Whither EDA?

On August 26, 2010 Magma® Design Automation Inc. (NASDAQ:LAVA) reported revenue of $32.6 million for its fiscal 2011 first quarter ended August 1, 2010, up 13% from the $28.8 million reported in the year-ago quarter, but down 3% from the just-previous nominal Q1 2010 sequential revenue of $33.6 million. (As mentioned previously, stated fiscal quarters here are referred to as “nominal QX 2010” for purposes of this EDA WEEKLY article).

"We're pleased that we again met or exceeded all our financial guidance and are off to a good start for the year," said Rajeev Madhavan, Magma chairman and chief executive officer. "The increasing traction of our products and the positive reaction we experienced at June's Design Automation Conference indicate we are on the right track to increasing revenue, while continuing to improve our profitability."

GAAP Results

In accordance with generally accepted accounting principles (GAAP), Magma reported a net loss of $(3.3) million for the nominal second quarter, an improvement compared to a net loss of $(4.3) million for the year-ago quarter, but a larger net loss compared to the reported net loss of $(0.73) million for the sequential nominal Q1 2010.

In the nominal second quarter, Magma generated cash flow from operations of approximately $1.4 million. Also during the nominal second quarter, Magma repaid the $23.2 million remaining balance of its convertible notes which were due on May 15, 2010. Also during the nominal second quarter, Magma repurchased $2.75 million aggregate principal amount of its convertible notes due in May 2014. Additionally, in the third nominal quarter to date, convertible notes due in May 2014 totaling $10.7 million in face value were converted into shares of the company's common stock. In the conversion of notes due in May 2014, Magma prepaid the note holders a portion of their future interest. The company also said that, from time to time, it may enter into additional transactions in the future with respect to the repurchase or conversion of the $13.2 million remaining balance of convertible notes due May 2014 whenever conditions are sufficiently attractive.

Business Outlook

For Magma's nominal Q3 2010 ending October 31, 2010, the company expects total revenue in the range of $33.0 million to $33.5 million. GAAP net loss per share is expected to be in the range of $(0.07) to $(0.06).

Magma is also adjusting its outlook for its fiscal 2011, ending May 1, 2011. For fiscal 2011 the company now expects increased total revenue in the range of $132.0 million to $135.0 million, a slight bump up from the previous guidance range of $130.0 million to $133.0 million.

Also, the company now expects its fiscal 2011's GAAP net loss per share to be in the range of $(0.18) to $(0.17), a larger loss compared to a previous expectation of a net loss per share in the range of $(0.16) to $(0.14).

Magma self description:

Magma's electronic design automation (EDA) software provides the "Fastest Path to Silicon"™ and enables the world's top chip companies to create high-performance integrated circuits (ICs) for cellular telephones, electronic games, WiFi, MP3 players, digital video, networking and other electronic applications. Magma products are used in IC implementation, analog/mixed-signal design, analysis, physical verification, circuit simulation and characterization. The company maintains headquarters in San Jose, Calif., and offices throughout North America, Europe, Japan, Asia and India. Magma's stock trades on NASDAQ under the ticker symbol LAVA. Visit Magma Design Automation on the Web at www.magma-da.com.

Magma and Talus are registered trademarks and "Fastest Path to Silicon" and Hydra are trademarks of Magma Design Automation Inc. All other product, company and institution names are trademarks or registered trademarks of their respective owners.

The full year-to-date performance of LAVA shown above indicates that LAVA has easily outperformed the NASDAQ for the entire period. LAVA started Q2 on April 1, 2010 at $2.61 per share, reached a peak of $3.69 on April 29, and then declined to $2.84 by June 30, 2010. LAVA then staged a rally of sorts, but couldn't get up to the high achieved in Q2 before visiting the territory of June 30 again around mid-August. As the chart above shows, LAVA has subsequently staged a mini-rally and closed to $3.19 on September 2, which yields a Market Cap value of $168.58 million.

On August 19, 2010 Mentor Graphics Corporation (NASDAQ: MENT) announced results for its fiscal second quarter ending July 31, 2010, referred to herein as nominal Q2 2010.

For nominal Q2 2010, the company reported revenues of $187.9 million, up only 4.04% compared to $180.6 million in sequential nominal Q1 2010, and up very slightly at plus 2.90% compared to $182.6 million year over year in nominal Q2 2009. (The $187.9 million exceeded guidance provided three months ago of “about $180 million” for nominal Q2 2010 revenue).

Mentor also issued supplementary reports to support or clarify data in its main financial press release [2], [4].

Mentor GAAP earnings in nominal Q2 2009 were a loss of $21.3 million, a loss of $23.0 million in sequential nominal Q1 2010, and a loss of $14.2 million in the most current nominal Q2 2010. This means a GAAP loss per share of $0.13 in nominal Q2 2010 compared to a $0.22 loss per share a year ago. (Thus the GAAP loss per share of $0.13 actually achieved in nominal Q2 2010 was “better” than the guidance given three months ago; namely, a GAAP loss range of $0.22 to $0.17 per share for the nominal Q2 2010 quarter).

“Semiconductor markets continue to improve, with revenues at an all-time high, and industry analysts forecasting continued growth,” said Dr. Walden C. Rhines, CEO and chairman of Mentor Graphics. “Our solid results across all core EDA product lines reflected that. Annualized revenue from renewal contracts in our top ten accounts this quarter grew 45% compared to prior contract values. Leading indicators of the business, like consulting and training, were strong, with revenues up 30% and 70% respectively, year over year. Our strategy of investing in markets adjacent to semiconductor EDA, such as transportation, continues to pay off, with revenue from transportation products nearly doubling year on year, and bookings nearly tripling.”

The company also announced that the Mentor Graphics track in the TSMC Reference Flow has expanded to a complete front-to-back solution with new support for the Vista™ platform and the Catapult® C synthesis tool, expanded low power and 28nm routing features in the Olympus-SoC™ place and route system, and the Calibre® InRoute solution. Also released during the quarter were new versions of Mentor's 0-In® Formal and 0-In Clock Domain Crossing products, both enabling greater speed and ease of use in verifying complex IC designs. The company's recently acquired Valor division released version 9.0 of its vSure™ product, with enhancements enabling designers to more easily perform extensive design-for-manufacturing analysis during the printed circuit board design process.

“This was our sixth consecutive quarter of meeting or exceeding guidance,” said Gregory K. Hinckley, president of Mentor Graphics. “Our Flomerics and LogicVision acquisitions are performing well, and our new Valor division is on track to contribute to a strong second half. As a result, we are increasing guidance for the full year.”

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