What is the similarity between the problems and GM and those at Cadence? Well, there are certainly plenty of differences, GM has all sorts of problems which stem from over-generous union contracts for one. But the thing that brought problems to a head at both Cadence and GM have a similar basis.
In the early 2000s GM and Chrysler (and Ford and Toyota and everyone else) sold a total of 16 million cars, small trucks and SUVs each year. With low interest rates, basically everyone who wanted and could just about afford one, bought a new car. Do the math: 16 million times 6 years is 96 million vehicles which is getting on for the number of households in the US (111 million), or 40% of all adults (228 million). Going forward, not many people are going to be buying new cars since everyone already has one. Sales are expected to be maybe 10 million this year and that may turn out to be optimistic. Cars last a long time these days so, unless you crash your car and have it written off, it is a discretionary purchase that can be delayed for years. This problem is not unique to GM, Toyota’s sales numbers have fallen about the same. In essence, the auto industry sold in 6 years all the cars everyone would want for ten years while credit was easy and consumer confidence was high. GM is just the most vulnerable due to bad management and bad union contracts, but less vulnerable since you and I will be picking up the tab for all this. I fully expect GM to behave just like British Leyland in Britain, also publicly owned, did. They’ll lose a bucket of money but the government will just shovel more money into their gaping maw rather than see them shut down. (Here’s another statistic: GM has to be worth more than it was in the early 2000s at its peak for the taxpayers to get any of their money back).
Cadence in the Fister/Bush era repeated the same mistake from the Olsen era of selling in a period of time almost all the licenses anyone was going to need for a much longer period of time. Once you’ve sold in 3 years all the software anyone needs in 5 years, it gets hard to make your number in the out 2 years.
Of course, both these are problems that time will fix. Eventually people will want new cars again and probably GM will still be there to sell them (since we’re covering all their losses). At least with Cadence it’s not us that are going to pay. And with Cadence it is a much shorter time period. Probably by the end of next year they’ll have eaten a good part of their way through the “supply tools, but accept that we’ve already been paid” and their number should start to improve.
GM may take longer. And, of course, both companies have other competitors (Synopsy, Toyota etc) ready to try to capitalize on any upturn.
But to put things in perspective, Cadence’s market cap at $1.4B is almost exactly twice General Motors ($700M).