At press time for this article, over half of August was in the books, so let's see how the EDA basket and the MCAD basket have each fared during August-to-date, compared to the various market indices (see Figure 7):
Aug 19/ Aug 1
|Total EDA Basket||150.000||162.57||108.38%|
|Total MCAD Basket||146.40||150.00||102.46%|
Figure 7 - Closing Figures on August 1 and August 19, 2003
We can see that during August 2003, the equity price growth of the EDA basket is outpacing the MCAD basket and is rising faster than any of the three major stock indices. Indeed, the MCAD basket is barely keeping abreast of the NASDAQ for the last 19 days. Meanwhile, at least through August 19, the three major market indices are defying the average decreases that have characterized August trading patterns for the last 15 years.
Individual EDA companies' guidance for the future:
Cadence forecast, circa July 15, 2003, said, "For Q3 2003, the company expects total revenue in the range of $265 million to $275 million [Note: flat with Q2 2003] with GAAP diluted loss per share in the range of $0.18 to $0.16" [Note: This would suggest a Q3 2003 loss much worse than Q2 2003 actuals.] "For the full year 2003, the company expected (on July 15), total revenues to be in the range of $1.09 billion to $1.13 billion [Note: down about 14% from 2002] with a GAAP diluted loss per share expected to be in the range of $0.13 to $0.09." [Note: As recently as 3 months ago, Cadence was predicting positive earnings for the 2003 year. Also, note: Cadence has about 268 million shares outstanding.] "Cadence continues to focus on cost reduction, and plans to eliminate approximately 500 jobs. This action, affecting about 10 percent of the workforce worldwide, will result in restructuring charges of $60 million in the third quarter. Costs and expenses are expected to be down by about 20 percent for the second half of 2003 on a year-over-year basis." Cadence expected to complete its acquisition of Verplex in the third quarter. However, the closing is subject to a number of conditions (etc., etc.).
On July 23, Mentor Graphics predicted Q3 2003 revenues of $158 million (flat with the last two quarters), with Q3 GAAP earnings to sink to about $0.7 million. For the full year, however, Mentor Graphics is sticking to its revenue forecast for 2003 set three months ago: $665 million, which would be 12% better than 2002. Estimates for GAAP earnings for the full year 2003 have been raised to $0.41 a share, versus $0.39 estimated 3 months ago, "reflecting MGC's increased confidence in the second half outlook." Mentor has about 69.5 million shares outstanding.
On August 20, 2003 Synopsys added $35 million to its total fiscal year revenue estimate of three months ago, and also said that the full year's earnings would be nearly 3% higher than the previous estimate. Synopsys' fiscal year ends October 31.
On July 15, 2003 Altium's Joint CEO Kayvan Oboudiyat said, "Our performance during the (June 30, 2003) quarter four positively reflects the robustness of the Altium business model and increases our confidence for a more stable 2003/2004 year (July 1, 2003 to June 30, 2004)."
On August 20, 2003 Ansoft's President & CEO Nick Cendes repeated his optimism of last quarter: "The positive momentum we see gives us confidence that we will grow between 10%-15% in the coming year and increase profitability."
Magma Design Automation expects revenue in the quarter ending September 30, 2003 to be in the range of $24 million to $26 million, according to Magma's July 29 news release. GAAP income was forecast to come in between $0.06 and $0.10 per share. Magma has about 36 million diluted shares outstanding.
Nassda's July 16 news release was not too sanguine about any meaningful change in its customers' spending patterns, predicting revenues of only $8.0 million and breakeven earnings per diluted share for the quarter ending September 30, 2003.
As is its custom, Synplicity gave no guidance regarding its upcoming quarter.
Verisity's July 21 forward look into the quarter ending September 30 suggested revenues between $12.7 million and $13.2 million (i.e. up 2% to 6% sequentially) and earnings per fully diluted share of $0.10 to $0.11 (up slightly sequentially).
Conclusions from August EDA industry commentary
The results for Q2 2003 reveal that the EDA industry is maintaining - even increasing - the slight edge that it enjoyed in May 2003 in revenue/earnings achievements over its MCAD counterparts. Most of the nine EDA companies expect a fairly decent second half of 2003, whereas most of their MCAD counterparts were not nearly as confident. Similarly, EDA stock valuations are registering respectable gains in contrast to a lackluster performance among the MCAD stocks.
Moreover, the rise in the general market indices is defying recent August (15-year) history. (Indeed, as of August 19, the DJIA closed at a 14-month high and the NASDAQ at a 16-month high). Still, this author remains skeptical that the overall 2003 year-to-date rise in popular equity market indices is in fact proportional to either (a) underlying and sustainable corporate productivity improvements, or (b) a suitably stable political-economic situation worldwide.
Short of an exceptional company here and there, neither the EDA nor the MCAD industry is poised for outstanding actual performance results for the full 2003 year.
Looking ahead, for truly impressive improvements to occur in 2004 and beyond, the current negative political and financial framework enervating the global manufacturing industry must be removed and robust optimism restored by corporate and national leadership.