Commentary: EDA Industry Update December 2006 -- What did the Last Quarter Bring?


EDA Industry Update December 2006 -- What did the Last Quarter Bring?

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

In May 2003, August 2003, December 2003, February 2004, May 2004, August 2004, December 2004, February 2005, May 2005, August 2005, November 2005, February 2006, May 2006  and August 2006  EDA Commentaries by the authors (published on EDACafé.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 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. .

This December 2006 report covers their performances for the nominal Third Quarter 2006.

In this issue, EDA News Highlights are followed by the revenue & earnings performances of the selected group of EDA players for Q3 2006, and then EDA vendor by vendor details. EDA Vendor stock prices are discussed. Finally, individual EDA vendor forecasts for Q4 2006 are provided. Enjoy! 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.

EDA News Highlights

On August 2, 2006 the Semiconductor Industry Association (SIA) reported that worldwide (three-month moving average) sales of semiconductors totaled $20.5 billion in August, up over 10.5% from August 2005. SIA's Global Sales Report (GSR), a three-month moving average of sales activity, is shown in the following Table 1.

On November 20, 2006, Magma announced it had acquired Knights Technology, a provider of yield management and failure analysis software solutions to the semiconductor industry, from FEI Company. Knights Technology products, employees and management team will become part of Magma's Fab Analysis Business Unit. Terms of the transaction were not announced, but Magma expects sales of the Knights Technology products will contribute approximately $1.5 million to Magma's total revenue for the remainder of the Magma's fiscal year.

October 24, 2006, Mentor Graphics announced that it has completed an acquisition of Summit Design, a provider of ESL (Electronic System Level) design solutions. Terms of the transaction were not disclosed. Former Summit CEO Guy Moshe will lead the operation within Mentor's Design Creation Business unit, as the Executive Director of Mentor's R&D Center for Advanced Design Solutions. Mentor says it will continue developing, offering and supporting the existing products of Summit Design, including support for non-Mentor flows.

How did the EDA Vendors fair during the Third Quarter of 2006?

As shown in Table 2, the combined revenue performance of seven EDA vendors was $926 million, an increase of nearly 11% from the $837 million in the third quarter of 2005, and a more modest 3% increase from the $899 million in the previous quarter. All of the selected EDA firms reported increased year-over-year revenue. Altium was the clear percentage leader at 23% growth. Mentor, Ansoft, and Synopsys delivered low double-digit growth. On a sequential basis, Altium was again the percentage growth leader. Ansoft at 18% was the only other firm to achieve double-digit sequential quarterly growth.

Figures 1 and 2 above provide additional revenue comparisons among vendors. Cadence was number one at a 39% share, Synopsys number two at 30% and Mentor Graphics number three at 21%. The top 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 Q3 2006, Table 3 shows that the EDA group of six (Altium did not report earnings) reported a combined net income of $46.9 million; this was more than a factor of five times the earnings in the same quarter a year ago and a 55% increase from the previous quarter. Magma was the only firm to report a loss for the recent quarter, as it also did in the comparison quarters. Synopsys reported a considerable turnaround, with net Q3 2006 income of $9.3 million, compared to a net loss of $13.5 million in the same period of 2005. Year-over-year, Mentor's net income increased by a factor of almost 15 (starting from a small base of $159,000 in Q3 2005), while Cadence's net income grew 100% from $20.8 million a year ago.

Company by Company Q3 2006 details: 

On October 10, 2006 Altium Limited announced financial results for its first quarter of fiscal 2006/07, the period ended September 30, 2006. Total revenue for the quarter was AU$9.4 million, up 26% from the AU$7.5 million achieved for the corresponding quarter of the previous financial year. Overall sales increased by 34% for the quarter, and product sales increased by 37%, fueled by a significant increase in sales of Altium's unified electronic product development solution, Altium Designer. This result represents the strongest opening quarter on record for Altium, and it was driven by solid product sales growth across all regions - the US grew by 34%, Europe was up by 10% and Asia-Pacific increased 118% over the previous corresponding quarter. The improved performance in Asia-Pacific was primarily the result of strong Altium growth in China.

On September 11, 2006, Altium announced the promotion of Emma Lo Russo to the newly created executive position of President and Chief Operating Officer. Emma Lo Russo joined Altium in 2004 and advanced through a broad range of roles, most recently serving as COO.

Nick Martin, Founder and CEO, Altium Limited, said, “It is satisfying to start the financial year with a first quarter sales record for Altium. We've built on our improved 05/06 financial year results and continue to generate good traction from our innovation in technology and ongoing organizational development programs. With further sustained efforts to drive the adoption of our Altium Designer unified solution, we anticipate continued positive results.”

On November 15, 2006 Ansoft Corporation reported results for its second fiscal quarter, the period ended October 30, 2006. Total revenue for the quarter was $20.5 million, a healthy 14% increase from the $15 million in the same quarter a year earlier, and an 18% increase from the $17.3 million in the previous quarter. License revenue during the quarter increased 19.9%, to $10.9 million from $9.1 million, during the comparable period in the prior fiscal year. Service and other revenue in the quarter increased 7.4%.

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