The art of de Geus

CEO of the Year Aart de Geus is a first-rate musician, but orchestrating Synopsys is his true passion

By Bill Roberts -- e-inSITE, 1/1/2003

Lead guitar players are notorious egomaniacs, but not Aart de Geus, lead guitarist of Silicon Valley’s Full Disclosure Blues Band. “Whenever I play with Aart, he’s part of the whole,” says bass player Gary Smith. “Once we get the rhythms down, the breaks down, Aart says, ‘Okay guys, now let’s play together.’ He has us practice in a circle so we can watch each other.”

Like the other five band members, de Geus has a day job. He’s co-founder, chairman, and CEO of Mountain View-based Synopsys, an electronic design automation (EDA) software developer that changed the EDA landscape this year with its acquisition of Fremont-based Avant!. For this and many other reasons, Electronic Business has selected de Geus as its CEO of the Year for 2002.

De Geus (pronounced de-GEE- us) is a top-flight technologist who has become an astute businessman with a consensus management style. He’s a champion for learning—for himself, his employees, and Silicon Valley youth. With his passion for technology and widely applauded integrity, de Geus has become a senior statesman in the under- appreciated EDA industry.

Analysts praise the Avant! deal, which makes Synopsys the second billion-dollar EDA company, pitting it against No. 1, Cadence Design Systems of San Jose. “I expect Synopsys to be No. 1 in a couple of years,” says Smith, whose day job is EDA analyst for the Dataquest division of Gartner. “A $5-billion company is not out of the realm of possibility.”

The merger, however, is fraught with potential peril. De Geus must orchestrate the integration of two vastly different cultures. Synopsys is ethical and consensus-oriented. Avant! was autocratic and tainted by criminal and civil charges that it stole intellectual property (IP) from Cadence. Observers say de Geus is up to the challenge of this merger—and to leading Synopsys to multibillion-dollar revenues.

Active listener
De Geus learned his first guitar licks at 14, inspired by the Chicago-style blues of T Bone Walker. He was born in Holland and reared in Switzerland, where he played in the Black Cat Bone Blues Band for 10 years. Now 48, he has little time for music. He plays at home in Los Altos Hills, once a year with Full Disclosure, and an occasional jam. The band, however, is an important metaphor.

“In a band, the key skill is listening,” de Geus says. “Most people think skill on the instrument is key. That’s important, but listening to others and how you play together is more important. A good band also learns to deal with individual egos. Much of the management style at Synopsys is like that band model.”

Grant Pierce, a Full Disclosure member and CEO at Mountain View-based Sonics Inc, agrees: “Aart listens, which is extremely valuable in music and management. He understands how to give space and take space in the process of collaboration and looks for complements to his own skills.”

Stormy Monday
On Monday, December 3, 2001, northern California was reeling from a storm that caused floods and power outages. On this stormy Monday, Synopsys dropped the news that it would acquire Avant! for stock worth about $775 million. A pessimist might have seen a bad omen in the timing.

AT A GLANCE Synopsys Inc. Mountain View, California Founded: 1986 www.synopsys.com Chairman, CEO: Aart de Geus COO: Chi-Foon Chan Nasdaq symbol: SNPS Employees: 4177, as of last earnings call Business: Develops software that companies use to design integrated circuits, field-programmable gate arrays, systems-on-chips, and other electronic systems. Products span the design flow from high-level synthesis to placed gates. Revenue (fiscal year ended 10/31/2001): $680.4 million Net income (fiscal year ended 10/31/2001): $56.8 million

Six months earlier, Avant! founder Gerry Hsu and six other executives pleaded no contest to charges of stealing Cadence IP and using it in their early place-and- route products. Some of the executives went to jail. In mid-November, Cadence agreed to accept $265 million to settle the civil suit (see a Web-exclusive story at www.eb-mag.com).

Synopsys and Avant! could not be more different. Synopsys manages by consensus; Avant! by fiat. The 2500 Synopsys employees are encouraged to take risks. The 1500 Avant! employees were ordered to do as they were told. Synopsys has a reputation for integrity. Avant! had a reputation for, uh, being criminal. It isn’t far-fetched to compare the integration of the two to the merging of the two Germanys.

“Most engineers are going to be way more comfortable at Synopsys than at Avant!,” says Joe Costello, CEO at think3 Inc of Santa Clara and the former Cadence CEO who sued Avant!. “But culture permeates a company so deeply in so many ways. It is history, practices, customer relationships, etc. It is amazing how hard culture is to eradicate.”

“We wrestled with the acquisition of Avant! for three or four years,” says Steven Walske, a Synopsys board member since 1991. “Aart was always against it because of the integrity issue. We decided not to pursue it. It was not just the ethics, but it was more expensive then.” Synopsys opted to build its own back-end tools, but found it difficult.

Jewel and dirt ball
After the criminal case, the executives were gone and the price for the tainted company had fallen. “We started another round of discussions,” Walske says. “The board’s major consideration was to make sure we had a plan to mitigate the negatives.”

CFO Brad Henske suggested insurance to cover the civil suit. “Avant! was a big jewel with a dirt ball on it,” he says. He negotiated a policy, with a $300-million-plus premium, signed on December 3, 2001. The insurer is paying the $265 million to Cadence.

Avant! gives Synopsys a complete IC design solution. Its widely used back-end place-and-route, analysis, and extraction tools complement Synopsys’ leading front-end synthesis tools. “We can go to the customer with a bigger value proposition,” de Geus says (for more, see “Design Duopoly,” June 2002, at www.eb-mag. com).

Together, the two companies had sales of $1.08 billion in 2001, putting Synopsys in a position to challenge Cadence, whose 2001 sales were $1.4 billion. “Synopsys [with] Avant! is extraordinarily powerful,” says Bill Frerichs, an equity analyst for D A Davidson & Co. “I don’t expect either [Synopsys or Cadence] to maintain an unbeatable lead over the other over the long term. It’s going to be extremely competitive.”

And a bigger Synopsys now qualifies for more stock portfolios, Frerichs says. EDA stocks haven’t had the wild price fluctuations of other technology stocks. This was to their detriment during the bubble, but serves them well now. Still, Frerichs says, the market doesn’t fully appreciate Synopsys: “I’m not sure Wall Street has awakened to what a powerful offering this is.”

Two in the box
“Avant! was a bold move,” de Geus says. “Especially during this downturn and with their legal stuff.” He says integrating the two cultures will take a couple of years and depends on good management. De Geus and his executives revamped their two-day management course that he helps teach. “Every time I teach it, I’m sharpening the ability to voice what we mean by culture and the expectations of management.”

CEO OF THE YEAR Title: Chairman and CEO, Synopsys Age: 48 Key to success: “It is passion—the passion for excellence. I know it sounds trite, but that is the driver.” Compensation: In fiscal 2001, received $400,000 in salary, $575,000 in cash bonus and 85,500 stock options. Before Avant! acquisition, he owned 2.38 percent of Synopsys’ common stock. Education: MSEE degree in electrical engineering, Swiss Federal Polytechnical Institute, January 1978. PhD in electrical engineering, Southern Methodist University, May 1985. Family: Married 11 years to Esther, an epidemiologist at the Northern California Cancer Center in Fremont. Two daughters, ages 7 and 10. After hours: Family activities, playing blues guitar, reading. Recent books: Good to Great: Why Some Companies Make the Leap...And Others Don’t, by Jim Collins. Shackleton’s Way: Leadership Lessons From the Great Antarctic Explorer, by Margot Morrell et al. Community involvement: Vice chairman of the board and education champion, Silicon Valley Manufacturing Group, San Jose. Founder, Synopsys Silicon Valley Science and Technology Outreach Foundation, Mountain View. Favorite technology development: The deciphering of human DNA. Technology pet peeve: User manuals. Would like to see all products become so user friendly that user manuals aren’t needed.

De Geus and his executives learned from mistakes with earlier acquisitions, especially the importance of integrating two sales forces. The Avant! deal closed on June 6, 2002. Within a week, the company had consolidated the two sales teams. Three weeks later the sales staff met to go over product roadmaps and strategies.

“In a detailed review at the last board meeting, I was amazed at how far they had come,” says Andy Bryant, a Synopsys director since 1999 and CFO at Intel. He credits de Geus for the strategy and president and COO Chi-Foon Chan for the details. “Chi-Foon has done a wonderful job of laying the foundation of trust and cooperation that should allow them to deal with any issues later.”

Chan, a 12-year Synopsys veteran who once worked for Intel, has been COO for four years. He and de Geus both appear in the same box at the top of the org chart—”two in the box,” they call it. Together, they manage 12 direct reports; Chan reports to de Geus. It works. They think of each other as professional soulmates. “We work well together,” Chan says. “That doesn’t mean we agree on everything. If we do, then I don’t have any value to Aart.”

“It is a relationship where ideas get developed and mature by a rapid back and forth between us,” de Geus says. “Most people don’t appreciate how valuable this is.”

Screw-ups
De Geus gave a generous three hours over three interviews for this article. Slender with a crop of curly blond hair, he’s boyish, enthusiastic and introspective. Earlier in life, he read Swiss psychiatrist Carl Jung, and did self-analysis with Jungian analysts, an experience that influences him to this day. De Geus scrutinizes de Geus as thoroughly as he does business problems. “As a CEO, it is good to have a certain degree of self doubt,” he says. “Most of the tough stuff one learns by really screwing up.”

The CEO also gives employees wide latitude to take risks. “You give a lot if you believe that every person has 100 percent potential for what they do,” he says. “Synopsys accepted me as a CEO who had to learn a bunch of things. If you generalize that, then you have a company committed to learning.”

For de Geus, that commitment to learning extends beyond Synopsys. In 1999, he founded the Synopsys Silicon Valley Science and Technology Outreach Foundation to promote project-based science learning in Santa Clara County. Synopsys donates about $800,000 a year for grants to teachers and public schools and for the regional science fair.

As board vice chairman for the Silicon Valley Manufacturing Group, de Geus also urges CEOs to participate in a program that gives school teachers paid summer fellowships at electronics companies.

Thanks to his efforts, during the worst downturn in decades the organization placed a record 130 teachers this year, says Carl Guardino, CEO of the group. De Geus’s own learning experiences were diverse. In Switzerland, he became multilingual. He speaks five languages, including impeccable English with a slight accent. Home life with his chemist father was intellectually rigorous. As a child, he wired lamps and electrical switches, but Lego was a stronger lure. “It is a fundamental set of building blocks,” he says. “I often use the analogy that the modern system-on- a-chip can be brought back to Lego.” He still plays with Lego blocks with his two daughters.

Lessons from the farm
De Geus spent boyhood summers on a farm in the Netherlands. “There’s a great dependency among the players,” he recalls. “Everyone has a role. Even the youngest kids get the eggs. There’s no question about whether you would contribute. So often the management problems at Synopsys are not all that different from managing a crew in the field or being a member of a crew.”

After high school, de Geus entered the Swiss Federal Polytechnical Institute, where he earned an electrical engineering degree. In 1979, he went to graduate school at Southern Methodist University outside Dallas. “I just wanted to get out of Switzerland,” he says. “Graduate school was an elegant way to do that.”

In 1981, he went to work for General Electric in Research Triangle Park, North Carolina, developing CAD tools by day and completing his dissertation by night. He hired university students to work with him at GE and soon became a manager. He also met his future wife, Esther, a Swiss student at the University of North Carolina in Chapel Hill.

In 1985, during a deep industry downturn, GE exited the chip business. “I started to interview for jobs, but saw that my team was as good as some I interviewed with,” de Geus says. During his search, he met VC investors who encouraged him to do a spinout. “The synthesis technology we had developed was exciting,” he says. “But I would not do anything without talking to GE. They had treated us well, and it was their IP. We would make a proposal.”

GE put up the synthesis technology and $600,000 in exchange for equity. Harris Semiconductor invested $1 million, and two VC firms invested $2.7 million. Synopsys launched with seven GE employees: de Geus and six others. In 1987, after securing funding, they moved to Silicon Valley.

Employee No. 8 was Deirdre Hanford, who started as an applications engineer and is now senior vice president of market development. “Aart could have spent the next year developing this product behind closed doors,” she says. “Instead, we went to the customer to get feedback. He had a sense of the customer right from the beginning.”

Knowing his limits
Although he was CEO, de Geus knew he wasn’t ready to run the company. “He was smart to bring in a leader for the CEO role,” Hanford says. “He has a good knowledge of where he is strong and where he has to develop.”

De Geus hired Harvey Jones Jr, who was founder and CEO of Daisy Systems, an early EDA company. Jones led Synopsys until the early 1990s, when in January 1994 it went through a transition that resulted in de Geus becoming CEO.

Walske says Jones wanted to leave and de Geus wasn’t ready to be CEO. “Aart was a technology and product guy,” Walske says. “He had not shown much affinity toward selling.” De Geus became COO and president, then proceeded to learn the business. “One of his strengths is his ability to look critically at himself and stick with the job,” Walske says. “His self-awareness is a real asset.”

Bryant agrees: “I’ve only met a few people in my life who take coaching and really analyze it. Once Aart has the learning, he acts on it.”

Observers have a hard time finding faults. Smith says de Gues’s consensus style takes time and could be counterproductive in certain situations, but adds that “it hasn’t hurt him yet.”

At any rate, de Geus has become more decisive. “Pulling the trigger is not a problem anymore,” Bryant says. “He has restructured the company, restructured the board, and made the acquisition of Avant!.” It’s been a tough year for Synopsys, but not as tough as it was for most. The company expects revenues to fall just short of $1 billion for 2002. For the first three fiscal quarters, it reported a net loss of $102.2 million on sales of $597.3 million. “Our sales are not linked to volume, but to how many designs are started,” de Geus says. “The R&D expenses are extremely stable in our industry.”

“In an economic downturn, the strong companies get stronger,” he adds. That would also explain the Avant! acquisition and Synopsys’ recent acquisition of San Jose-based inSilicon, a provider of IP cores.

The best of times lie ahead for EDA, which becomes more important as chip designs get more complicated. The EDA software market is expected to top $5 billion by 2006, according to Dataquest.

In Switzerland, de Geus was the de facto leader of his band. “We were the No. 1 blues band in Switzerland, but there were only two blues bands,” he quips. EDA is now a battle of two bands, and de Geus is leading, as well as learning, at Synopsys.

Bill Roberts is a contributing writer for Electronic Business (www.eb-mag.com).