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QUICKTURN DESIGN SYSTEMS, INC.
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QUICKTURN DESIGN SYSTEM, INC.
THE QUICKTURN BUSINESS PLAN
Dear Quickturn Stockholder:
Your Board's decision to reject Mentor's offer is based upon its strong
belief that Quickturn has a promising future. The Board has determined that
Quickturn's business plan offers the potential for obtaining higher long-term
benefits for you, the stockholders, than Mentor's offer. I would like to share
with you some of the details of this plan, as well as to describe some of the
benefits and risks we believe it entails. I also want to direct you to the
Quickturn 1997 Annual Report to Stockholders and Annual Report on Form 10-K
for the year ended December 31, 1997 for a more detailed discussion of the
plan and the associated risks, as well as other information about Quickturn in
general.
The fundamentals of our business plan remain as they always have been--to be
the leader in high-performance design verification tools for the most complex
integrated circuits and electronics systems. The details of the plan to
achieve this goal have evolved over the years. At its core is our current
leadership position in emulation technology. Our recently announced Mercury
Design Verification System is intended to strengthen the position already
achieved by the Company's industry-standard System Realizer emulator.
Complementing Mercury and System Realizer is our CoBALT emulation system,
introduced in January 1997. CoBALT is the industry's most powerful cycle-based
emulation system. In all of our emulation activities, our goal has been to
increase the accessibility and use of emulation technology by the electronics
and semiconductor industries through continual decreases in customer design
cost per silicon gate and increases in ease of use.
In recent years, we have included in our business plan efforts to stake out
leadership positions in other new complementary technologies. For example,
through our acquisition of Speedsim, Inc. in 1997, we acquired a strong
position in cycle-based simulation technology, an important verification
technology complementary to emulation. Our business plan also includes a
strategic open architecture initiative, promoting greater interoperability
among different vendors' design tools. An outcome of this initiative is our
Q/Bridge technology, which provides an interface between simulation-based
software tools and our hardware-based emulators making Quickturn's technology
available to a broader base of users worldwide.
Given the complexity of the verification task, a key part of Quickturn's
business plan is to offer its mission-critical turnkey Time-to-Market
Engineering (TtME) support services to provide applications expertise, start-
up assistance, training, on-site integration, custom engineering development
and complete project implementation as needed by our customers to meet actual
verification challenges. Launched in 1996, TtME has been growing at more than
30% per year and Quickturn expects TtME to play a key role in our planned
growth.
Another important aspect of our business plan is to establish and strengthen
strategic alliances with other participants in the EDA industry. The CoBALT
emulation system was developed as part of our exclusive technology
relationship with IBM, and the Q/Bridge technology has led to technology
partnerships with other leading companies in the EDA industry such as
Synopsys, Inc. and Cadence Design Systems, Inc. to tightly integrate their
industry-leading software simulation tools with Quickturn's emulation systems.
This is our business plan. We believe it is the best for our markets, our
goals and, ultimately, you, our stockholders. Our execution of the plan has
been challenged over the past two years. In 1997, we faced aggressive
marketing campaigns from new competitors causing temporary delay and confusion
in the market. More recently, economic turmoil in the Asia/Pacific region has
affected our business as well as the businesses of many others in the
industry. Nonetheless, we believe that Quickturn will generate substantial
returns for Quickturn's stockholders over the next two years and thereafter.
Our confidence in the plan is based upon, among other things, the following
factors:
. As the electronics industry makes the transition to deep submicron
semiconductor processing, we believe the increasing complexity of chip
design will generate higher demand for verification products;
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. Quickturn has invested more than $60 million on research and development
over the last three years, generating current and future planned products
such as the MercuryTM Design Verification System, which is expected to be
in full production by year-end;
. Quickturn is committed to its long-standing policy of vigorously
defending its strong intellectual property position, which includes 25
issued U.S. patents, 25 pending U.S. patent applications, and numerous
international patents and application filings;
. Despite the current economic downturn in the Asia/Pacific region,
Quickturn believes a reinvestment cycle in new design activity in that
area is imminent, given the competitive forces in the worldwide
electronics industry; and
. Quickturn is beginning to see some signs of that reinvestment cycle
commencing in the third quarter and particularly in the fourth quarter of
this year.
However, a number of the above factors, as well as the success of the plan
itself, are dependent upon risks, uncertainties and events not within
Quickturn's control, including the following: (i) the company is uncertain
whether the recent weakness experienced in the Asia/Pacific and domestic
market will continue in the foreseeable future; (ii) product transitions to
Quickturn's new Mercury Design Verification System may be disrupted due to
slow market acceptance or due to disruptions in manufacturing for component
availability; (iii) many of the company's customers order on an as-needed
basis and often delay delivery of firm purchase orders; (iv) many of the
company's products involve a lengthy sales cycle which could result, among
other things, in fluctuations of operating results and inventory obsolescence
if expected orders are delayed or not received; (v) the company expects
increased competition, which could result in lost sales or price erosion; (vi)
the company's patents and other proprietary rights may not ensure adequate
protection against competition; (vii) the company serves the electronics and
semiconductor industries, which are noted for rapidly changing needs, there
can be no assurance that Quickturn's product enhancements or new product
introductions will keep pace with or meet those rapidly changing needs or that
new products offered by others will not be superior to those offered by
Quickturn; and (viii) there can be no assurance that Quickturn can retain the
services of key employees and key suppliers upon which the company is
dependent to provide product advances, timely productions and high levels of
product quality and reliability.
This is the business plan that has led us to our current leadership
position, and this is the business plan we intend to continue to follow. Don't
let Mentor prevent us from continuing to carry it out and delivering to you
the benefits we believe will result from it.
Very truly yours,
/s/ Keith Lobo
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Keith Lobo
