Commentary:

EDA Industry Update February 2005 -- What did the Last Quarter/Year Bring?

by Dr. Russ Henke and Dr. Jack Horgan
Henke Associates

In May 2003, August 2003, December 2003 and February 2004, May 2004, August 2004 and December 2004 EDA Commentaries by the authors (published on EDACafè.com), 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 performancJuly 24, 2008es of these same EDA entities were documented as well. This February 2005 report covers their performances for the fourth quarter and the full year 2004.



EDA News Highlights

On January 12, 2005 Cadence announced that it had signed a definitive agreement to acquire Verisity, Ltd. in an all-cash transaction deal at $12 a share. This translates into about $286 million and a premium of 62% on the then-current stock price.

Verisity CEO Moshe Gavrielov, who will join the Cadence executive team, commented, "Customers are demanding solutions that automate the entire verification process and make it more predictable from planning to closure. This requires the integration of our VPA solution with a unified verification infrastructure. The combination of the two companies will greatly accelerate the delivery of these integrated solutions."

In their December 2004 EDA Commentary, the authors reported that Synopsys and Nassda had announced a proposed merger on December 1, 2004. On January 10, 2005 Nassda announced that the Federal Trade Commission had requested additional information and documentary material in connection with its review of the proposed merger. Both Nassda and Synopsys said that they intend to comply with the FTC's request as quickly as possible.



How did the EDA Vendors fair during the FOURTH quarter of 2004?

Table 1 - Nine Public EDA Companies' Latest Quarterly Revenue Performances ($000)

As shown in Table 1, the combined revenue performance of the nine EDA vendors in the fourth quarter of 2004 was $907 million, an increase of only 3% compared to the $883 million in revenue in the fourth quarter of 2003. The largest year-over-year quarterly increases were recorded by Synplicity (46%) and Verisity (45%). Altium, Ansoft and Magma also had good year-over-year growth in excess of 20%. Synopsys was the only quarterly year-over-year decliner. (Note: Total year cumulative group results are discussed later in this article).

On a sequential basis, the group created a notable quarterly revenue increase of 14% compared to the $795 million in the just prior quarter. Altium and Mentor had impressive gains relative to the prior quarter. Ansoft and Cadence also managed to get into double-digit growth territory.

Figure 1 - EDA Vendor Relative Size
(based upon Q4 2004 Revenues)

In Q4 2004, Cadence increased its market share to 37%, while #2 vendor Synopsys at 27% continued to decline as it adjusts to the increasing EDA customer preference for time based licenses (Figure 1). The top three vendors (Cadence, Synopsys and Mentor Graphics) accounted for 88% of the total revenue for the entire group.

Table 2 Eight Public EDA Companies' Latest Quarterly Earnings Performances ($000)

Table 2 shows that the EDA group of eight (Altium did not report earnings) reported combined earnings in the latest quarter of $64 million, a drop of $2.6 million or 4% compared to the same quarter last year. Cadence profit rose year-over-year by $44 million to $60 million, nearly a 300% increase. This was offset by an equivalent income decline by Synopsys. Ansoft's earnings increased by almost 200%. Magma and Veristy net income fell a few million dollars each.

While combined year-over-year quarterly net income fell slightly, fourth quarter 2004 combined profit of $64 million showed considerable improvement relative to the combined net loss of $15 million in the just-prior sequential quarter. In absolute terms, Synopsys had major losses in the last two quarters compared to $30 million in profit for the fourth quarter of 2003. Mentor created a $22 million positive swing sequentially.



Company by Company Q4 2004 details:

On January 19, 2005 Altium Limited announced the results for its second quarter of fiscal 2005, the period ending December 31, 2004. Total revenue for the quarter was AUD$10.5 million, a 5% rise compared to AUD$10 million in the same quarter one year ago and a 30% increase compared to AUD$8.1 million in the prior quarter. In terms of US dollars, revenue was up 27% year-over-year and 42% sequentially.

In local currencies, US revenues were up 9%, Europe 16%, Japan 5%, SE ASIA 63% and Australia 17%, for an overall growth of 17%.

"We are encouraged growth has continued across all markets in the six months to December 31, 2004, particularly as we move into the second half, which is traditionally the stronger half of the financial year," said Mr. Oboudiyat, Altium Joint CEO. "The release of Service Pack 2 (SP2) for Protel and Nexar contained over 150 new features and enhancements. From a technological advancement perspective, SP2 represents the most significant product upgrade Altium has so far delivered to its customers."

On February 16, 2005 Ansoft Corporation announced its financial results for the third quarter of fiscal 2005, a period that ended January 31, 2005. Total revenue for the quarter was $17.4 million, an increase of 24% compared to $14 million in the same quarter a year ago and an increase of 9% compared to the prior quarter. This $17.4 million compares to a forecast of $17 million. License revenue at $10 million accounted for 59% of total revenue. License revenue increased 27% year-over-year and 18% sequentially. Service and other revenue was up 21% year-over-year but down just over 1% sequentially.

Net income for the quarter was $2.8 million, nearly a 200% rise from the $941 thousand a year earlier and a 47% increase over the $1.9 million in the prior quarter.

"We are pleased to report that our earnings for the third [fiscal] quarter have more than doubled on continued revenue growth in our domestic and international markets," said Nicholas Csendes, Ansoft's President and CEO. "For the fourth [fiscal] quarter, we anticipate record revenue and earnings."

On February 3, 2005 Cadence Design Systems, Inc. reported its results for the fourth quarter and the year ending January 3, 2005. Total revenue for the quarter was $343 million, a 10% increase compared to $311 million in the fourth quarter a year ago and a 14% increase over the $302 million revenue figure for the just prior quarter. The revenue forecast had been in the range of $335 million to $345 million. Product revenue at $226 million was 66% of total revenue, an increase of 12% year-over-year and 24% from the prior quarter. Maintenance revenue at $83 million was 24% of total revenue and grew 6% year-over-year but dropped 1% from the prior quarter. Service revenue at $33 million was 10% of total revenue and grew 9% year-over-year while decreasing 4% from the prior quarter.

Cadence revenue mix by geography in Q4 2004 was 45% for North America, 30% for Europe, 14% for Japan and 11% for Asia. This represents a significant quarterly revenue shift away from the US in the last year. In the same quarter last year, North America accounted for 64% of Cadence revenue, Europe 16%, Japan 13% and Asia 8%.

By product segment, Custom IC had 27%, Digital IC 24%, Functional Verification 19%, DFM 9%, System Interconnect 9% and Service & Other 12%. These percentages have been fairly consistent over two years.

In the last quarter, approximately 75% of product business was represented by ratable licenses.

Cadence net income for the fourth quarter was a robust $60 million, up almost 300% from the $15 million in the fourth quarter of 2003 and up over 200% from the recent third quarter. This was due principally to a significant increase in operating income. Pro forma net income for the quarter was $80 million compared to $65 million in the fourth quarter of 2003.

"Cadence continued its consistent execution, in a challenging marketplace," said Mike Fister, Cadence president and CEO. "Strong demand for wireless, consumer electronics and high-performance computing plays to our specific strengths in analog mixed-signal and low-power digital design".

On January 27, 2005 Magma Design Automation Inc. announced the results for its third fiscal quarter of fiscal 2005, a period ending December 31, 2004. Total revenue was $37 million, up 20% from the same period a year ago and 1% sequentially. The $37 million was at the low end of the revenue forecast given last quarter. License revenue of $32 million was 85% of total revenue, up 15% year-over-year and up 1% sequentially. Service revenue at $5.6 million was 15% of total revenue, a 58% increase year-over-year but a slight dip sequentially.

However, Magma net income for the quarter was a loss of $719 thousand compared to a gain of $3.7 million a year ago and compared to a gain $287 thousand in the prior quarter. On a proforma basis net income was $8.4 million, an increase of 22% compared to a year earlier.

North America accounted for 46% of total Magma quarterly revenue, Europe 34%, Japan 15% and AP 13%. Europe more than doubled in terms of revenue percentage from the last two quarters, while NA and AP dropped significantly.

"Our third quarter continued Magma's growth in revenue for the ninth consecutive quarter," said Rajeev Madhavan, chairman and CEO of Magma. "During the next several quarters we expect to announce new products that will further enhance our leadership over our competitors and enable us to continue that growth."

On January 27, 2005 Mentor Graphics Corporation announced its results for the fourth quarter and the calendar year. Total Q4 revenue was $214 million, up 6.5% from $202 million in the fourth quarter a year ago and up 33% from the prior sequential quarter. The $214 million was above the forecast of $205 million. System and software revenue at $140 million was 65% of total revenue, an increase of 9% year-over-year and 56% from the prior quarter. Service and support revenue at $75 million was 35% of total revenue, up 2% year-over-year and up 4% sequentially.

Revenue by region for the fourth quarter as a percentage of total revenue was 40% North America, 30% Europe, 15% Japan, and 15% Pacific Rim. The largest change on a percentage basis was North America that had been 52% a year earlier.

By product platform, revenue was 35% Scalable Verification, 30% Calibre Design to Silicon, 20% Integrated System Design and 15% New and Emerging products. Year-over-year Scalable Verification increased 32% and New & Emerging products 27%, while Design to Silicon was down 10% and Integrated Systems down 6%.

Net income in the last quarter was $16 million compared to $13 million in the fourth quarter of 2003 and to a net loss of $5.7 million in the just prior quarter.

"Mentor's growth in a sluggish EDA environment is being driven by the successful proliferation of our younger product portfolio including the Calibre and Scalable Verification tools and newer printed circuit board design tools. Seven of the top ten deals in the quarter were renewals with an aggregate bookings increase of 40% over the prior deals, on comparable terms, including contract length. Customers need, and are willing to pay for, new products that solve their problems," said Walden C. Rhines, chairman and CEO of Mentor Graphics. "Furthermore, we saw significant momentum from our newer, emerging products as we received significant orders in cabling, embedded software, high speed board design, and coverage-driven verification."

On January 12, 2005 Nassda Corporation announced the results for its first quarter of fiscal 2005 ending December 31, 2004. Total Revenue for the quarter was $11.3 million, an increase of 16% from $9.7 million in the same quarter last year and an increase of 2% from $11.0 million for the prior quarter. This was highest quarterly revenue in corporate history. Product revenue at 20% of total revenue decreased 27% year-over-year but increased 28% from the prior quarter. Subscription revenue at 56% of total revenue increased 51% year-over-year and decreased 2.3% sequentially. Maintenance revenue at 24% of total revenue increased 6.4% year-over-year and decreased 2.6% sequentially.

Nassda net income for the quarter was $1.3 million, an increase of 135% from $572 thousand for the quarter a year earlier and an increase of 669% from the $175 thousand in the prior quarter. Operating expenses for the first quarter of fiscal 2005 were lower than expected, primarily due to lower litigation costs.

Sang Wang, Chief Executive Officer, said "First fiscal quarters are always seasonally challenging. We are pleased to have achieved satisfactory financial results, exceeding both the revenue and earnings expectations for the first quarter of our fiscal 2005 and maintaining our total cash, cash equivalents and short-term investments balances at $101.0 million."

Nassda CEO Wang continued, "Even though the semiconductor industry completed 2004 with good growth, we expect that the customers will continue to be very cautious with their spending. Nevertheless, as design starts steadily move to smaller and smaller geometries, we expect the need for nanometer verification software will become even more prominent."

On February 16, 2005 Synopsys, Inc. reported its results for the first quarter of its fiscal 2005, the period ending January 31, 2005. Total revenue for the quarter was $241 million, a 15% decline from $285 million in the fourth quarter of 2003 and a 5% improvement sequentially. The $241 million was near the high end of the range ($233 million to $243 million) given as forecast last quarter. Time based licenses increased 9% year-over-year and increased from 60% of total revenue a year ago to 78% in the quarter just completed. Upfront license revenue dropped 82% year-over-year and dropped from 21% of total revenue to 4.5%.

On a geographic basis North America accounted for 55% of total Synopsys revenue, Europe 15%, Japan 19% and AP 11%. As a percent of total revenue, Japan was up two percentage points, while North America and AP were each down 1%. In absolute dollars both North America and Japan improved.

The Galaxy platform generated 59% of total revenue for the quarter, Discovery platform 22%, DFM 10%, IP 6% and Service 3%. Galaxy is down a few percentage points relative to total revenue, while DFM is up a few.

"Q1 was a very good quarter. I am excited to see the pieces coming together on a vision we have been pursuing for several years," said Aart de Geus, Synopsys chairman and chief executive officer. "Across the board, our latest technology advances are showing success and the anticipation of new technology in 2005 is contributing to the momentum we see. We are also expanding our addressable market beyond the traditional bounds of EDA and adding significantly to Synopsys' competitive differentiation."

Steve Shevick, Synopsys Chief Financial Officer & Sr. VP Finance, commented, "Q1 was the second quarter in our transition to an almost fully ratable license model, and I am pleased to report that we met or exceeded our goals on every financial metric. Operationally, with approximately 91% of revenue coming from backlog, we reached our revenue target well before the end of the quarter. Free of quarter-end revenue pressure, we are better able to focus on quality of orders and on receiving appropriate value for our technology."

In late January 2005, Synopsys received a second information request from the FTC under the Hart-Scott-Rodino Act. The firm is working on providing the FTC with all requested information, and Synopsys remains optimistic that it will close the Nassda transaction before the end of this current quarter.

On February 1, 2005 Synplicity, Inc. reported results for the fourth quarter and year 2004. Total revenue for the quarter was $15.1 million, a 14% increase from revenue of $13.2 million for the fourth quarter of 2003 and a 7% sequential increase from revenue of $14.1 million. The $15.1 million was above the $14.3 million forecast given last quarter. License revenue of $8.5 million accounted for 57% of total revenue. License revenue increased 16% year-over-year and 11% from the prior quarter. Maintenance revenue was up 13% from the same quarter a year ago and up 3% sequentially.

Net income for the quarter was $803 thousand, up 80% from $445 thousand in the fourth quarter of 2003 and up 24% from $646 thousand in the prior quarter.

"We had an excellent fourth quarter which capped a strong financial year, including the highest quarterly revenue and earnings since inception," said Gary Meyers, Synplicity president & CEO. "In fiscal 2004 we grew product bookings, revenues and earnings. As we look to 2005, we expect that the combination of our leadership position in FPGA synthesis and our strong positioning in the structured ASIC market will provide us with solid revenue and earnings growth," Meyers concluded.

On January 24, 2005 Verisity Ltd announced its financial results for the fourth fiscal quarter and year ended December 31, 2004. Total revenue for the quarter was $17.8 million, a 45% increase from revenue of $12.3 million for the fourth quarter of 2003, and a 15% increase from revenue of $15.5 million for the prior quarter. This $17.8 million was above the high end ($17 million) of the projected range given last quarter. License revenue at $10.8 million accounting for 61% of total revenue was up 48% year-over-year and 26% from the prior quarter. Maintenance revenue accounting for 38% of total revenue was up 38% year-over-year and up less than 1% from the prior quarter. Other service revenue amounted to $206 thousand.

GAAP income for the quarter was a net loss of $1.6 million compared to a net gain of $2.3 million in the prior year and a net loss of $3.3 million in the prior quarter. Non-GAAP income was $382 thousand compared $2.4 million a year ago and $146 thousand last quarter. Non-GAAP results for the quarter and the year exclude non-cash charges related to equity issuances, amortization of deferred compensation, amortization of intangible assets resulting from the acquisition of Axis Systems which was completed on February 9, 2004, and one-time expenses for professional services in respect to the recently announced definitive agreement for Verisity to be acquired by Cadence Design Systems. Non-GAAP results for the quarter and the year ended December 31, 2003 excludes stock-based compensation.

"Our financial performance in the final quarter of fiscal 2004 was stellar. We grew revenue 15% and increased non-GAAP net income by 162% sequentially, and built very substantial backlog," said Moshe Gavrielov, chief executive officer of Verisity.



EDA versus MCAD

The detailed quarterly performances of nine public MCAD Vendors will be provided in the February 2005 MCAD Commentary soon to be published on MCADCafe. In the meantime, it might be interesting to see how the top three EDA companies faired against the top three MCAD companies in Q4 2004.

Table 3 - Top three EDA vendors versus the top three MCAD vendors ($000)

The top three MCAD vendors generated about 11.4% more revenue in the fourth quarter than the top three EDA players, mostly due to a significant decline (-15%) in Synopsys' EDA quarterly revenue, as well as strong quarter by Autodesk with 21% year-over-year MCAD growth.

Recall 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 end user purchases of the latter 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 Digital Content Creation (Discreet).

The comparison of earnings across the two industries is also difficult due to one-time charges associated with acquisitions. The earnings comparison for UGS is complicated by purchase accounting adjustments related to its Venture Capital buyout from EDS.

MCAD vendor quarterly earnings were three times that of the top three EDA vendors. MCAD vendors had on average earnings of 20% on revenue, compared to 8% for the EDA vendors.



EDA Vendor Stock Performance

Table 4 - Nine Public EDA Companies' Stock Prices ($)
(Synopsys adjusted for 2:1 split September 2003)

Table 4 reveals that the combined stock performance of the EDA group (-17%) was not impressive compared to last year's stock prices. However, during the fourth quarter of 2004, Ansoft's stock rose 59% compared to the fourth quarter of 2003. Mentor was the only other stock to have year-over-year growth (5%). Altium, Magma and Synopsys' stock price dropped over 40%, while Cadence and Synplicity declined over 20%. Overall the group's stock price declined 21% with an average drop of 17%. This compares to an average increase of 7% for the three major stock indices (Table 5).

The EDA stocks did much better sequentially during their last three months. As a group, EDA stock prices rose 18%, an average of 22%. This was above all three major indices, which rose an average of only 10% in the period. Nassda's stock price, on news of its impeding acquisition, rose the most at 94%. Mentor's stock increased 40%, while Ansoft and Synopsys each rose more than 20%. Altium and Magma had double digit declines.

Table 5 - Statistics of three major stock indices

Figure 2 - EDA vendor stock prices

EDA Vendor Performances for all of Calendar 2004

Table 6 - Nine Public EDA Companies' Latest Quarterly Revenues ($000)

For calendar year 2004, the nine public EDA companies had combined revenues of $3.35 billion, a scant 1.6% increase over 2003. Synopsys was the only decliner; had Synopsys remained flat year-over-year, the combined growth of the Group of Nine EDA companies would have been +6%, still not all that impressive. Magma was the percentage leader with 44% growth in revenue over 2003. Altium, Ansoft, Nassda and Verisity had growth around 20%.

Figure 3 - EDA Vendor Relative Revenue % in 2004

For calendar 2004 Cadence was the clear market leader with 36% of the combined revenues (Figure 3). Synopsys at 31% and Mentor Graphics at 21% round out the big three. Synopsys had a slightly higher share in the first half of the year, but dropped a few percentage points in the second half. Magma, the #4 vendor, had 4% of the total.

Table 7 - Eight Public EDA Vendor Earnings ($000)

Table 7 reveals that the Eight public EDA vendors (Altium does not provide earnings data) declined in earnings in calendar 2004 by $61 million compared to 2003. Synopsys had the largest decline ($120 million) although it was still slightly profitable. Mentor also had a huge negative swing ($28 million). Magma was also down. On the positive side, Cadence earnings grew $92 million.

For calendar 2004 Altium had revenue of AUD$42 million (US$32 million), an increase of 3% (22%) relative to 2003.

For calendar 2004 Ansoft had revenue of $63.8 million, an increase of 22% over the $52 million in revenue for 2003. Earnings rose more than $5.7 million to $7.5 million.

For 2004 Cadence reported total revenue of $1.2 billion, a 7% increase over the $1.1 billion in 2003. Two thirds of this revenue was form backlog. Product revenue of $730 million was 60% of total revenue and increased 10% from 2003.

Maintenance revenue at $330 million was 28% of total revenue and increased nearly 2% over 2003. Services revenue at $137 million was 11% of total revenue and increased 4.5% year-over-year.

Net income for 2004 was $74 million compared to a loss of $18 million in 2003. In 2004 there were restructuring charges of $13.5 million compared to $67 million in 2003. There was also a favorable tax benefit in 2003 of $14 million. On a full year basis, non-GAAP net income for 2004 was $201 million, compared to $140 million in 2003.

In 2004 Magma Design Automation had total revenue of $144 million, a 44% increase over the $100 million in 2003. License revenue of $124 million was an increase of 38%, while service revenue of $21 million was an 89% increase. Net income for the year was $1.3 million down 87% from $9.9 million in 2003.

For 2004 Mentor Graphics total revenue was $711 million, an increase of 5.2% over 2003. System and software revenue was 60% of total revenue and up 7.2%. Service and support was up 2.5%. Net income for the year was a loss of $20.6 million compared to a gain of $8 million in 2003. In 2004 there was interest expense of $18.6 million related to convertible debt offering. Also the net income for the second quarter contained a tax charge of $36.6 million arising from a one-time dividend declared by the company's Irish subsidiary to the US parent company. In 2003 there was $20 million in special charges primarily related to the settlement of protracted litigation over emulation and hardware acceleration patents. On a pro forma basis net income for 2004 was $50 million versus $42 million in 2003.

Mentor revenue for 2004 by segment was Scaleable Verification 31%, Integrated System Design 25%, Design to Silicon 25%, New & Emerging 13%, Other 2% and Consulting and Training 4%. Scaleable Verification was up 21%, Emerging up 5% and Consulting and Training was up 8%. The other areas were down a few percentage points.

For 2004 Nassda Corporation had revenue of $43 million, an increase of 25% relative to the $35 million in 2003. Subscription revenue was up 62% while product revenue was down 20%. Maintenance revenue was up 12%. When the pending acquisition by Synopsys completes, Nassda will record a one-time charge of approximately $67.5 million in the quarter ended September 30, 2004. Accordingly, Nassda's net loss is now expected to be approximately $67.3 million for that quarter and $64.9 million for the fiscal year ended September 30, 2004.

In calendar 2004 Synopsys Inc generated $1.048 billion in total revenue, a drop of 12% from $1.194 billion in 2003. Upfront license revenue ($303 million) declined 45%, while TBL revenue ($647 million) climbed 4%. Service revenue was down 17%.

CEO Aart de Geus commented, "Looking forward, many of you know that we have been engaged in a two-year effort to roll out a brand-new set of capabilities this spring and summer. We are well on track. Initial beta feedback is very positive, and a number of recent multi-year commitments solidified as customers assessed our progress."

For the year ended December 31, 2004, Synplicity revenue was $57.0 million, a 15 percent increase from revenue of $49.6 million for 2003. Synplicity had GAAP net income of $2.2 million compared to a net loss of $377 thousand for 2003. Pro forma net income was $3.3 million for the year compared to pro forma net income of $957 thousand for 2003.

Synplicity also announced that Gary Meyers, president and CEO, replaced Bernie Aronson as a director on the board of the Company effective January 28, 2005.

Verisity Revenue for 2004 was $58.0 million, a 20% increase compared to revenue of $48.5 million for 2003. License revenue grew 13% and maintenance revenue 33%. For 2004 the Company's net loss was $9.5 million compared to a net income of $8.7 million, for 2003. Non-GAAP net loss for 2004 was $1.0 million compared to non-GAAP net income of $8.8 million for 2003.

As mentioned earlier in this article, on January 12, 2005 Cadence announced that it had signed a definitive agreement to acquire Verisity Ltd in an all-cash transaction deal at $12 a share. This translates into about $286 million and a premium of 62% on the then current Verisity stock price.



EDA versus MCAD for all of 2004

The top three MCAD vendors generated about 10% more revenue for all of calendar 2004 than the top three EDA players. MCAD vendors faired even better in a comparison of earnings. MCAD vendor earnings were 6.7 times the EDA vendor earnings for the year. MCAD vendors earned 17% on revenues compared to just under 3% for the EDA vendors. (Table 8). Mentor Graphics had a net loss for the year. Even Cadence, which led the EDA vendors in earnings, was way behind the UGS, the MCAD vendor with the lowest earnings in both absolute dollars and in terms of percentage of revenue.

Table 8 - EDA Comparison with MCAD for Calendar 2004 ($000)

As was stated earlier in the section on Q4, there are significant differences in business models between the two industries that impact both revenue and earnings.

EDA Vendor Forecasts for Q1 2005

Table 9 - Quarterly Forecasts for Nine public EDA Vendors ($000)
(forecast midpoints used if a range was given)

The combined forecast for next quarter calls for a decrease of about $90 million from the fourth quarter just completed, due mostly to seasonality (Table 9). Cadence, Mentor and Synplicity are forecasting double digit sequential declines. On a year-over-year basis the forecast is essentially flat. Verisity is the most optimistic in forecasting a year-over-year increase of 77% although only 1.3% sequentially. Ansoft, Cadence and Nassda are predicting growth in the vicinity of 20%. Only Synopsys (-17.5%) expects a year-over-year decline.



Detailed EDA Vendor Financial Forecasts for Q4 2004

Altium did not provide any guidance.

Ansoft expects revenue for the next quarter to be $22 million a 27% increase compared to the quarter just completed and a 24% increase from the same period last year. Earnings per share are expected to be between $0.30 and $0.35. For the first half Ansoft expects revenue growth in the range of 15% to 20% with increased profitability.

For guidance Cadence expects revenue for the first quarter to be in the range of $280 to $290 million a 17% decline compared to $343 million in the just concluded fourth quarter reflecting a fairly typical seasonal decline and a 7% increase year-over-year. The company will reduce its workforce by about 200 positions in the quarter and take an $18 million restructuring charge. For the year 2005, Cadence expects revenue to be in the range of $1.24 to $1.3 billion compared with $1.197 in 2004.

For guidance Mentor Graphics expects revenues for the first quarter of 2005 to be about $177 million, for the second and third quarter about $180 million and for the fourth quarter $233 million. The first quarter forecast is a 18% decline compared to $203 million in the last quarter and an 8% increase compared to the $164 million in the first quarter of 2004. For the full year revenue is expected to be $760 million, a 7% growth from 2004, within the previously guided range of 6% to 8%.

For Magma's fiscal 2005 fourth quarter, ending March 31, 2005, the company expects total revenue in the range of $39 million to $42 million compared to $37 million in the quarter just completed. The company also expects pro forma EPS in the range of $0.18 to $0.22 and GAAP EPS in the range of $0.00 to $0.04.

Net income is expected to be between 19% and 23% of revenue. For the next fiscal year revenue is expected to grow 15% to 20% with no growth in earnings per share.

For the quarter ending March 31, 2005, Nassda expects to have total revenue of $11.0 million to $11.3 million compared to $11.3 million in the just competed quarter and a 14% increase from the $9.8 million for the same period a year ago. Because the uncertainties surrounding the pending merger between Nassda and a subsidiary of Synopsys, Inc. may impact customers' purchasing behavior, Nassda is not providing any forward-looking guidance on future licensing trends.

Nassda will file a proxy statement with the SEC in connection with the Pending Merger.

Synopsys expects revenue for the next quarter to be in the range of $238 million to $248 million with more than 90% of revenue from backlog. This is flat relative to the fourth quarter and an 18% decline compared to the same period a year ago. Earnings per share are projected to a loss of $0.12 to $0.08. For fiscal 2005 revenue are expected to be between $940 million and $980 million. GAAP earnings are expected to a loss of between $0.28 and $0.19 per share.

Synplicity expects revenue for the first quarter of 2005 to be about $14.3 million, a 10% decline sequentially and a 6% increase form the same period last year. The firm expects to breakeven according to GAAP. Revenue for the year is expected to be about $62 million compared to $57 million in 2004. For 2005 Synplicity expects GAAP earnings of about $0.13 per share.

For guidance Verisity expects revenue in the first quarter of 2005 to be approximately $17.8 to $18.2 million compared to $17.8 million in the quarter just reported and $11 million in the same quarter a year ago, a 77% increase. Non-GAAP income per share in the first quarter of 2005 is expected to be approximately $0.02 to $0.03

EDA Consortium News for the THIRD Quarter of 2004

Table 10 - EDAC Third Quarter Revenue Statistics ($ million)

"Despite a weak third quarter, the EDA market has shown a positive three percent growth rate on a year-to-date basis," said Walden C. Rhines, chairman of the EDA Consortium and chairman and CEO of Mentor Graphics Corporation. "The weakness in third quarter was focused in North America, where all major categories were down versus third quarter 2003. On a product-line basis the recent third quarter weakness was driven primarily by the IC/ASIC Physical Design categories, while a number of other key categories that have usually shown growth remained relatively flat versus a year ago."

Table 11 - EDAC Third Quarter Revenue by Geography ($ million)

The EDA Consortium is the international association of companies that provide tools and services that enable engineers to create the world's electronic products. EDA is the critical technology used to design electronics for the communications, computer, space technology, medical and industrial equipment and consumer electronics markets among others.

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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. 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 Fellow of ASME International. An affiliate of the HENKE ASSOCIATES team since 2001, LA-based Dr. John R. (Jack) Horgan co-authored this article. Jack's career has included executive positions at Applicon, Aries Technology, CADAM and MICROCADAM, as well as a stint at IBM. Since May 2003 the authors have now published a total of twenty six (26) articles on MCAD, PLM, EDA and Electronics IP on IBSystems' MCADcafi and EDAcafi. Further information on HENKE ASSOCIATES, and URL.s for past Commentaries, are available at http://www.henkeassociates.net.