what is that future?

Obviously, Renesas is not going to take Altium private, for use for its internal customers only. The two firms do have many overlapping markets: IoT, consumer, automotive, among others. Renesas also plays in higher-end areas such as high-performance computing that Altium has not to our knowledge penetrated. If OEMs want one-stop shopping for a systems program, a combined Renesas-Altium starts to make some sense. But the latter lacks the chip package tool to complete the proverbial – and literal – circuit.  

Less clear, however, is why Altium is worth so much to Renesas. Yes, it likely has as large an installed base as any major PCB CAD company. Its revenue, however, puts it behind Zuken in fourth overall, well behind Cadence and Siemens. Shibata highlighted Altium’s growth rates and profitability. But neither its revenue nor its net income ($43 million in its last fiscal year) will move the needle for Renesas.

As for the price: Renesas will pay $5.9 billion in the all-cash transaction. That’s a healthy premium relative to other significant deals in the industry over the past decade. I’m not of the mindset every deal must pay off in direct financial ways, but given the price tag, on the surface I think this one will be a tough climb.

That said, big deals are nothing new to Renesas. Including the pending Altium check, it has spent some $22 billion on various chip and software companies over the seven years.

How does this one rank with other high-profile M&As? Let’s look at some measures:

CompanyPrior 4Q Revenue at AcquisitionAcquisition PriceStock PremiumRevenue Multiple
Cadence$1.33B   
Sigrity$20M$80Mna4x
Siemens€79.6B (US$88.4B)   
Mentor Graphics$1.18B$4.5B21%3.8x
Synopsys$6B   
Ansys$2.16B$35B29%16x
Renesas$9.94B   
AltiumA$263M (US$171.6M)$5.9B34%  22x

Cadence bought Sigrity in 2012 for what now seems like couch change: $80 million.

The Ansys acquisition announced last month reportedly will increase Synopsys’ total addressable market by a 50% to $28 billion. While Synopsys is strictly EDA, Ansys plays heavily in the automation space, with focus on large end-markets like automotive, aerospace and industrial. Semi makes up less than one-third of Ansys’ revenue. (Asked on a conference call for how the Altium deal would affect Renesas’ TAM, the company demurred.)

This all can be traced back to Siemens’ 2017 acquisition of Mentor Graphics. Under duress after multiple hostile takeover attempts, including one by Cadence, Mentor was acquired by the German conglomerate as less than 4 times annual revenue. Synopsys is paying 16 times revenue for Altium, Renesas is paying more than 22 times revenue for Altium. How the CAD company’s former shareholders must be wishing they were still on the block now!

Renesas hinted that Altium shouldn’t be viewed in a vacuum but as part of a larger strategy. Will Zuken be next? At $250 million in revenues over the past four quarters, and a market cap of $630 million, it would likely be a far cheaper buy. And Zuken could add chip package and high-end PCB tools to the suite, while also bringing several major military and aerospace customers. Zuken has danced with others through the years. Might it someday find a new home with Renesas?

All in on Altium?

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Autodesk’s bid — declined, so far — for Altium took me by surprise. In retrospect, it probably shouldn’t have.

As I’ve noted many times, I fully expect Altium to be acquired. It’s just I was looking more in the direction of Dassault and PTC, the big mechanical CAD (MCAD) players. I should kept Autodesk in my field of view, especially after it acquired Eagle five years ago. I think I was lulled to sleep, as that was a small acquisition and Autodesk hasn’t made much of a push since to burrow into the ECAD space.

The proposal was hefty, valuing Altium at $3.91 billion. That’s not much lower than Siemens paid for the considerably larger and more profitable Mentor Graphics in 2107. Yet Altium thinks it can do better.

It just might. Autodesk’s bid prices each Altium share at AU$38.50, a 41.5% premium over Altium’s closing price on Jun. 4 and a premium of over 47.4% to the one-month volume-weighted average price. Prior to the offering, however, Altium’s stock had peaked at a 52-week high of AU$39.34 in last October. So at $38.50, Autodesk was actually underbidding a bit.

An Autodesk-Altium merger wouldn’t change the face of the ECAD industry immediately. Altium would still run neck-and-neck with Zuken for third place in revenues behind Cadence and Mentor. But it would give Altium the backing of a industry leader in 3-D CAD, and accelerate the inevitable MCAD-ECAD merger.

The Nature of Disruption

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Just finished recording an hour-long (!) podcast with Judy Warner for Altium’s On-Track sessions. And while I don’t want to spoil any surprises, I will briefly touch on one of the topics we covered.

We got on the topic of disruptions. (I know, I know, it’s every keynote speaker’s favorite word. Sorry.)

In my view, ECAD software has to continue to get more intuitive and easier to use, especially for engineers who may only spend 10 or 20% of their time doing layout. If most of your time is spent using other tools, you won’t necessarily develop the hard-coded means to work the layout software. And no one wants to have to relearn the software each time they use it. So the tools must be more intuitive. And along the same lines, they need to be able to perform integrated functions with other platforms in their native environments. Users are most comfortable when operating in the environment they are familiar with.

To that end, I still think the company that breaks the ECAD industry will most likely come from outside the ECAD industry, if for the stunningly simplistic reason that engineers and their marketing colleagues in one industry are always looking for ways to expand into others.

Which is how it came to be that a maker of PCs (Apple) broke the recorded music industry and then broke phones. And a maker of batteries (Tesla) broke the automotive industry.

Going back aways, a software developer (Microsoft) broke computing, which was all mainframes and dummy terminals back in the day. (Now with app-based tablets and Chromebooks tethered to the cloud, we’ve come close to full circle.) And that same software developer broke video gaming, doing $5 billion in revenue from Xbox related sales last quarter alone and helping to spawn and massive market for online gaming.

My advice to Judy and her colleagues at Altium is to keep improving the design to manufacturing handoff — where so many manufacturability and quality defects take form — and to be wary of any company that comes up with a simpler and cheaper way to go from schematic to actual circuits, because while I don’t know who, how or when, I do know it’s inevitable.

The New Verticals

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Chasing the vertical OEMs is not a new strategy in EDA.

But it is becoming that much more widespread as the major players extend their reach from automotive (long the domain of Mentor Graphics) to other sectors.

Semiconductor design companies — the linchpin to the product development and cash flow of Synopsys, Mentor and Cadence — are expected to consolidate over the near term, and the revenue outlook from that market is being tempered.

But the “new verticals” — military, aerospace, IoT, cloud — offer the chance for the EDA titans to extend their reach by not only selling IC design software but also an ever-growing array of emulation, analysis, and system design tools to a single customer. Doing so tightens the binds between EDA firm and customer, potentially making the deal more profitable as some list price devaluation that naturally occurs with bundling is offset by a lower cost of sales (including commissions).

As Cadence CEO Lip-Bu Tan said this week, “We had been emphasizing system design development. That basis is providing the entire vertical solution spec that is from IT tool and PCB and a host of system design and verification and we strongly believe that is the strategy going forward to meet the requirement of some vertical (markets).

“IoT, the cloud infrastructure and the massive cloud infrastructure fueling up; the automotive as kind of the connective devices; some of the medical field and DNA sequencing … and a few others: those can be clear application for some of our IT portfolio and some of our EDA flow and also some of our hardware PCB and system analysis requirements.”

We are starting to hear the major EDA companies discuss the PCB segment on their quarterly conference calls. This is an emerging trend; not long ago PCB was an after-thought to most analysts because the revenues were so puny compared to those of semiconductor. Now that PCB is part of a larger strategy, as opposed to simply a (profitable) business unit, that’s changing.

As this strategy ramps, it could very well shift the scope of acquisitions by the major EDA players. For decades, Synopsys has stayed far away from owning PCB design tools  although some of its tools have been tied into Zuken’s. Its last foray into PCB came when it acquired Viewlogic in 1997; management quickly bought out the PCB design segment the next year. Would a shrinking semi customer base lure them back in?

Most PCB design M&A related deals these days are tied to filling gaps in technology. There’s still a disconnect between ECAD and MCAD, and there will be some shakeout as new disruptive hardware startups enter the field. So while Cadence and Mentor are pursuing true top-down strategies, not everyone is following suit.

Altium corporate director, technology partnerships and business development Dan Fernsebner told me at PCB West last month, “Incubators and hardware startups have to put products out very quickly, and they have to be right the first time.” Fernsebner says the model for these companies is shifting from enterprise engineering to relying on reference designs.

Does the change to entrepreneurship pose a challenge for the developers in terms of having to reevaluate their business models, I asked Fernsebner. “I think you’ll see explosive new companies changing the business model for those who have been in it for years,” he said, citing Telsa, Nest and Skully, companies that develop products that are field-upgradeable.

It’s rare that any single model wins out completely. But if the end-customers in key industries begin to flex their muscles, it won’t be long before the M&A activity gets really interesting.

CAD Software Pricing Wars Heat Up

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Another price/performance battle is heating up in PCB design software, and this time Altium could feel the burn.

Altium has experienced decent growth over the past few years, reaching about $75 million in annual sales. That’s not a huge sum compared to the Big Three of Mentor Graphics, Cadence and Zuken (subsequently referred to as MCZ), but it no doubt is getting the attention of the big boys, given the fairly modest pace of PCB design layout seat growth.

After dropping pricing on its signature Altium Designer tool from $14,000 to about $5,500 in 2008, Altium then raised them more than 30% a year ago this month, with some reports indicating even larger spikes, plus support.

Mentor today fired a big shot across the bow, pricing its newly configured shrink-wrap Pads suite at an entry level  price of $5,000, including a year of support. A mid-range version is priced at $10,000, in line with Designer once support is factored in.

Mentor made its move to target so-called independent users, those who may work for corporations but have the latitude to go outside the enterprise CAD system for their tools. That sector is characterized by engineering generalists who look for lower seat costs and aren’t driven by the particular tool. Will Altium counter move, or will it take a chance that it can wait out its deeper-pocketed competitor, hoping that Mentor lacks the patience to withstand the margin pain?

No matter how this plays out, a company can only grow so large in the shrink-wrap space. Enterprise is where the big bucks come from, and that space is dominated by MCZ. And that next move is Altium’s.

 

 

 

Fewer Reports Not in Altium’s Best Interest

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Always a company that operates behind a veil of mystique, Altium will take that secrecy to a new level with its latest board decision which pares its quarterly earnings reports to semiannual announcements.

In a statement today, the PCB design software company said the decision came about following an investor roadshow in Sydney and Melbourne in February, where management pitched the notion that the quarterly reports somehow — and I’m reading between the lines here — distorting and negatively affecting the market perception by obscuring the “steady annual growth delivered by Altium” over past years.

“The overwhelming view of the investor community was that Altium has reached a level of maturity that allows it to focus on driving its business and, consistent with market practice, provide full year and half year reporting,” the company said.

OK, then.

The great thing about quarterly reports is that they force a company to be upfront with investors on a regular basis. Dial that back, and investors are going to make decisions based on data that are often less clear. I’ll be surprised if there’s any mass selling, given that many of Altium’s major shareholders are insiders, with current CEO Aram Mirkazemi holding about 9% of the company directly and more than 11% through holding companies, with the board holding more than 20% of the shares overall. But I suspect they will have a more difficult time attracting institutional investors.

Altium has set as a goal $100 million in annual revenue by fiscal 2017. It’s at an annual run rate of about $75 million right now. As companies get bigger, they need to keep in mind that their responsibility to their investors grows as well. We’ve been supporters of Altium’s unconventionality in the past, including the move to Shanghai, which some predicted would be the death-knell of the company. If anything, Altium has been very willing to think out-of-the-box, to its benefit. Reducing its earning reports is an ill-advised decision, however.

Predictions for 2013

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It’s been awhile since I used this space to make any predictions about the coming months, but the end of the year is always the logical (if cliched) time to do so.

So here goes:

  • The migration of manufacturing to North America will accelerate, and the mainstream media will begin to report that OEMs are also reestablishing internal production lines.
  • Flextronics will buy at least some of RIM.
  • Robots as substitutes for human labor will be heavily hyped but lightly used.
  • Ousted Altium founder Nick Martin will hook on with a budding cloud-based software company and build a PCB CAD tool.
  • At least two new PCB CAD vendors will emerge.
  • Electronics manufacturing companies will end 2013 with less cash in the bank but brighter prospects for the future.

 

 

 

 

Why Not Nick?

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Nick Martin, the founder and, until last week, CEO of Altium, is fighting back against the board that tossed him out.

But the real question isn’t whether he will regain his spot atop the CAD tool developer. It’s why the board saw fit to relieve him of his duties in the first place.

Some contend privately that at least one board member wants to sell the company but that Martin, who is the company’s largest shareholder, has been reluctant to go along. If so, pushing him out would mean removing, in part, one big barrier. For its part, the board has publicly stated that the decision to leave was Martin’s — something he vehemently contests, and which seems unlikely on its surface — and that the company has not returned the type of shareholder value the board seeks.

So while it’s true the move to Shanghai coincided with an improved bottom line and a higher share price, it’s also true the stock hasn’t topped $1 in years (chart — the top line = $1; the current price is about 80 cents). No one is getting rich owning Altium right now. If the board is getting antsy, it’s understandable. Whether that merits replacing  Altium’s answer to Steve Jobs — a design visionary who, according to many we’ve spoken with, has always put the technology first — is for the historians to determine.

 

Riding High on Design

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The herd is riding on the EDA vendors, almost all of which are at or near 52-week high share prices.

In the past week, Cadence, Mentor and Synopsys hit or were trading just pennies off their yearlong highs. National Instruments and Ansys both traded much closer to their highs than their lows. Even Altium closed in on a high, but that’s a bit deceiving because it’s a penny stock and lightly traded on the Australian exchange.

So, is it the investor herd driving up an industry? Or is it a sign that the EDA market, which topped $5 billion for the first time in 2011, is geared up for a sustained run?

 

From Sydney to Shanghai

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It was a year ago that Altium decided to pack its bags and relocate its headquarters and R&D to Shanghai. The company’s revenue was up 20% year-over-year in the second half of 2011, and the pretax income, excluding charges related to the move, was $4.6 million, up from a loss of $315,000 the year before.

It’s way too premature to call the move a success, but on the other hand, those who thought the PCB software company would vanish into the Chinese ether have quieted down.