Commentary: EDA Industry Update December 2007 -- What did the Last Quarter Bring?


Commentary: EDA Industry Update December 2007 -- What did the Last Quarter Bring?

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

In previous EDA Commentaries since May 2003 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.

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 December 2007 report covers the performances OF THE REMAINING 7 EDA Vendors for the nominal Third Quarter of 2007.

In this issue, EDA News Highlights are followed by the revenue & earnings performances of the selected group of EDA players for Q3 2007, and then EDA vendor by vendor details. EDA Vendor stock prices are discussed. Finally, individual EDA vendor forecasts for Q4 2007 are provided. Enjoy!

EDA News Highlights - Acquisitions continue…

On October 29, 2007 the Semiconductor Industry Association (SIA) announced that global microchip third-quarter sales of $67.8 billion increased 5.9% from the like period of 2006, when sales were $64.0 billion. Third-quarter sales were 13.2% higher than the second quarter of 2007, when sales were $59.9 billion. SIA President George Scalise said, “Demand from the consumer products sector was very robust as sales of semiconductors for traditional consumer applications rose by 35% quarter-to-quarter. The two largest demand drivers for semiconductors - PCs and cell phones - continued to show healthy growth.”

How did the EDA Vendors fair during the Third Quarter of 2007?

As shown in Table 1, the combined revenue performance of seven EDA vendors was just over $1 billion, a reasonable increase of 10.7% from the $926 million in the third quarter of 2006, and essentially flat compared to the just previous quarter. All the firms except Mentor Graphics had year-over-year growth. (Mentor suffered a bookings/revenue lag; details later in the sequel). The others had low double-digit percentage growth, except for Cadence, which nevertheless grew at 9.5% on a base of the largest revenue of the group. Magma and Altium led the pack, with percentage growth around 27% each, with Synplicity a strong third at 19.5%.

Figures 1 and 2 above provide additional revenue comparisons among vendors. Cadence was number one at a 41%, Synopsys number 2 at 31% and Mentor Graphics number 3 at a distant 18%. As usual, the top three EDA firms accounted for 90% of total revenue of the selected group. Magma was a far-away fourth at 5%.

Turning to earnings performances in Q3 2007, Table 2 shows that the EDA group of six (Altium did not report earnings) reported a combined net income of $104 million, up a healthy 120% from the $47.6 million a year earlier, and up 31% from the $80 million in the prior quarter. However, both Mentor and Magma had losses in the quarter. Cadence, Synopsys and Ansoft reported substantial year-over-year earnings growth. But Mentor lost $9 million in the quarter compared to a net gain of $2.5 million in the previous quarter. On a sequential basis, all firms except Mentor generated increased earnings.

Company by Company Q3 2007 details:
On October 4, 2007 Altium Limited reported financial results for the first quarter of financial year 2007/2008, the period ended September 30, 2007. Total revenue for the quarter was AU$12.2 million, consisting of AU$11.2 million in sales and AU$1.0 million in net deferred revenue. While total sequential revenue was down 41% compared to the just previous seasonally-high quarter, revenue grew 29%, and sales were up 13%, when compared to the same corresponding quarter period a year ago.

Compared to the same period a year ago, Asia/Pacific region sales are up 72% measured in US$, with European sales up 28% measured in euros. Sales in the Americas, declined by 1% measured in US$ in the same period. Sales from Americas accounted for 38% of the total, sales from Europe 31% and sales from AP 29%.

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 and founder of Altium, said, “We are very excited about the growth we are seeing in the APAC region and also happy about our results in Europe. Recent restructuring in our US operations has led to some disappointing results this quarter but we see this as a short term and tactical issue. Our confidence in our overall approach to building the sales organization remains strong. Traditionally this quarter has been the weakest for Altium and it is very gratifying to see the revenue numbers, fuelled by the deferred maintenance sales of last year, starting to show the effect of smoothing out our overall financial performance. This is an effect that we expect to continue.”

Noteworthy customers of this past quarter include Microsoft in the United States; Siemens VDO, Philips and Daimler Chrysler in Europe; and CSIRO and AMPControl in Asia Pacific.

On November 14, 2007 Ansoft Corporation announced financial results for its second quarter of fiscal 2008 ended October 31, 2007. Total revenue for the quarter was $23.4 million, an increase of 14% from the $20.5 million in the same quarter last year, and an increase of 17.5% from the $19.9 million in the just prior quarter. The $23.4 million was near the middle of the guidance given last quarter. License revenue was $12.4 million, accounting for 53% of total revenue. This was a year-over-year increase of 13.6%, and a 28.7% increase sequentially. Services revenue was $10.9 million, an increase of 14.5% year-over-year, and an increase of nearly 7% from the previous quarter. Revenue growth was strong in Europe and Asia but relatively weak in North America. Revenue breakdown by geographic region was 41% in North America versus 49% last year, 41% in Asia versus 35% last year and 18% in Europe versus 16% last year. Product breakdown YTD was 18% electromechanical and 82% high frequency. The top 3 customers in the quarter were Broadcom, BAE Systems and Siemens.

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