EDA Industry Update September 2009 -- What did the Last Quarter Bring?

According to iSuppli worldwide semiconductor revenue in Q1 2009 declined to US$44.3 billion, down 18.8% from US$54.5 billion in Q4 2008, and a decline of 33.8% from US$66.8 billion in Q1 2008. Revenue was down 36.2% from the start of the present sharp downturn after Q3 2008. Even prior to the “official” December 2007 start of the recession, the semiconductor industry experienced an extended period of lethargy. Quarterly semiconductor revenue peaked six quarters ago in Q3 2007. Note that Figure 1 below now indicates a forecasted uptick.

Finally, on September 01, 2009 Jack Healy of the New York Times reported that after 18 months of layoffs, plant shutdowns and other declines, the USA’s manufacturing sector grew in August 2009. The Institute for Supply Management’s manufacturing index turned positive, rising to 52.9 in August, from 48.9 in July. (A reading above 50 indicates expansion and growth; a number below 50 means economic contraction). This reversal is important to the EDA, MCAE and MCAD industry, and offers more evidence that the US economy is pulling out of the recession that began in December 2007.

How did the G5 EDA Vendors fair during the Second Quarter of 2009?

As shown in Table 2, the combined revenue performance of the five covered EDA firms for the nominal second quarter was $783 million, a drop of over 13% from the $901 million a year earlier, but the $783 million was basically flat sequentially.

Year-over-year Mentor Graphics and Synopsys were flat in Q2, while Cadence, Magma and Altium suffered revenue drops of more than -30%. For Cadence, its Q2 2009 revenue was almost $100 million less than in Q2 2008; Cadence’s revenue shortfall alone accounted for the bulk of the G5’s shortfall of Q2 2009 vs. Q2 2008.

On a sequential basis, Cadence and Synopsys managed revenue growth of a couple of percentage points. Magma and Mentor Graphics endured decreasing revenues of -15% and -6%, respectively. However, Altium saw its revenue shoot up 40% compared to the just previous quarter.

Figures 2 and 3 below provide additional revenue comparisons among vendors. In Q2 2009 Synopsys exhibited the largest relative market share by far at 44%, Cadence was in second place at 27%, and Mentor was a very close third at 23%.

Turning to earnings performances in Q2 2009, the picture turns worse. Table 3 shows that the EDA group of 4 (that reported quarterly income) endured a combined net loss of $52 million, or a negative swing of some $94 million compared to Q2 2008. All the reporting firms except Synopsys suffered net losses in Q2 2009.

On a year-over-year basis only Magma saw any improvement, as it reduced its net loss by nearly $11 million. Cadence’s net loss mushroomed by a factor of 4. Mentor Graphics went from a net gain a year ago to a significant net loss this quarter.

On a sequential basis, Magma again was the only firm to experience any improvement. Synopsys was relatively flat with respect to the prior quarter, but stood alone in the black in Q2 2009. Cadence and Mentor increased their losses from the just prior quarter.

Company by Company Q2 2009 details:

On August 24, 2009 Altium Limited reported financial results for the quarter and the financial year ended June 30, 2009. Total revenue for the quarter was $15.1 million, a 30% decline from the $21.6 million in the same quarter a year earlier but a 40% increase from the $10.8 million in the prior quarter (but on a small revenue basis).

On a geographic basis the Americas accounted for 38% of sales, Europe for 34%, China for 10.5%, Asia Pacific for nearly 17%, and Consulting for the rest. See Table 4.

Altium reported a final EBITDA for the full financial year of US$ 4.8 million on sales of US $51.3 million and revenue of $50.7 million, compared to an EBITDA of US$ 576,000 a year ago on sales of $55.8 million and revenue of $53.1 million. The company also reported a return to profit before tax of US$ 224,000, compared to a loss a year ago of US$ 3.7 million. Sales for the year were up 8%, while revenue was up 4%.

Nick Martin, Altium CEO, said, “Although we delivered strong growth in sales in the first half of the financial year, as expected the difficult worldwide economic conditions slowed things down somewhat during the second half of the financial year. Our response has been on three levels: firstly, we have tightened up our costs, which allowed us to improve our profitability even in this difficult environment. This also positions us strongly for the year ahead. Second, we are pushing our products into a lower, more mainstream price position. It was encouraging to see the effects of this in the fourth quarter, with the number of licenses and upgrades sold in the fourth quarter being more than double that of the corresponding period a year ago. Third, we have intensified our product development efforts. In difficult economic times, electronics designers are looking at all of their options, including rethinking their product development environments. As a supplier of tools to facilitate product development, it’s important that we do our best to assist them in this process.”

On July 29, 2009 Cadence Design Systems reported financial results for the second quarter ended June 30, 2009. Total revenue for the quarter was $210 million, right at the guidance given 3 months ago, but a drop of nearly -32% from the $308 million in the second quarter of 2008. Also, the $210 million was slightly ahead of Q1 2009 by 1.8%.

Product revenue was $102 million, or 48% of total revenue, a drop of almost 42% year-over-year, but an increase of over 16% sequentially. Maintenance revenue was $80 million, accounting for 38% of the total. This was a decline of 19% from the same quarter a year ago, and a drop of over 10% from the preceding quarter. Services revenue was $28 million, or 13% of the total amount. This represents a decline of over 17% from the same quarter a year earlier, and a drop of 4.8% from the just prior quarter.

North America revenue represented 48% of the total, Europe revenue 21%, Japanese revenue 17% and Pacific Rim revenue 14%. Table 5 shows all segments down year-over-year. North America accounted for all the sequential increase, overcoming sequential revenue reductions in the rest of the world.

In terms of product segments Functional Verification accounted for 23% of total revenue, Digital IC Design for 14%, Customer IC for 25%, DFM for 5%, Systems Integration for 10% and Services for 13%. All product segments suffered about a 30% drop relative to the year ago quarter. Compared to the previous quarter DFM suffered the sharpest decline at -43%, while Functional Verification and Digital IC Design were up significantly. See Table 6.

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