Walden Rhines, Mentor Graphics Chairman and CEO

Walden Rhines is chairman and CEO of Mentor Graphics Corp. (Wilsonville, Ore.). Prior to joining the company in October 1993, he was executive vice president in charge of Texas Instruments' Semiconductor Group. Rhines has served as chairman of the Semiconductor Technical Advisory Committee of the U.S. Department of Commerce, as an executive committee member of the board of directors of the Corporation for Open Systems, as a board member of the Computer and Business Equipment Manufacturers' Association (CBEMA), and as a board member of SEMI/Sematech. He is chairman of the Electronic Design Automation Consortium, and a board member of the Semiconductor Research Corp. and Lewis and Clark College. Rhines also serves as chairman of the Engineering Technology Industry Council of the State of Oregon.

Rhines holds a B.S. in metallurgical engineering from the University of Michigan, an M.S. and Ph.D. in materials science and engineering from Stanford University, an M.B.A. from Southern Methodist University, and an honorary doctor of technology degree from Nottingham Trent University.

Mentor Graphics is an EDA company with annual revenue of ~$600M.

SI: What are your expectations for the rest of the year, during this downturn cycle?

Rhines: As with everyone else, the downturn has had an impact on us. We have had flat revenue for the last two years, and that's been difficult for us. However, I believe we're seeing signs that the worst is over.

SI: Many in the semiconductor industry today wouldn't mind having flat revenue.

Rhines: True. Looking forward, we all know that there'll be a recovery. It may come soon or later, be fast or slow, but it'll come. Certainly, things are getting stronger than they were some months ago. Still, business conditions are extremely weak.

SI: Like everyone else, you've probably had to implement cost controls?

Rhines: Of many kinds. We've been fortunate in that we haven't had to disrupt the company with across-the-board layoffs. On the other hand, we've not been hiring many people, and over the last two years have scrutinized programs and eliminated anything we thought was unnecessary.

SI: Many companies find that a downturn is not a bad period during which to carry out R&D. Has that been the case with Mentor?

Walden Rhines (Source: Mentor Graphics)

Rhines: It has with us. We've been profitable through this whole period, so we have been able to keep R&D going. Our effort here is substantial. We're spending approximately 25% or our revenue on R&D. This is the time to do it because, as I look back on all the recessions I have been through, the future is most influenced by what you do during the darkest periods. If you don't do it now, then, when the good times come, you will have missed the biggest opportunity.

SI: What are your short- and long-term plans for the company? Are you going to change anything?

Rhines: We've taken a different approach from that of the other large EDA companies. We've selected some specific areas where we can be best in class, have the highest market share, where we can offer the best value for our customers, and achieve the highest economy scale. This keeps us from being all things to all people. It has given us the opportunity to be successful in specific areas that we expect will become very important, such as field-programmable logic, deep-submicron verification and analysis, SoC verification, and PCB design.

SI: Are you planning to meet some of the semiconductor's needs as we move to 300 mm, particularly with the design and test requirements that nanometer architectures will require (i.e., the signal integrity concerns that arise at these geometries)?

Rhines: Yes. That's probably the single biggest driving force for our current products and those under development. All the challenges associated with signal integrity, parasitics, power — those kinds of issues. Also, the manufacturing issues that arise with production of 90 and 65 nm features using traditional optical lithography — we're the leader in providing resolution enhancement technology to enable OPC, phase shifting, scattering bars, and so forth.

SI: One of the more interesting problems we face is the interconnect. Laying it out still has much black magic involved in it. Is there anything that you're working on that might help?

Rhines: The interconnect problem is not just chips; it is boards as well — the layers are growing and the spacing is decreasing. Over the last five years signal integrity analysis for boards has gone from almost nothing to being one of our major businesses. At the chip level, we have one of our best physical placement teams devoted to the problem of performance in field-programmable logic chips at fine geometries. We can help people achieve timing that is related to interconnect delay, as well as other delays.

SI: What other engineering validation and test system products are you planning on, particularly in view of the growth of mixed signal and SoC designs?

Rhines: Presently, we have what I believe is the best mixed-signal design flow — the tools, the analysis, the models — everything that's needed for mixed-signal design. Additionally, for SoC, there are requirements for embedded software, verification of the hardware with the software, for total system validation. We have a complete verification platform as well as the industry's broadest and best DFT capability.

SI: Looking at the next couple years, how would you define your DFT and BIST strategies?

Rhines: We've put together a world-class capability, with innovations that have advanced test faster than Moore's Law has increased in complexity. We have made at-speed testing possible, with new fault models and 90%+ compression of test patterns with no coverage loss. Our software enables the manufacturer to run product 10× faster through the tester. The interconnect problems we already discussed create reliability concerns — there are transition faults, bridging faults, all kinds of things that aren't traditionally modeled. The only way to test these is with lots of patterns. We can test for intermittent reliability problems, which couldn't be tested before because of insufficient pattern memory.

SI: Has the downturn changed what your customer base requires of you?

Rhines: (Laughing) They want more for less. All kidding aside, there is a difference. Small companies and startups used to be over half our business, and that has shifted dramatically. Many of the smallest companies didn't survive, or became financially strapped, and that caused the customer mix to shift to larger companies. Another change — the preservation of cash and the reduction of expenses — means that no one buys anything unless absolutely necessary. There are fewer major initiatives to make big changes to the design process in a company. If what they're using got the job done the last time, they'll try to make it go one more time.

SI: The tremendous rounds of layoffs companies have gone through have done much to undermine in-house expertise. Now the key phrase is "concentrate on core competencies." Do you find customers are increasingly relying upon you to provide that vanished expertise?

Rhines: To a great extent they are; however, this isn't outsourcing. They'd like to have it provided as part of the product. They aren't interested in buying consulting services — they want products and the expert application engineers to support them who will provide not only post-sales support, but ongoing help as a part of the general support contract. The emphasis is on providing easier-to-use tools with increased capabilities.

SI: Considering the shift in your customer base, what's your take on the frenzy of consolidations that has been taking place?

Rhines: It has been overdone, as it always is. There'll be a time when we see the rate of startups pick up again. Smaller companies flourish again and liquidity will allow risk takers to move into risky new markets. Of course, this will come as part of the recovery.

SI: Is it more difficult to grow these days than it used to be?

Rhines: It's always been difficult. That being said, it has been particularly difficult during the last two years, because R&D budgets were flat or declining. Also, the shortage of cash in many companies has caused very conservative purchasing to the point where opportunities for rapid payback of tool investments had to be ignored because of the need to conserve cash.

SI: What sort of plans do you have for, including presence in, Asia?

Rhines: We've grown our operation on the mainland throughout this recession and seen our sales grow as well. We have multinational companies that buy from us, which now have substantial activity there; we have Chinese companies that have grown up using our design tools; and there are government programs to outfit laboratories and prototype development centers; we're engaged in all of them.

SI: Mentor Graphics' product is pure IP. Do you have any concerns about the IP situation in China?

Rhines: That's always a risk. However, we have been able to operate there for over 15 years, and haven't had a major issue; things are improving constantly. We tend to work with either public companies or established operations and, because of that, I believe they're quite responsible about IP protection — as are the multinationals. We don't do much business with regional governments and other local government entities.

SI: Are there any industry trends that we ought to be paying more attention to?

Rhines: Certainly, the large backlog of 300 mm wafer fabs in various stages of completion will have an impact. Leadtimes for new leading-edge capacity in this next cycle will be shorter than it traditionally has been in previous cycles. As a result, instead of the boom-or-bust cyclicality, we should see linear additions of leading-edge capacity as it's needed. This will make design differentiation more important, and it'll mean that, even after the upturn comes, you'll have to do cost-reduction designs to shrink, say, from 0.18 µm to 130 nm because your competitors are going to, the capacity will be available, and cost-effective.

SI: Aside from the cycles, is there anything you'd like to change in the industry?

Rhines: Litigation. It's a waste that provides income for lawyers while discouraging competition and innovation — it's a mess. All these frivolous lawsuits are holding up progress. I would point to the period from 1947 to 1985 as the greatest period of innovation in history, and the single thing that made that possible was pervasive semiconductor patent cross-licensing, initiated by AT&T's leveling the playing field through licensing of the patents on the transistor. If we could rise to that level in the future — not to a point where IP has no value, but where everyone can contribute and licensing matters are solved without litigation — then you could spend most of your effort on innovation as, indeed, the industry did then.

SI: Any advice for the industry?

Rhines: To justify a position in the world, you must do something better than anyone else. I would advise people to be well aware of their capabilities and limit their horizons to things where the value they can add for customers is overwhelming. Don't just move towards size or breadth — specialize and become the best.