( ESNUG 304 Item 4 ) --------------------------------------------- [11/12/98]
Subject: ( ESNUG 303 #1 ) Cadence Lays Off 1/3 Of Spectrum Consulting
> SAN JOSE, Calif. (EE Times) - Cadence Design Systems will close down
> several of its design centers in the coming months, laying off roughly
> 1/3 of its front-end design services division, according to sources
> inside the company. ... "I said it three years ago and surprise,
> surprise" said Cooley. "In April of 1995, I wrote a letter to the editor
> in EE Times that said pimping out Cadence's designers wasn't a good idea,
> and if you sell $10 million of design consulting, you can end up paying
> $6-to-$17 million in labor to actually service the customer. And if you
> sink $10 million in creating a new EDA/CAD tool, you can bring back $10-
> to-$50-to-$150 million in revenue. Consulting just isn't as lucrative as
> selling good products," said Cooley. "Now Cadence, and unfortunately the
> engineers Cadence stole from customers, are learning that the hard way."
From: "Ted Frederick" <tedf@Cadence.COM>
Well, you *almost* got it right, John... but I knew you'd take this
opportunity to blow your horn.
Your allusions regarding the non-profitability of services are inaccurate.
Cadence simply over-staffed for the amount of design services that were
coming in. Paying salaries for idle designers does not make good business
sense... so away they went.
The Design Services business is good, however, you need enough of it to
justify keeping that many people on board and with the slowing economy and
Asian flu, clients have been less inclined to farm-out Design Services work.
It's just that simple. ;]
- Ted Frederick
Cadence
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From: Yatin Trivedi <trivedi@seva.com>
Hey John,
I can't pass up this opportunity. The services business isn't bad. In
fact, a lot of design places that cut down their engineering force are
asking for help. Send me your tired (I mean Cadence's laid off) folks and I
will show you where they can be very happy.
We have been flushed with Design Services work, have grown in the past six
months and still can't keep up with it.
My take on this layoff is that either:
(a) Cadence removed some large amount of dead wood accumulated through
recent (3 years?) acquisitions and hiring binges, or
(b) strategically they have looked for projects (and places)
where there is little money.
It is a lot easier to get ten $1M projects than to get one $10M project
(and implement it successfully). If you spend $5M in marketing and sales
to get a $10M project, that leaves only $5M to implement and nothing for
profits! Your customer won't pay $10M as $5M for engr labor and $5M for
overhead -- he expects $10M to be all spent on engineering labor. So now
you have to deal with $10M cost in $5M revenue, and you end up with $5M
loss. Real simple, isn't it?
Your comment is valid - "Consulting isn't just as lucrative as selling good
products". Every customer wants a fixed cost bid for poorly defined spec
and wants to negotiate based on time & material cost. Go figure!
By the way, this isn't a negative criticism of Cadence. It applies to
similar outfits that call themselves Design Factories but largely
remain marketing and sales organizations. For consulting services,
the organization must remain largely engineering with some (necessary)
marketing and sales support.
- Yatin Trivedi
SEVA Technologies Fremont, CA
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From: [ Royally Pissed ]
Dear John,
I am royally pissed at EE Times and Gary Smith [ the Dataquest EDA analyst ]
for trying to pass me off as a fucking 'Arthur Andersen' type. I have worked
as a fucking DESIGN engineer for over 7 years sweating out the fucking
details of 6 large ASICs. I am _not_ one of those deadwood Arthur Andersen
pretty boys who makes his living sweet talking CEOs! I fucking design chips
for a living. I _work_ for a living! I really resent this way of being
characterized by Gary Smith and EE Times. The only mistake I've done was to
take a job consulting at Cadence and to then be in one of the Cadence design
centers that Jack Harding [ the CEO of Cadence ] closed after some fucking
Arthur Andersen pretty boy probably convinced him to do it. John, very anon
PLEASE!
- [ Royally Pissed ]
[ Editor's Note: What this letter is referencing is on pg.4 of the Nov. 9
issue of "EE Times" in their article discussing the Cadence layoffs.
"What's happening," said Gary Smith, principal EDA analyst at Dataquest,
"is a much-needed housecleaning in which 'Arthur Andersen' types are
being replaced by skilled ASIC designers. Actually, Cadence's design-
services group is working better now than ever. They're starting to
concentrate on a sustainable service business." is the quote. - John ]
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From: [ the voyeuristic one ]
john: i don't think this repudiates the model. mentor thinks it does and
others think it does but i don't. companies are cutting back left and right
and this is indicative of that. now if the economy was roaring and the
semiconductor industry was up 45 percent this year AND cadence did this,
then the model goes out the window. but in a down market, i don't think
you can make the claim that the model isn't working.
if they kill the operation someday, then it's a different story.
- [ the voyeuristic one ]
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From: jcooley@world.std.com (John Cooley)
Dear [ the voyeuristic one ],
Positive fundamental changes in business models that are supposedly superior,
by definition, outperform their markets. For example, cheapie Walmarts
everywhere worked whether the economy was *booming* OR in *recession*
BECAUSE it's a better idea. Let's take your it's-just-the-economy-stoopid
argument and flip it on its head with what I said all along: the reason why
the Cadence Spectrum Services model initially worked *WAS* because of a
booming economy where everyone was desperate for engineers. That is, the
idea wasn't tested because everyone, everywhere was experiencing a deep need
for more engineers to get their hot projects done. (Shit, you oughta know
this -- look at all those employment ads that practically filled the back
third of EE Times for the last 2 years.) Cadence would steal the engineers
from customers and the customers were stuck having to rent the very same
designers back. The true test of the Cadence consulting business model is
how did it hold up when the feast was over? Did it still keep growing? Or,
if it shrunk, did it shrink less than it's competitors? In both cases,
Cadence failed if it's laying off 1/3 of its consulting force. And that's
why everyone's telling you the Cadence consulting business model has failed.
- John Cooley
the ESNUG guy
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