Mentor Graphics Inc, the Wilsonville, Oregon-based company that has just posted second quarter losses of $6.9m, has been talking with industry analysts and laying out its plans for a return to profitability by the fourth quarter. According to a piece in Electronic News, Mentor, which was Apollo Computer Inc’s biggest single customer and transferred the business to Hewlett-Packard Co, intends to eliminate cost drains and to stop reselling workstations by the end of 1993; to lease out 75,000 square feet at its headquarters; to explore alternative sales channels, especially in Japan; and to speed up the pace of ASIC library development. Also, the company will make provisions for redundancies but says that it has yet to decide on the final number. Thomas Bruggere, chairman and chief executive officer, says that poor second quarter earnings were due to an extreme economic slowdown in Japan, a slow transition from hardware and low demand for new tools since users are dragging their feet over the transistion from software Version 7.0 to Version 8.0. Only about 10% of the installed base has moved to Version 8.0 or 8.1, with another 30% in the process of migration. Bruggere hopes that everyone will move on to Version 8.X since the majority of Mentor’s revenue is derived from its installed base of around 30,000. Apart from tardy migration, Bruggere acknowledges that users are delaying purchasing decisions in the hope of a discount at the end of the quarter. Bruggere is adamant that that practice won’t be encouraged in the future. Mentor’s problems did not originate in the second quarter but in delays in the development process which pushed back the launch date by more than a year. Nonetheless, Bruggere believes that the risks associated with new product development are behind the company and the question is not if, but when Mentor returns to profitability. The company is aiming to achieve 20% gross margins by the fourth quarter of 1994.
