CAD Software Pricing Wars Heat Up

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.

 

 

 

Talk Isn’t Cheap

Communicating is hard. It took thousands of years just for man to develop a common language. I don’t suppose, then, even in our “enlightened” state, we should expect it to be easy to develop a common, complete method for describing all the myriad features of a printed circuit board.
This week at PCB West, the Silicon Valley annual trade show, a special panel will convene to address just that decades-old issue. (Disclosure: I’m the moderator.) I don’t expect the group to solve all the industry’s data problems in just 90 minutes, but I do think a few key aspects will be noted.

Here’s a question I plan to raise: Would the problem of unintelligent data files be essentially resolved if the initial cost to upgrade were lower?

Upstream, Intel, for example, sends an army of engineers to its suppliers to help them implement new processes. Few companies have the resources of Intel, of course. No fabricator does. And this leaves the fabs in a bind: They know that Gerber is insufficient, and spend countless hours massaging (often without their customer’s knowledge) the bad or incomplete data received from design. But with tooling jobs stacking up on their desks, and margins cut to the bone, they claim no resources to spend on implementing one of the richer data transfer formats like ODB++ or IPC-2581.

So who pays?

Neither IPC nor Valor make any money directly from their respective data transfer formats, so it’s unlikely either would see the value in extending themselves further by underwriting the onsite development and implementation work. (Whether they should anyway is a column for another day.) Designers tend to be risk-averse: They are unlikely to risk their jobs on something upper management is not mandating. Thus, it may be that the fabricators need to start assigning a CAM engineer to its key customers — perhaps one at a time, to keep costs down — to help them get up and running — no matter which rich format they choose.

The argument for switching to a superior format(s) is that manufacturers will save money down the road. I understand, however, that quantifying the cost savings is exceedingly difficult. Moreover, as one CAD developer told me, there’s an unwritten incentive for the status quo (read: Gerber) because manufacturers don’t want to appear inflexible.

I would argue that the industry’s margins can’t afford to keep sending bad data downstream and hoping for a miracle in return. Fabricators over the past decade have lost most of their influence over the printed circuit board development. This is an area where they can truly coach their customers — and add value in the process. They should grab it.

Talk Isn’t Cheap

Communicating is hard. It took thousands of years just for man to develop a common language. I don’t suppose, then, even in our “enlightened” state, we should expect it to be easy to develop a common, complete method for describing all the myriad features of a printed circuit board.

This week at PCB West, the Silicon Valley annual trade show, a special panel will convene to address just that decades-old issue. (Disclosure: I’m the moderator.) I don’t expect the group to solve all the industry’s data problems in just 90 minutes, but I do think a few key aspects will be noted.

Here’s a question I plan to raise: Would the problem of unintelligent data files be essentially resolved if the initial cost to upgrade were lower?

Upstream, Intel, for example, sends an army of engineers to its suppliers to help them implement new processes. Few companies have the resources of Intel, of course. No fabricator does. And this leaves the fabs in a bind: They know that Gerber is insufficient, and spend countless hours massaging (often without their customer’s knowledge) the bad or incomplete data received from design. But with tooling jobs stacking up on their desks, and margins cut to the bone, they claim no resources to spend on implementing one of the richer data transfer formats like ODB++ or IPC-2581.

So who pays?

Neither IPC nor Valor make any money directly from their respective data transfer formats, so it’s unlikely either would see the value in extending themselves further by underwriting the onsite development and implementation work. (Whether they should anyway is a column for another day.) Designers tend to be risk-averse: They are unlikely to risk their jobs on something upper management is not mandating. Thus, it may be that the fabricators need to start assigning a CAM engineer to its key customers — perhaps one at a time, to keep costs down — to help them get up and running — no matter which rich format they choose.

The argument for switching to a superior format(s) is that manufacturers will save money down the road. I understand, however, that quantifying the cost savings is exceedingly difficult. Moreover, as one CAD developer told me, there’s an unwritten incentive for the status quo (read: Gerber) because manufacturers don’t want to appear inflexible.

I would argue that the industry’s margins can’t afford to keep sending bad data downstream and hoping for a miracle in return. Fabricators over the past decade have lost most of their influence over the printed circuit board development. This is an area where they can truly coach their customers — and add value in the process. They should grab it.

What Icahn Wants

Carl Icahn made it official today, offering roughly $1.9 billion for Mentor Graphics, or $1 a share more than Cadence offered in summer of 2008.

But it’s clear from the seven sentence letter that Icahn has no desire to own the PCB/EDA software company. As he states 

There will be no financing conditions. Furthermore, we will not insist upon providing for a break-up fee in the transaction so as not to provide a roadblock to others who may want to consider bidding higher than our bid.

In other words, “I don’t want to own you. I just want to maximize the cash I can get for you.”

There are three obvious bidders for Mentor: Synposys and Cadence on the semi design business side, and Cadence and Zuken in the PCB space. That said, Synposys has shown no interest in the PCB side, and Cadence has a relatively new CEO who owes his job in part to the bungled attempt of his predecessor to buy Mentor. I can’t see Cadence making much of a play at this time. Zuken has plenty of cash and hasn’t been able to crack open the North American market (its share as of March 2010 was about 5%); this is a prime opportunity.

Given Icahn’s track record, the odds are growing long that the Mentor of 2012 will look much like the Mentor of today. 

Idle Speculation

What is noted corporate raider Carl Icahn up to?
 
With just under 15% of Mentor in his portfolio, Icahn now has turned his attention to an ERP software company called Lawson, of which he has accumulated nearly 11% of its outstanding shares. Does he plan to put the two together somehow?

This Barron’s report suggests at least one market watcher believes the moves aren’t isolated. “He bought at the same time, they’re both software companies and they’re somewhat laggards,” Lon Juricic of StreetInsider.com is quoted as saying. “He’s always known for his activist positions with companies … .”

Well, that seals it, doesn’t it!
 
Everyone and their dog has an ERP company, of course, and while Oracle, SAP, Infor and Microsoft are the domain of the largest enterprises, the door remains open for smaller, niche companies with tools designed for particular markets. But I don’t see that happening here. Manufacturing is just a piece of Lawson’s business; it’s not the whole focus. And almost every company in electronics manufacturing already has some sort of ERP system in place. It’s an expensive proposition to switch. 

And yet, there are some enticing facets to consider.

Lawson, through an acquisition last year, does have cloud computing capability that the industry is trending toward. There is benefit to that capability — see Altium’s recent purchase of Morfik, for example. Also, more EDA vendors are building in purchasing and inventory availability tools to their traditional place and route capabilities. Mentor’s acquisition of Valor aided its ability to track parts from design to placement. Intertwined with a solid ERP system, Mentor could leverage its traditional CAD tools even further.

But there’s the rub, right? At this point, most decent EDA tools talk in some shape or form to the ERP systems. Why reinvent the wheel — and at great risk given this is a (pricey) solution in search of a problem?

I see these moves as singular in nature and unrelated. But it’s still fun to speculate on.