Based on market capitalization, we see once again in Figure 4 that the three leaders in both EDA and MCAD, when combined, represent but a small part of the software industry and, of course, an even smaller part of the entire technology sector.
Moreover, with the exception of Dassault Systemes, none of the six EDA/MCAD companies above is doing particularly well on ROE compared to the U.S. software & programming industry average, or even compared to the entire U.S. technology sector average in general - at least for the last year. (But don't forget - it's the leverage these EDA and MCAD vendors provide to their customers that is their appeal.)
How about the Q1 2003 performances of the EDA group?
In Q1 2003, two of the three largest EDA vendors, Mentor Graphics and Synopsys, had major quarterly revenue up-ticks year-over-year. Mentor Graphics was up 24 percent. Synopsys turned in a whopping 57 percent increase in the quarter ending April 30, 2003, easily leading the pack (see Figure 5). However, Cadence revenues were off 26% compared to the same quarter last year.
The seven smaller companies also produced mixed results, with Magma delivering an excellent 26 percent up-tick in year-over-year quarterly revenue; Nassda, Synplicity, and Verisity showing slightly improved revenue results year-over-year; Altium and Ansoft showing slight declines; and TransEDA enduring a drastic drop.
Relative to earnings per share (EPS), Mentor Graphics and Synopsys were understandably in the black in Q1 2003, but Cadence was in the red. However, only three of the seven smaller companies were able to show black ink (Magma, Nassda and Verisity) in Q1 2003.
Outlook for Q2 2003 and the rest of the year?
What are the management teams for these EDA companies saying lately about the rest of 2003? Some of their comments are listed below, paraphrased from recent company news releases as these companies contemplated their futures ("Notes" in parentheses are those of this author):
"Cadence will continue to execute with the financial discipline needed
to respond to market dynamics when the market improves. Ours is the
most complete technology design portfolio in the world, and now it's
the most advanced as well. For Q2, the company expects total revenue
in the range of $265 to $275 million (Note - this would be ~5 percent
growth). GAAP EPS is expected to be in the range of 0 to 1 cent. For
the full year 2003, GAAP EPS is expected to be in the range of 12 to
17 cents" (Note - no full year 2003 revenue estimate was provided).
Cadence News Release April 15, 2003
"For the current quarter (ending June 30, 2003), Mentor Graphics
forecasts revenues of $156 million to $162 million (Note - flat
with Q1) and GAAP earnings of 2 cents to 7 cents a share. Mentor
repeated its full-year 2003 forecast, which calls for revenue of
$665 million (Note - this would be 112% of 2002) and GAAP
earnings of 39 cents a share. Analysts' current estimate is for
2003 earnings, excluding items, of 50 cents a share on revenue
of $665.7 million."
Reuters News Release April 24, 2003
"Synopsys continues to exhibit strong financial discipline,
despite a turbulent economic backdrop. Looking forward, we will
continue to manage the company for steady revenue and earnings
growth in 2003. Synopsys announced its operating model targets
for the quarter ending April 30, 2003 and the full fiscal year.
These targets assume the completion of the proposed acquisition
of Numerical Technologies, Inc., before March 31, 2003, which
is subject to a number of conditions, including receipt of
regulatory clearances. Quarter ending April 30, 2003 targets:
Revenue: between $275 million and $289 million; Earnings before
goodwill (EBG): between $0.67 and $0.72 per share. Fiscal year
2003 targets: Revenue: between $1.130 - $1.180 billion (note -
this would be 127% of Fiscal 2002); Earnings before goodwill
(EBG): between $2.95 - $3.10; and subscription license duration:
3 - 3.25 years.
Synopsys News Release February 19, 2003
"Despite a tough economic backdrop, our second quarter (ending
April 30, 2003) was the largest orders quarter in Synopsys'
history. We are pleased with the Company's current momentum
and look forward to achieving strong financial results during
the remainder of fiscal 2003. Synopsys announced its operating
model targets for the quarter ending July 31, 2003 and for
full year fiscal 2003. Qtr revenue: $288 - $303 million; Total
expenses: $207 - $214 million; Earnings per share: $0.77 - $0.82.
Fiscal Year 2003 targets: Revenue: between $1.130 - $1.180
billion; Earnings per share: $2.95 - $3.10 (Note - same targets
as forecast 3 months ago).
Synopsys News Release May 21, 2003
"With three quarters of results to draw on, the company now
believes that revenue for the 2003 financial year (ending
June 2003) will fall in the range of Australian dollars
45m-48m (US$ 24.7 million - 26.4 million)1.
This revised revenue range is in line with the lower end of
the company' s previous revenue estimates. Despite tough
conditions, industry reports show that we have actually
increased market share in the PCB segments of our business
and hold a strong competitive position in our industry. From
our investments in a broad range of technologies over the
past three years, we are now poised to deliver a new line
of electronic design tools. Whist we do not expect significant
revenue contribution from this product line in the short
term (12-18 months), we are confident that it will drive the
performance of the business over the next three to five years."
Altium News Release April 10, 2003
"We had another quarter (ending January 31, 2003) of strong
sequential sales improvement (Note - the quarter was down 12
percent year over year). Despite the challenging environment,
we are confident that the strategic decisions and technological
advancements we have made this year will return Ansoft to growth
and profitability in the coming year and beyond." (Note - results
of quarter ending April 30, 2003 will not be announced until May
Ansoft News Release February 19, 2003
"We're pleased to announce such solid financial results this
quarter (ended March 31, 2003), especially given the current
economic climate. For the business outlook for Magma's fiscal
2004 first quarter which will end June 30, 2003, the company
expects total revenue in the range of $21.5 million to $23.5
million (Note - would be ~124 percent quarterly growth versus a
year ago quarter). GAAP EPS is expected to be in the range of
$0.04 to $0.08 (Note - up from ~zero)."
Magma News Release April 29, 2003
"Although we remained profitable this quarter, we did not achieve
our goals as many customers reduced or delayed their spending to
control their own operating expenses and improve their bottom
line results. Despite the change in customers' spending behavior,
we intend to continue to improve our competitive position and
productivity. We are committed to helping our customers to weather
through the tough economic times and make their complex products
successful. Moving forward, we do not yet see any meaningful
improvements in our customers' spending pattern for the balance
of fiscal 2003. As a result, we expect revenue of approximately
$7.0 million and fully diluted earnings per share of approximately
$0.00 for the quarter ending June 30, 2003. For fiscal 2003
(ending September 30, 2003), we now expect revenue of approximately
$33.9 million to $34.1 million (Note - almost zero growth from
previous fiscal year) and net income of $0.11 to $0.12 per fully
diluted share (Note - well down from previous year)."