RPT-UPDATE 2-Cadence Design CEO resigns; shares fall

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By Sayantani Ghosh

BANGALORE, Oct 15 (Reuters) - Cadence Design Systems (CDNS.O) Chief Executive Michael Fister and four of its vice presidents resigned on Wednesday, in the wake of an aborted bid to buy rival Mentor Graphics Corp (MENT.O) and increasing financial problems.

Shares of the company, which have lost three quarters of their value over the last 12 months, were down 12 percent to $4.68 on the news.

The company did not give any reason for CEO Michael Fister's resignation but said it was in mutual agreement with the board.

"Fister and some senior management had a strategic plan which fell through last year, and Fister stepped aside due to mounting shareholder unrest," D.A. Davidson & Co analyst Matthew Petkun said by phone.

Apart from the aborted Mentor bid, Cadence's inability to sell itself to a private equity firm last year and an expensive share buyback are all reasons for Fister's resignation, Petkun said.

The company ended its efforts to rival chip design software maker Mentor Graphics, struggling with a depleted cash flow after it posted a huge plunge in second-quarter profit.

In a statement, Cadence said its board has formed an interim office of the chief executive to oversee day-to-day operations.

A search committee has also been formed to find a permanent replacement for Fister, who had joined the company in 2004.

The company also maintained its third-quarter outlook for a loss of 25 cents to 27 cents a share on revenue of $235 million to $245 million.

RBC Capital Market analyst Mahesh Sanganeria, who had downgraded the Cadence stock to "underperform" earlier this week, said the resignation was pretty widely anticipated.

In a note dated Oct 13, he said the company is expected to reduce its workforce by 20-25 percent by early November.

Sanganeria said it would be several months into 2009 before Cadence adapted to the expected job cuts, during which there could be loss of business.

Indicating increasing troubles faced by the company, CEO Fister had said at the second quarter earnings call that price conscious economic environment was hitting the company hard.

"...We have made the difficult but necessary decision to lower our outlook and transition to an approximately 90 percent ratable license mix," Fister had said.

Analysts said the move offered less visibilty into orders and suggested turbulent times.

Davidson's Petkun said the company would take several years to build its subscription backlog and improve visibility and cash flow. (Editing by Anil D'Silva and Saumyadeb Chakrabarty)