Good news in a way: Merrill Lynch (or Bank of America Merrill Lynch as I suppose we have to get used to calling them) have re-started coverage of EDA with a 20 page report on the industry, much of which is spent on explaining how the industry segments out and who is strong in which segments, stuff that most people reading this site already know.
Their top attraction is Cadence (buy rating, with a price target of $13), followed by Synopsys (buy rating, with a price target of $35) and then Mentor (neutral, with a price target of $15).
My comments: Synopsys is clearly the EDA leader but as the largest company it is hard for them to grow faster than the overal EDA market. Cadence is in year 3 of a transition and the interesting thing to watch will be how much business they have in year 3 because historically these transitions risk doing 3 years of business in 2 years leaving thin pickings for the 3rd year (and so a temptation to do some non-ratable business to make the number).
Mentor, for those of you not following along at home, has Carl Icahn nipping at their heels. He has taken a 15% stake in the company and, last week, on CNBC accused them of being a country-club and that they should be sold or broken up. At the very least it should be a good spectator sport. The Merrill Lynch report doesn’t mention Icahn and the potential upside/risk.
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