Commentary:
Commentary: EDA Industry Update August 2007 -- What did the Last Quarter Bring?
by Dr. Russ Henke and Dr. Jack Horgan
Henke Associates
In each of the last seventeen quarterly EDA Industry Commentaries written by the authors (published on EDACafé.com beginning May 2003), the then-current yearly and quarterly financial performances of a selected group of publicly traded Electronic Design Automation (EDA) companies were analyzed and compared. Expectations regarding the future financial performances of these same EDA entities were documented as well. The selected companies were Altium, Ansoft, Cadence, Magma, Mentor Graphics, Nassda, Synopsys, Synplicity and Verisity.
Note: As part of continuing EDA industry consolidation, two previously-selected EDA vendors, namely Verisity and Nassda, have been acquired by others and hence have been dropped from the authors' quarterly EDA Commentaries.
This eighteenth, August 2007 report covers the performances of the remaining seven EDA Vendors for the nominal Second Quarter of 2007.
In this issue, EDA News Highlights are followed by the revenue & earnings performances of the selected group of EDA players for Q2 2007, and then EDA vendor by vendor details. EDA Vendor stock prices are discussed. Finally, individual EDA vendor forecasts for Q3 2007 are provided. Enjoy!
EDA News Highlights - Acquisitions continue…
On June 1, 2007 Synplicity announced the signing of a definitive agreement to acquire all of the outstanding shares of HARDI Electronics AB, a leading developer of off-the-shelf ASIC prototyping boards, for $24.2 million in cash.
On June 11, 2007 Mentor Graphics announced it had acquired Sierra Design Automation, a provider of high-performance place and route solutions. The company was purchased for $90 million, payable 50% in cash and 50% in Mentor Graphics common stock.
On August 16, 2007 Cadence announced that it had acquired Clear Shape Technologies, Inc., a DFM technology company specializing in design-side solutions to minimize yield loss for advanced semiconductor ICs. The acquisition was completed on August 15, 2007. Terms of the agreement have not been disclosed.
How did the selected EDA Vendors fair during the Second Quarter of 2007?
As shown in Table 1, the combined revenue performance of seven EDA vendors was $1 billion, an increase of nearly 11% from $899 million in the second quarter of 2006, and an increase of over 5% from the $952 million in Q1 2007. All covered firms reported year-over-year quarterly revenue growth. Magma was percentage revenue growth leader at 22%. Altium, Ansoft and Mentor Graphics delivered growth rates in the mid-teens while Cadence, Synopsys and Synplicity exhibited growth in the high single digits. On a sequential quarterly basis, Ansoft was the only decliner at -30%. Altium was the runaway sequential growth leader at 39%. Synplicity was the only other firm to reach double digit sequential growth.
|
|
|
Figures 1 and 2 above provide additional revenue comparisons among vendors for Q2 2007. Cadence was number one at a 39% share, Synopsys number two at 30% and Mentor Graphics number three at 21%. As usual, the big three EDA firms accounted for 90% of total revenue of the selected group. Magma was a distant fourth at 5%.
|
Turning to earnings performances in Q2 2007, Table 2 shows that the EDA group of six (Altium did not report earnings) reported a combined net income of $80 million, a huge percentage increase of 165% from the $39 million in the year ago quarter and a modest increase of 14% from the $70 million in the just prior quarter. Magma was the only firm to have a net loss for the quarter (-$11.2 million). On a year-over-year basis Magma and Synplicity had small (~$500K) net income drops. Synopsys and Cadence had significant earnings percentage growth at 230% and 96%, respectively. Ansoft also had good earnings growth at 69%. On a sequential basis, Magma's net loss was less than half its loss in the previous quarter. Major sequential decliners were Ansoft and Synopsys at -51% and -40%, respectively.
Company by Company Q2 2007 details:
The table below shows the sales results by geographic region. If all the data are converted to US$, Americas account for 43.5% of total sales, Europe 33%, and AP 22%.
|
For the year, sales were AU$57.5 million, up 26% from AU$45.5 million for the corresponding period a year ago. Altium operates in three regions around the world: the Americas, Europe (also including the Middle East and Africa), and the Asia-Pacific region (AP). For the full year, sales for the Americas grew 30% measured in US$; European sales grew 17% measured in euros; and AP sales grew 67% measured in US$, all compared with the corresponding period a year ago. Revenue for the full year ending 30 June, 2007 is AU$53.3 million, up 18% from AU$45.1 million reported for the corresponding period a year ago.
|
Nick Martin, CEO of Altium Limited, commented, “It's pleasing to see our company strategy driving our positive financial results. All our key markets are starting to see the effects of the way our sales force is helping our customers understand and use the benefits of this unified approach in their organizations. Altium is also seeing increasing sales of maintenance and support contracts, on the back of our increasing license sales.”
August 14, 2007 Ansoft Corporation announced financial results for its first quarter of fiscal 2008, ending July 31, 2007. Total revenue for the quarter was $19.9 million, an increase of 15% from the $17.3 million in the same quarter a year earlier, but a 30% drop from the $28.6 million in the previous (traditionally strong fiscal 4th) quarter. License revenue at $9.7 million accounted for 48.5% of the total first fiscal quarter revenue, an 18% increase year-over-year, but a 48% drop sequentially. Service revenue at $10.2 million accounted for 51.5% of total revenue, a 12% increase year-over-year, and a 4.4% increase sequentially.
Net income for the quarter was $3.9 million, an increase of 69% from the $2.2 million a year earlier, but a 51% drop from the $7.9 million in the just prior quarter.
Nicholas Csendes, Ansoft's President and CEO, said, "We are pleased to report strong revenue and earnings growth for the first quarter. For the next fiscal quarter, we anticipate continued revenue growth of around 10-15%."
On July 25, 2007 Cadence Design Systems, Inc. reported financial results for the second quarter, the period ending June 30, 2007. Total revenue for the quarter was $391 million, a 9% increase from the $358 million in the second quarter of 2006, and a 7% increase from the $365 million in the just prior quarter. Product revenue, accounting for 67% of total revenue, was $263 million, an increase of over 13% year-over-year, and a nearly 11% increase sequentially. Maintenance revenue, accounting for 24% of total revenue, was $94 million, an increase of just over 1% year-over-year, and a decrease by the same percentage sequentially. Service revenue, accounting for over 8% of total revenue, was $33 million, an increase of 8.4% year-over-year, and nearly a 3% increase sequentially. One customer accounted for 18% of total revenue in the quarter. Some 75% of revenue in the quarter is ratable. For the year revenue from backlog is about two-thirds of total revenue.
Functional Verification accounted for 24% of total revenue, Digital IC Design 29%, Custom IC Design 24%, DFM 7%, System Interconnect 8% and Services 8%.
|
On a geographic basis North America accounted for 52% of total revenue, Europe 17%, Japan 14% and Asia 17%. On a year-over-year basis revenue from North America was up 18%, from Europe up 3%, from Asia up 85%, and down 36% from Japan. On a sequential basis revenue from North America was up 16%, from Europe up 21%, from Asia up 82%, but down 44% from Japan.
On August 16, 2007 Cadence announced that it had acquired Clear Shape Technologies, Inc., a DFM technology company specializing in design-side solutions to minimize yield loss for advanced semiconductor ICs. The acquisition was completed on August 15, 2007. Terms of the agreement have not been disclosed.
Mike Fister, president and CEO of Cadence, said, "We continue to demonstrate leadership across technology platforms as evidenced by the strong performances of our functional verification and low power digital solutions for the most complex, leading edge designs.”
Bill Porter, executive vice president and chief financial officer, added, "In the second quarter, we grew our business with particular strength from our broad base accounts, while again expanding our operating margins.”
On July 26, 2007 Magma Design Automation Inc. reported results for its fiscal 2008 first quarter, the period ending July 1, 2007. Total revenue for the quarter was $50.2 million, an increase of 22.5% from the $41 million in the same quarter a year ago, and essentially flat compared to the previous quarter. This last quarterly result exceeded the company's guidance range of $46 to $48 million and was a record for the company.
License revenue was $32 million, or 64% of total revenue, a 38% increase year-over-year, and a 3.6% increase sequentially. Service revenue was $8.5 million, or 17% of total revenue, a 15.4% drop year-over-year, and a 9.3% drop sequentially. Bundled license and service revenue was $9.7 million, or 19% of total revenue, an increase of almost 33% year-over-year, but a 1.3% drop sequentially. Some 86% of revenue came from backlog-related transactions and 14% came from up-front orders completed in the quarter, compared to the 7% of revenue from upfront transactions in the previous quarter.
Net loss for the quarter was $11.3 million, compared to a net loss of $10.7 in the same quarter last year and compared to a net loss of $24.5 million in the previous quarter.
Rajeev Madhavan, chairman and CEO of Magma, said, “We delivered strong revenue growth and profitability in the first quarter. Customers are using our products for an increasingly wide range of applications - you can find chips designed with Magma software in just about every popular variety of electronic products made today. We expect this to continue as our new products continue to gain traction, and today we are announcing increases in our guidance for both revenue and EPS.”
On August 23, 2007 Mentor Graphics Corporation reported results for the second quarter, the period ending July 31, 2007. Total revenue for the quarter was $206 million, an increase of over 15% from the $178 million in the second quarter of 2006, and an 8% increase from the $190 million in the just previous quarter. System and Software revenue was $123 million, accounting for 60% of total revenue, a 22% increase year-over-year, and an 8.6% increase sequentially. Software revenue was up 20% while emulation revenue was up 80%. Revenue from services and support was $82 million, accounting for 40% of total revenue, a 6.3% increase year-over-year and a 7% increase sequentially.
In the second 2007 quarter, America accounted for 55% of total revenue, Europe 20%, Japan over 10% and the Pacific Rim 15%.
|
Revenue by product line was 40% Design2Silicon, 35% Scalable Verification, 20% Integrated Systems and 15% New and Emerging. Revenue by license type was 60% term, 25% perpetual and 15% subscription.
During the quarter, the company acquired Santa Clara, CA-based Sierra Design Automation, a provider of high-performance place and route solutions for $90 million, payable 50% in cash and 50% in Mentor Graphics common stock. Sierra's flagship product, Olympus-SOC, provides the next-generation place and route system that concurrently addresses variations in lithography, process corners and operating modes allowing designers to simultaneously solve for large numbers of variables to achieve an optimal design quickly.
Net Mentor Graphics income for the quarter was $2.4 million, which included $4.1 million of in-process R&D charges related to the Sierra Design Automation acquisition. This compares to a net loss of $448K in the year ago quarter, and net income of $290K in the just prior quarter.
Dr. Walden C. Rhines, chairman and CEO of Mentor Graphics, said, “During the quarter, we saw strength across all of our system related product lines. In addition to strength in more traditional systems design segments like FPGA and printed circuit board design, we also saw significant strength in automotive design and electronic system level (ESL) products.”
On August 22, 2007 Synopsys, Inc. reported results for the third quarter of its fiscal year 2007, the period ending July 31, 2007. Total revenue for the quarter was $304 million, an increase of almost 10% from the $277 million a year earlier, and an increase of almost 4% from the $292 million in the prior quarter. Time-based license revenue was $215 million, accounting for 83% of total revenue. This represented an increase of about 12% year-over-year and an increase of 3.4% sequentially. Upfront license revenue was $19 million, accounting for 6.2% of total revenue, an increase of 32% year-over-year and an increase of 30% sequentially. Revenue form maintenance and service was $33.7 million, or 11% of total revenue, a decrease of 11% year-over-year and a decrease of over 4% sequentially. One customer accounted for slightly more than 10% of quarter's revenue.
From a product perspective, 48% of total revenue came from Galaxy, 27% from Discovery, 8% from IP, 13% from DFM, and 5% from Service and Other.
|
From a geographic point of view, North America accounted for 52% of total revenue, Europe 16%, Japan 16% and Asia Pacific 16%.
|
In June, Synopsys acquired ArchPro Design Automation for low power verification. It was an all cash deal valued at $12.9 million. In July, Synopsys acquired the semiconductor IP assets of MOSAID Technologies, a developer and licensor of semiconductor IP. It was an all cash deal valued at $15.3 million.
Net income for the quarter was $24 million, more than triple the $7.5 million in the year ago quarter, but a drop of 40% compared to $41 million in the just prior quarter (which included a $12.5 litigation settlement from Magma Design Automation).
On August 6, 2007 Synopsys, Inc. announced that it was selected as Intel Corporation's primary EDA supplier. The two companies signed a multi-year, expanded commercial and technology agreement under which they will closely collaborate on advanced design flows that combine Synopsys' breadth of EDA solutions with Intel's technology strengths and design expertise. The agreement expands a long-term relationship between the two companies.
Aart de Geus, chairman and CEO of Synopsys, said, “In the third quarter we delivered strong earnings growth and cash flow, and entered into very important customer alliances. We are confident about our position, and look forward to ending the year strongly and well positioned for 2008.”
On August 1, 2007 Synplicity, Inc. reported financial results for second quarter, the period ending June 30, 2007. The results included the contribution of HARDI Electronics AB from June 8, 2007 to the end of quarter. Total revenue was $16.7 million, an increase of 9% from the $15.4 in the second quarter of 2006, and a 12% increase from the $14.9 million in the prior quarter. License revenue at $5.6 million accounted for 33% of total revenue, a 28% increase year-over-year and a 44% increase sequentially. Maintenance revenue at $6.9 million accounted for 41% of total revenue, a 1.7% increase year-over-year and a 4% growth sequentially. Bundled service revenue at $4.3 million was up a fraction of a percent year-over-year, and down almost 3% sequentially.
As mentioned above, on June 1, 2007 Synplicity announced the signing of a definitive agreement to acquire all of the outstanding shares of HARDI Electronics AB, a leading developer of off-the-shelf ASIC prototyping boards, for $24.2 million in cash.
Net Synplicity income for the quarter was $641K, down 42% from $1,115K in the year ago quarter, and down slightly from the $654K in the just previous quarter.
Gary Meyers, Synplicity president and CEO, said, “This was an exciting quarter for Synplicity as we completed the acquisition of HARDI Electronics, expanded our market share in FPGA implementation with strong Synplify Premier sales, introduced the ASIC edition of Synplify DSP, announced our Identify Pro product as part of our Confirma platform for ASIC verification, and formed a new partnership with Synopsys, all while delivering solid revenue growth. The remainder of 2007 will see continued revenue growth and the rollout of new products paving the way for a strong 2008.”
EDA Vendor Stock Performance
As shown in Tables 7 and 8 and Figure 3 below, the combined stock prices for the EDA vendors increased in absolute terms an impressive 35% year-over-year, but decreased 1.6% sequentially. The average percentage change was up 76% year-over-year and up 3.8% sequentially. During the recent quarter, the major stock indexes increased 19.5% year-over-year and increased 7% over the prior quarter.
|
On a year-over-year basis, all EDA firms experienced increasing stock price. Altium was the percentage growth leader with an increase of over a factor of 3. LogicVision was a strong second with 91% growth. Ansoft and Synopsys also had good growth at 44% and 35%, respectively. Mentor Graphics showed the least growth at 1.5%. On a sequential basis, Altium was again the growth leader at 30% with LogicVision again in second place at 17%. Mentor Graphics was the largest decliner at -19%. Ansoft also declined at nearly -7%.
|
|
MCAD versus EDA Q2 2007
The detailed quarterly performances of a selected group of public MCAD Vendors has been provided in the authors' MCAD Commentary August 2007 recently published on MCADCafe. This last quarter, the revenue from the top three MCAD vendors was $1.05 billion, 17% higher than the revenue from the big three EDA vendors. MCAD earnings were 1.5 times EDA earnings, and MCAD ROS% was higher as well. In previous quarters, instead of PTC, the top 3 MCAD vendors included UGS, which had $300 million in first quarter revenue. In May 2007, UGS was acquired by Siemens AG and is now part of Siemens Automation and Drives (A&D) Group and consequently will not publicly report on its financial results.
|
Keep in mind that Autodesk sells its products predominantly through valued added resellers and distributors. Dassault Systemes sells predominantly through IBM and its Business Partners and in some instances, notably SolidWorks, through VARs. Thus, if one were to count actual end-user purchases of MCAD products, the combined MCAD revenue total would raise the Big 3 MCAD dollar total substantially. On the other hand, Autodesk has not-insignificant revenue outside MCAD in AEC, GIS and Media/Entertainment.
Forecast Guidance from Individual EDA Providers
The combined forecast for the next quarter calls for 8.7% EDA growth over the same quarter last year, and a 1.1% growth over the quarter just reported. All firms are predicting year-over-year quarterly growth. Magma and Synplicity are forecasting around 20% year-over-year growth. Cadence and Synopsys foresee high single digit growth. On a sequential basis, only Mentor is forecasting a drop. Ansoft and Synplicity are the most bullish at around 15% growth. The remaining firms see a few percentage points of growth.
|
Individual Company by Company Guidance
Altium Limited did not provide guidance. Nicholas Csendes, Ansoft's President and CEO, said, “For the next fiscal quarter, we anticipate continued revenue growth of around 10-15%.”
As guidance Cadence expects revenue in the third quarter to be in the range of $395 million to $405 million ,compared to $391 million in the quarter just reported, and compared to $366 million in the third quarter of 2006. For the year Cadence expects revenue to be in the range of $1.585 billion to $1.635 billion, versus $1.48 billion in fiscal 2006.
As guidance Magma expects revenue in the next quarter to be in the range of $50 million to $52 million, compared to $50.2 million in the quarter just reported and compared to $42 million in the corresponding quarter last year. For Magma's fiscal year 2008, ending April 6, 2008, the company increased its expected revenue growth rate over fiscal 2007 to between 17% and 20%, with revenue range of $208 million to $214 million.
As guidance Mentor Graphics expects revenue in the next quarter to be approximately $200 million, compared to $206 million in the quarter just completed, and compared to $191 million in the third quarter of 2006. For the full fiscal year 2008, the company expects revenue of approximately $860 million, compared to $792 million in the previous fiscal year. Preliminary guidance for Fiscal 2009 is for revenues of $920 million.
As guidance Synopsys expect revenue in the next quarter to be in the range of $300 million to $310 million, compared to $304 million in the quarter just reported, and $283 million in the same quarter a year ago. Revenue from backlog will be greater than 90%. For the full fiscal year 2007 Synopsys expects revenue in the range of $1.195 billion to $1.205 billion; this compares to revenue of $1.096 billion in the previous fiscal year.
As guidance Synplicity expects revenue for the next quarter in the range of $19 million to $19.5 million, compared to $16.7 million in the quarter just reported, and compared to $16.2 million in the same quarter last year. Revenue for 2007 is expected to be in the range of $70.0 to $72.0 million, an increase from prior guidance. This compares to $62.5 million in 2006.
For the first quarter of 2007 the CAE segment accounted for 38.7% of total revenue, IC Physical Design and Verification for 26.5%, PCB/MCM 9.9%, Semiconductor IP for 18.2% and Services for 6.6%.
For the fourth quarter North America accounted for 46% of total revenue, Western Europe for 17%, Japan 23% and ROW 13%.
|
Aart de Geus, chairman of the EDA Consortium and chairman and CEO of Synopsys, said, "The same forces that we previously cited as drivers for EDA's continued growth apply to this quarter's figures. Consumer electronics and the continued move toward deeper sub-micron processes are fueling the need for advanced EDA tools in all segments of the industry."
Comments? Feedback? Tell us what you think about this topic, or share any additional information you may have on the subject! Submit your comments to: EDACafe-Editor.
About the Authors:
Since 1996, Dr. Russ Henke has been president of HENKE ASSOCIATES, a San Francisco Bay Area high-tech business & management consulting firm. The number of client companies for Henke Associates now numbers more than forty. During his corporate career, Henke operated sequentially on "both sides" of MCAD and EDA, as a user and as a vendor. He's a veteran corporate executive from Cincinnati Milacron, SDRC, Schlumberger Applicon, Gould Electronics, ATP, and Mentor Graphics. Henke is a Fellow of the Society of Manufacturing Engineers (SME) and served on the SME International Board of Directors. He is also a member of the IEEE and a Life Fellow of ASME International. In April 2006, Dr. Henke received the 2006 Lifetime Achievement Award from The CAD Society, presented by CAD Society president Jeff Rowe at COFES2006 in Scottsdale, AZ. In February 2007, Henke also affiliated with Cyon Research's select group of experts on business and technology issues as a Senior Analyst. This Cyon Research connection aids and supplements Henke's ongoing, independent consulting practice (Henke Associates).
An part of the HENKE ASSOCIATES team since 2001, LA-based Dr. John R. (Jack) Horgan co-authored this August 2007 MCAD Industry Commentary. Dr. Horgan's prior corporate career has included executive positions at Applicon, Aries Technology, CADAM and MICROCADAM, as well as a stint at IBM. Dr. Horgan is also an editor of EDAcafe Weekly.
Since May 2003 the authors have now published a total of fifty-seven (57) independent articles on MCAD, PLM, EDA and Electronics IP on IBSystems' MCADCafé and EDACafé. Further information on HENKE ASSOCIATES, and URL's for past Commentaries, are available at http://www.henkeassociates.net.
A Parting Comment on the US Economy:
Here is a quote from an editorial by James Grant in the Sunday August 26, 2007 New York Times, regarding the recent turmoil in US stock markets: “Why does the Fed feel the need to intervene at the drop of a market? This is the notion that, while the risks inherent in the business of lending and borrowing should be finally borne by the public, the profits of that line of work should mainly accrue to the lenders and borrowers.”
|