Commentary: EDA Industry Update December 2005 -- What did the Last Quarter Bring?

Commentary: EDA Industry Update December 2005 -- 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 and May 2005 and August 2005 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.

Now that Synopsys' financial results were announced on November 30, 2005, this December 2005 report covers the selected EDA company performances for the nominal Third Quarter 2005.

In this issue, EDA News Highlights are followed by the revenue & earnings performances of the selected group of EDA players for Q3 2005, and then EDA vendor by vendor details. A comparison of the quarter's results for the Top 3 EDA companies vs. the Top 3 MCAD entities is provided next. EDA Vendor stock prices are discussed. Finally, individual EDA vendor forecasts for Q4 2005 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 quarterly report. Replacement nominations for publicly traded EDA entities for future coverage are being accepted. Send an email to Email Contact.

EDA News Highlights

On November 16, 2005 the Semiconductor Industry Association (SIA) released its annual forecast of global semiconductor sales, projecting a compound annual growth rate (CAGR) of nearly 10% for the forecast period, 2005 through 2008. The new forecast projects that worldwide sales of microchips will reach $309 billion in 2008, an increase of 45% from the $213 billion record level of 2004.

On a segment basis, the forecast has Optoelectronics, Analog, MOS Logic, Microprocessors, DSP and Flash with CAGR's in the low double digit range and Discrete, Microcontrollers, DRAM and Other under 6% CAGR's.

On a geographic basis, all regions show growth, but only Asia (outside of Japan) shows double digit CAGR.

How did the EDA Vendors fair during the Third Quarter of 2005?

As shown in Table 2, the combined Q3 2005 revenue performance of seven EDA vendors was $836.5 million, a 9% increase relative to the $767 million a year earlier and a 4% increase sequentially. Ansoft, Cadence, Synopsys and Synplicity managed small double digit percentage growth year-over-year. Altium was the only firm with a year-over-year drop. Mentor Graphics at 1.8% trailed the other two major players. On a sequential basis, Ansoft was the clear leader with 22% growth. Altium had significant decline (40%) sequentially while all other firms registered modest growth.

Figures 1 and 2 above provide additional revenue comparisons among vendors. Cadence has the largest market share at 40.3% followed by Synopsys at 30.5% and Mentor at 19.7%. The big three combine for 90.5% market share among the players listed. Magma is a distant fourth with 4.8%.

Turning to earnings performances in Q3 2005, Table 3 shows that the EDA group of six (Altium did not report earnings) reported a combined net income of $10.3 million. This is a considerable improvement over the combined net loss of $11.7 million in the third quarter a year ago but down from combined net income of $13 million in the just prior quarter. Cadence had strong third quarters in both years, while Synopsys had large Q3 losses in both years. The second quarter was off for Cadence due to restructuring charges, but the reverse was true for Synopsys as the third quarter included a $33 million litigation settlement received in connection with the acquisition of Nassda Corporation.

Company by Company Q3 2005 details:

On October 21, 2005 Altium Limited reported the results of its first quarter of 2005/2006, the period ending September 30, 2005.

Table 4 below shows the regional results in terms of local currencies. The US is the only region with growth (9.3%) year-over-year.

At the same time, Altium announced the restructuring of its global sales teams. The firm appointed Mike Stipe as Vice President, Sales Americas and Frank Hoschar as Managing Director, Sales Europe. Altium also created a greater Asia Pacific Sales Region which now incorporates Japan, China, Asia Pacific VARs and Australian Sales.

Dick Martin, founder and CEO, said, "As we continue to develop and build our global sales team in all regions we expect the stronger sales performance, as seen in the September results, will continue to grow positively in all regions."

On November 16, 2005 Ansoft Corporation reported the results for its second quarter of fiscal 2006, the period ending October 31, 2005. Total revenue for the quarter was $18 million, an increase of 13% from the $16 million in the same quarter a year earlier and a 22% increase from the $15 million in the prior quarter. This $18 million was at the high end of the guidance given a quarter earlier. License revenue at $9.1 million, accounting for 51% of total revenue, was up 5% year-over-year and 34% sequentially. Service and other revenue at $8.9 million was up 22% year-over-year and up 12% sequentially.

North America accounted for 44% of total revenue, Asia 41% and Europe 15%. North American revenue was up 24%, European revenue up 5.3% and Asian revenue 6%. The high performance product segment accounted for 81% of total revenue, while the electromechanical product segment accounted for 19% of total revenue. The three largest customers in the quarter were Raytheon, Intel and Siemens.

Net income for the quarter was $4.1 million, a 117% increase compared to net income of $1.9 million a year earlier and a 250% increase sequentially. Net income for the quarter included a tax benefit of $0.5 million for an expected refund of prior years' federal tax payments. The firm expects an additional $1 million in tax benefits in the remainder of the fiscal year.

Nicholas Csendes, Ansoft's President and CEO, said, "We are pleased to report that our earnings for the second quarter have more than doubled on continued strong revenue growth."

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