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


“Despite the continuing challenges of the market, we saw annualized contract values of renewals in our top ten contracts increase 5% in the quarter,” said Gregory K. Hinckley, president of Mentor Graphics. “In addition, our cost control efforts are ahead of plan, with operating expenses down about 3% over the year ago third quarter.” Special charges were primarily related to headcount, acquisitions and ongoing investment banking fees.

For the fiscal fourth quarter ending January 31, 2010, the company expects revenue of about $230 million, non-GAAP earnings per share of about $.28 and GAAP earnings per share of about $.33. GAAP earnings in the fiscal fourth quarter will be relatively stronger as a portion of the tax provision recorded earlier in the fiscal year is recaptured. For fiscal 2010, the company expects full year revenues to increase one percent from fiscal 2009 to approximately $795 million, non-GAAP earnings per share of about $0.44 and a GAAP loss per share of approximately $.28. In Fiscal 2009, the company had revenues of $789 million. Cash flow is expected to be approximately $15 million for the fiscal fourth quarter and consistent with the same quarter last year. Fiscal 2010 year cash flow from operations is expected to be approximately $45 to $50 million up from $23 million in fiscal 2009.

                                 


On December 02, 2009 Synopsys reported results for its fourth quarter and fiscal year ended October 31, 2009 (aka our nominal calendar Q3 2009).

For the quarter, Synopsys reported revenue of $338.3 million compared to $352.8 million for the corresponding quarter in 2008. The $338.3 million was within the guidance range for revenue given last quarter.

Revenue for the entire fiscal year 2009 ending October 31, 2009 was $1.36 billion, an increase of two percent from $1.34 billion in fiscal 2008.

"Synopsys met or exceeded almost every goal we set at the beginning of the year, a notable accomplishment given the turbulence that characterized the economic environment," said Aart de Geus, chairman and CEO of Synopsys. "Looking forward into 2010, we intend to continue to control expenses, invest to accelerate our strong technology momentum, and focus on growing our customer relationships."

On a generally accepted accounting principles (GAAP) basis, net income for the quarter was $19.5 million, or $0.13 per share, compared to $46.4 million, or $0.32 per share, for the same quarter in 2008.

GAAP net income for fiscal year 2009 was $167.7 million, or $1.15 per share, compared to $190.0 million, or $1.29 per share, for fiscal 2008, which included a $17.3 million tax benefit associated with the settlement of an IRS tax issue for fiscal years 2000 and 2001.

On a non-GAAP basis, net income for the quarter was $49.5 million, or $0.33 per share, compared to non-GAAP net income of $62.7 million, or $0.43 per share, for the same quarter in 2008. Non-GAAP net income for fiscal year 2009 was $255.3 million, or $1.75 per share, compared to non-GAAP net income of $252.9 million, or $1.71 per share, for fiscal 2008.

Synopsys also provided its financial targets for the next quarter and its full fiscal year 2010. These targets constitute forward-looking information and are based on current expectations.

Recall that during 2009, Synopsys reached a tentative settlement with the IRS that would resolve a dispute regarding its 2002-2004 returns, primarily associated with Synopsys' acquisition of Avant!. If approved, it is expected to result in a decrease in forecasted GAAP income tax expense in fiscal 2010.

First Quarter of Fiscal Year 2010 Targets:(Quarter ending January 31, 2010):

  • Revenue: $325 million - $333 million
  • GAAP expenses: $269 million - $286 million
  • Non-GAAP expenses: $245 million - $255 million
  • Other income and expense: $0 - $3 million
  • Tax rate applied in non-GAAP net income calculations: approximately 27 percent
  • Fully diluted outstanding shares: 148 million - 153 million
  • GAAP earnings per share: $0.23 - $0.28
  • Non-GAAP earnings per share: $0.38 - $0.40
  • Revenue from backlog: greater than 90%

Full-Year Fiscal Year 2010 Targets (Year ending October 31, 2010):

  • Revenue: approximately $1.33 billion - $1.35 billion
  • Other income and expense: $4 million - $8 million
  • Tax rate applied in non-GAAP net income calculations: approximately 27 percent
  • Fully diluted outstanding shares: 150 million - 155 million
  • GAAP earnings per share: $1.01 - $1.20
  • Non-GAAP earnings per share: $1.52 - $1.62
  • Cash flow from operations: $200 million - $220 million

EDA Vendor Stock Performances

Table 3 below reveals that the combined G4 stock price easily outpaced the NASDAQ index on a percentage growth basis between July 01, 2009 and October 01, 2009, but the combined G4 fell behind the ongoing rise of the NASDAQ index since October 01.

Cadence, Magma, and Mentor stock each sported impressive percentage growth in stock price between July 01 and October 01, but on single-digit stock price bases. In the same period, Synopsys’ stock merely kept up with the percentage rise of the NASDAQ index, but SNPS started with a much larger per sharebase price of $19.66 on July 01, 2009.

Only Magma exceeded the percentage growth of the NASDAQ index since October 01, 2009. The three others fell behind the growth percentage pace of the NASDAQ index after October 01, and Cadence shares actually lost more 15% of their value by December 29 compared to October 01.



Table 4 reveals the strong Stock Market Capitalization enjoyed by Synopsys vs. the other three members of the G4, as the end of 2009 looms. Synopsys’ nearest Market Cap rival Cadence has a current Market Cap less than half that of Synopsys, and Mentor Graphics Market Cap is half that of Cadence.



Courtesy of Yahoo! Finance, the charts that follow show how each of the G4 stocks faired vs. NASDAQ over the last 12 months. Only the SNPS wavy curve of the four ends the year below the NASDAQ (^IXIC), mostly because SNPS per share price was so robust as the year began.









EDA Consortium's Market Statistics

                               


On September 30, 2009 The EDA Consortium Market Statistics Service (MSS) announced that the EDA industry revenue for Q2 2009 was $1,125 million, a 5.6% sequential decline from Q1. On a yearly Q2/Q2 basis, EDA industry revenue declined 15.8% to $1,126 million, compared to $1,336 million in Q2 2008. The four-quarter moving average declined 13.9%.

In the second quarter of 2009 the CAE segment accounted for 40% of the total EDA revenue, IC Design & Verification for 24%, Semiconductor IP for 20%, PCB/MCM for 9.4% and Services for 7%. All product sectors suffered declines. PCB/MCM and Services each declined over 20%, the rest dropped by percentage points in the teens. See Table 8.

               

For the second quarter of 2009 North America accounted for 45% of total EDA revenue, EMEA and Japan for around 19% each and APAC for the remaining 16%. EMEA and Japan EDA revenue fell by over 20%, while North American and PAAC revenue fell in the area of 12%. See Table 9.

                 

Dr. Wally Rhines, EDAC chair and chairman and CEO of Mentor Graphics, said, “This recession started with the most precipitous drop in electronics industry history. Nevertheless, the normal pattern of preserving most R&D spending has been maintained by most electronics companies. As the electronics industry recovers, and its R&D spending increases to come in line with its groilkhwing revenue, the EDA industry would be expected to recover as well.”

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