Gabe's EDA Update
In June 2012 Gabe Moretti will celebrate 44 years in EDA. Gabe has contributed to the industry first as a developer, then as a senior manager and now as an editor and industry observer. He is a Senior member of the IEEE and the recipient of the IEEE RonWaxman Meritorious Award. Gabe has worked … More »
Synopsys and Mentor Report Operating Results
May 29th, 2012 by Gabe Moretti
Both Synopsys and Mentor reported their Operating Results within one week of each other. For Synopsys it was its second quarter results, while Mentor reported its first quarter results. Both companies had good quarters, although Synopsys, as it is to be expected, had better overall and relative results than Mentor.
Synopsys Is All Good News
There got to be an end: it is just not human! But I do not see any changes to Synopsys good news, quarter after quarter. It may be in the genes, it may be in the coffee, or it just may be in old fashioned good work. But first an outing then the numbers.
I have had a relationship with Synopsys since 1990, never as an employee, but as an early user of Design Compiler, then as somewhat of a competitor, and finally as a professional observer. During all that time I have known Chi-Foon Chan who joined Synopsys in 1990 and until May 23rd was the President and COO of the company. I know relatively few people that knew that Chi-Foon even existed. He worked in the background, but worked very effectively. By comparison everyone knows who Greg Hinckley is at Mentor. I suppose that when one is in the same organization as Aart de Geus, it is not very difficult to stay in the background. But it takes a lot of stamina to do so and outperform expectations for a long time. Most people seek the lime lights, or at least their piece of sunshine. So Chi-Foon is out of the closet, and everyone now knows what I have experienced. Talk EDA with Aart or Chi-Foon and the result is the same.
So it was a terrific pleasure to receive a press release from Synopsys announcing that Chi-Foon was named Co-CEO. That is the highest position at Synopsys until Aart finds a full time hobby, or forgets how to timeshare. Just in case, Aart, there is a complete island, just of the coast of Sarasota, for $29.5 million. It comes with a great looking mansion and room for further development. Can we start the Synopsys research center there? We can even invite Chi-Foon for periodic visits, since he would keep a low profile for sure.
Another thing that goes to Chi-Foon credit is that in the ten years he has worked as Aart surrogate, he never got a perm! Customers could always tell who was visiting, in spite of the fact that they both have an accent.
My friend Jay Vleeschhouwer says it like it is. And so his report on Synopsys 2Q12 financial status starts as follows: “Synopsys outperformed in 2Q12 in terms of revenues, earnings, and bookings”. Not much more to add to this. Earnings for the quarter were $432.6 million, up 10% or $0.53 a share. The Magma acquisition contributed about $14 million, so Synopsys grew even without the acquisition. Product revenue were just less than $386 million, on a course to surpass the $1.5 billion mark. The non-GAAP operating margin, a common way to compare companies in EDA, was 23.3%. Mentor just reported its first quarter results and, if I am not mistaken, its non-GAAP operating margin was 13.9%.
Looking at market segments, DFM was up 11% year/year, IP and Systems 5%, and “core EDA” also up 11%.
Geographically, Synopsys revenues in North America were up 17% year/year, Europe was up 16%, while Japan was flat and Asia-Pacific declined by 1%, but it must be said that the 2Q11 had an increase of 36% thus skewing the result a bit.
Even continuing to acquire companies Synopsys still has almost $800 million in cash and cash equivalent. The only way they are ever going to consume cash seems to be becoming a player in the derivative market! But with his knowledge of mathematics and European affairs, Aart would be good at it as well.
Good First Quarter at Mentor Graphics, but Questions Remain.
Mentor graphics reported its 2013 first quarter revenue on May 25th. The news is good, but unfortunately for Mentor its reporting followed by a few days Synopsys report, and the comparison is not favorable to Mentor. To be fair, we are talking about two companies that are now practically so different that any direct comparison is becoming artificial. But since most of the industry continues to be preoccupied by who is number two and who is number three, one must look at the numbers taking Synopsys under consideration. Synopsys is a much more efficient company than Mentor, but it is also clear that Mentor has made good strides toward improving its results.
Mentor’s executives feel very confident about fiscal 2013 and have raised the guidance the company gives investors by predicting that they will realize earnings of $1.20 per share during the year on a GAAP basis, up $0.7 from the previous goal. The company had revenues of $247.9 million during its first quarter. The IC Design to Silicon, the Calibre family, is still the major revenue source (40%). This group also increased its contribution to the services revenue of the company.
Comparing this quarter with the corresponding quarter a year ago, we see that revenue increased by about $17 million, with Services and Support contributing almost half of it. But the cost of revenue remained practically the same since Services and Support costs went up, as one would expect.
A good control of expenses made it possible to practically double operating income and allowed Mentor to realize a $28 million net income. The company balance sheet tells a slightly different story. Total assets decreased by almost $21 million of which $12 million were cash and $8 million receivables. But liabilities also decreased, although I cannot explain why accrued payroll and related liabilities went from $112 million to $57 million (almost a 50% reduction).
What I found most interesting and not reported in this press release was the change of Greg Hinckley title. I had always known Greg as Mentor’s President and COO, but now he is listed as President and Chief Financial Officer. Since it is Greg that runs Mentor’s operations, the change can only mean a significant increase to the way the company looks at its financial performance, I am sure because of Carl Icahn’s “supervision”. Mentor’s executive team is composed of 22 people, none of them female by the way. Of these only seven have product development responsibility. An equivalent number have either Marketing, Sales, or local Organizational responsibilities at the corporate level. Since each of the product divisions have their own marketing and sales organization I find the Mentor matrix organization to be a bit top heavy.
By comparison, Synopsys’s executive team has 13 members, two of whom are female, and six of whom have product development responsibilities. Synopsys also has no local organizational vice presidents, and Mentor has four Vice Presidents that have corporate sales responsibilities , versus just one at Synopsys. Either Joe Logan at Synopsys never sleeps or he is quite more efficient than the Mentor Four.