EDA Industry Update September 2008 -- What did the Last Quarter Bring?


Net income for the second quarter of 2008 was a meager $5 million compared to net income of $59.6 million in the second quarter of 2007. Nevertheless, the $5 million net income was an improvement compared to a net loss of $18.7 million in the just previous Q1 2008. Q2's year-over-year net income difference is due mostly to the $60 million revenue shortfall.

Mike Fister, Cadence CEO, said, “Although we achieved our Q2 numbers, it was more difficult than we planned. Customers are demanding still more flexibility in when, what and how they purchase software and hardware. As a result we've made the decision to lower our outlook and transition to an approximately ninety-percent ratable license mix. We believe this transition will enable us to keep our focus on the value of our technology. This decision is the right one for our business over the long terms and for building and sustaining strong customer relationships into the future.”

Note: The recent Cadence v. Mentor acquisition story is provided in EDA News Highlights at the beginning of this EDA Commentary.


On August 29, 2008 Magma Design Automation Inc reported financial results for the first quarter of its fiscal 2009, the period ended August 3, 2008. Total revenue for the quarter was $45.7 million, a decrease of 8.8% from the $50.2 million in the year ago quarter, and a deeper drop of almost 17% from the $55.0 million in the just prior quarter. The $45.7 million for this quarter was well below the Magma guidance range of $50 to $51.5 million given last quarter, but it somewhat better than the revised outlook given by Magma on August 7, 2008.

Magma license revenue was $26 million, accounting for 57% of total revenue, a drop of 18% year-over-year, and a drop of 27% sequentially, both significant decreases. Service revenue was $9.7 million, accounting for 21% of total revenue, an increase of 14% year-over-year, and an increase of 10% sequentially. Bundled license and software revenue was $9.9 million, or 22% of total revenue, up almost 3% from the year before, but down 4% from the previous quarter.

Revenue from North America accounted for 53% of the total, revenue from Europe 28%, from Japan 9% and from the rest of Asia Pacific 9%. From a sequential perspective European revenue was up 146%, but revenue from North America, Japan and AP were precipitously down 30%, 40% and 46%, respectively.

Net loss for the quarter increased to $14.9 million, compared to net losses of $11.3 million and $7.2 million in the year ago quarter and the prior quarter, respectively.

Rajeev Madhavan, chief executive officer, said, "The first (fiscal) quarter proved to be a more difficult business environment than we anticipated, a situation that we believe may continue throughout at least a portion of the remainder of our fiscal year. Our key products and technology continue to deliver compelling solutions, but customers are experiencing softening demand in some of their end markets and we believe the first quarter results reflected delays in their purchases of design software as well as changes in our sales channel. Given this assessment of market conditions and recent changes in our sales channel, we lowered our full-year guidance. The new target is consistent with our intent to increase the portion of our revenue based on backlog to 90 percent or more of revenue in future periods."

and …

“This quarter's shortfall and our revised outlook were caused in part by several factors such as recent weakness in the semiconductor segment, but also by the need for additional sales people. In addition to our revenue model shift, other operational changes we are making include an expansion of our sales force.”


On August 20, 2008 Mentor Graphics Corporation reported its financial results for the second quarter of fiscal 2009, the period ended July 31, 2008. Total revenue for the quarter was $182 million, a $28 million drop of 13% from the $210 million in the same quarter last year, but a tiny rise of 1.8% sequentially. The $182 million was above the revenue guidance range given by Mentor last quarter.

Mentor's System and Software revenue was only $96 million, accounting for 52% of total revenue, a major decline of 25% year-over-year, and a drop of 1% from the just previous quarter. Services and Support revenue was $87 million, or 48% of total revenue, an increase of 5.5% from the same quarter last year, and an increase of 5.1% sequentially.

In the recent quarter, America accounted for only 35% of total revenue, down a whopping 45% in absolute terms from 55% of worldwide revenue a year earlier. Europe accounted for 30%, Japan 20% and Pacific Rim 15% this quarter. See Table 7.



Revenue by product area was Integrated System Design 20%, Design2Silicon 35%, Scalable Verification 25%, New and Emerging 15% and Services 10%. See Table 8.


Revenue from Perpetual licenses was 20%, from Ratable 20% ,and from UpFront 60%. On a year-over-year basis. Perpetual revenue was down 30%, Ratable revenue down 13% and UpFront revenue down 5.2%.

Net loss for the quarter was $17.2 million compared to net income of $2.1 million in the year ago quarter and compared to net loss of $27 million in the first quarter. So for the last two 2008 quarters, Mentor has reported losses of over $44 million. In the most recent quarter, Mentor took a $15.3 million charge for “In-Process R&D”. There was also an income tax benefit of $15.4 million.

Gregory K. Hinckley, president of Mentor Graphics, said, “We predicted a tough environment this year and we continue to see it. Despite this, the company performed better than our guidance for the quarter. We saw some bright spots in our newer products with Calibre DFM and automotive both performing quite well. Additionally, consulting was up 25% over last year. I view increased bookings in consulting as a leading indicator of an improving business climate. Lastly, our cost-saving initiatives are on track to meet or exceed our goals. Mentor is committed to delivering the most effective cost control program within the EDA industry.”

Note: This sanguine view of the value of EDA consulting (expressed above by Mentor president Greg Hinckley) was not always shared by Mentor management, even in the mid-nineties when Mentor consulting revenues were growing profitably and rapidly, neck-and-neck with those of Joe Costello’s Cadence. In the last half of that decade, Cadence’s EDA consulting far outstripped Mentor’s.

Note: The recent Cadence v. Mentor acquisition story is provided in EDA News Highlights at the beginning of this EDA Commentary.


On August 20, 2008 Synopsys, Inc reported financial results for the third quarter of its fiscal year, the period ended July 31, 2008. Total revenue for the quarter was $344 million, an impressive increase of 13% from the $304 million in the same quarter a year earlier, and a 6% increase from the $324 million in its second fiscal quarter. The $344 million was above the revenue range given as guidance by Synopsys last quarter and newly-placed Synopsys in the lead in revenue share among the EDA Big 3, at least for this one quarter.

Time-based license revenue was $289 million, 84% of revenue, an increase of 15% year-over-year and an increase of 4% sequentially. Maintenance and service revenue was $34 million, accounting for 10% of total revenue, an increase of 1.8% from the same quarter a year ago and a rise of 0.6% sequentially. Upfront license revenue was $20.6 million, or 6% of total revenue, an increase of 8.3% year-over-year, and an increase of 68% from the previous quarter. The percentages of revenue listed above are very healthy ratios financially.

On May 16, 2008 Synopsys acquired Synplicity for $8 cash per share, resulting in a gross transaction of approximately $223 million, or approximately $181 million net of cash acquired.

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