The EDA & Electronics IP Almanac: Q1 2011

Business Outlook

For Magma's fiscal 2012 first quarter (a.k.a. nominal Q2 2011), ending July 31, 2011, the company expects total revenue in the range of $36.0 million to $36.5 million. GAAP net loss per share is expected to be in the range of $(0.04) to $(0.03).

For Magma's entire fiscal 2012, ending April 29, 2012, the company expects total revenue in the range of $158.0 million to $160.0 million. GAAP net income per share is expected to be in the range of $0.04 to $0.06.

Magma self description

Magma's electronic design automation (EDA) software provides the "Fastest Path to Silicon"(TM) 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. Follow Magma on Twitter at and on Facebook at Visit Magma Design Automation on the Web at

On May 27, 2011 Mentor Graphics Corporation (NASDAQ: MENT) announced “final” financial results for the company’s fiscal first quarter ended April 30, 2011 (which, as you know by now, we treat as nominal Q1 2011 for EDA WEEKLY purposes).

The company reported nominal Q1 2011 revenues of $230 million and a GAAP loss per share of $.02. (The company stated that the GAAP loss was driven primarily by non-cash charges associated with retirement of convertible debt).

The $230 million in Q1 2011 revenue was 27% higher YOY than the $180 million achieved in Q1 2010, a fine quarterly YOY growth percentage ordinarily worthy of significant praise and celebration.

Except perhaps when that $230 million revenue quarter comes in some 25% below the revenue spike reported for the just-prior (sequential) quarter, with a negative bottom line to boot, which is precisely the situation that befell MENT in nominal Q1 2011!

How could Q1 2011 be viewed otherwise? After all, the normally admirable $230 million Q1 2011 appeared on the heels of a spectacular, “one-time only” Q4 2010 results display:

  1. Q4 2010 reported revenue of $307.31 million
  2. Q4 2010 reported GAAP net income of $49.16 million
  3. Q4 2010 reported GAAP EPS of $0.43

Those Q4 2010 numbers were in Synopsys’ territory, folks! Such lofty numbers accorded MENT momentary admission to the exclusive “$300 million revenue per quarter club,” In addition, the Q4 2010 net income at $49+ million led the entire EDA pack in Q4 2010... heady environs for an EDA vendor that has long occupied the third place slot among the “Big 3.”

Of course, no observer could expect that such Q4 2010-like results could be sustained, or even soon revisited. Not in Q1 2011, and not in Q2 2011 (MENT’s Q2 2011 guidance is for revenues of about $210 million and a GAAP loss per share of approximately $.05). Indeed, the guidance for the four quarters of the current year is for quarters that each average about $251 million in revenue with EPS just shy of $0.17 per quarter, numbers which if actually achieved would be themselves quite admirable, but far below Q4 2010 results).

The final May 27, 2011 MGC Q1 2011 financial results recounted herein, came after company management had issued a blitz of news releases to prepare for a contentious stockholder’s meeting eventually held on May 12, 2011. Indeed, of the 43 news releases issued by MENT between January 01, 2011 and May 12, 2011, as many as a dozen were arguably related to meeting the challenges mounted by one Carl Ichan.

For example, MENT took the unusual step of issuing a preliminary Q1 2011 financial report on May 5, 2011, reporting $230 million in revenue and EPS in the range of $ (0.6) to $(0.02).  As we now know, the “preliminary” release was spot on in its revenue estimate, and actual earnings were at the better end of the spread suggested.

More pointed was MENT’s initial anti-Ichan news release of February 22, 2011, entitled,” Mentor Graphics Confirms Receipt of Unsolicited Conditional Proposal from the Icahn Group. In this news release, MENT confirmed that it had received an unsolicited conditional proposal from Carl Icahn and certain of his affiliated entities (the “Icahn Group”) to purchase all of the outstanding shares of MENT (other than those the Ichan Group already owned) at a reasonably-attractive price of $17 per share in cash. In the Feb 22 news release, MENT’s Board of Directors promised to review the Icahn Group’s conditional proposal and make a recommendation to MENT shareholders in due course.

MENT stock was trading in the $14.50 per share range at the time. With the release of the news confirming the $17 offer, the MENT stock price immediately began rising, up over a dollar per share to $15.67 on February 23, just a day after the existence of the  Ichan offer was announced. Two days later the stock was headed back down, but then cleverly or coincidently, MENT announced its gargantuan nominal Q4 2010 financials, reversing the stock price fall and driving the stock price upward again. By March 03, the stock price was up to $15.96, before heading back down, staying above $15 till slowly descending to the high $14’s, nudging slightly above $15 March 24-28, back down to $14 around April 18, then dancing around in the $14+ level for over three weeks till the May 12 MENT shareholders’ meeting.  

What else was happening during the February 24 to May 12 period?

Why, not surprisingly, MENT management rapidly rejected the Ichan Group’s offer.

So the battle was joined:

       Ichan argued that Mentor is a chronically poor performer that needs new owners, or at least new leadership; whereas

       Mentor management and the board of directors wanted neither Icahn's money nor his help, and they jointly asked the Mentor shareholders to re-elect all eight existing board members.

Forthwith, Mentor commenced a series of aggressive measures to retain control, including but not limited to the aforementioned PR blitz of some 32 “positive progress” news releases between February 25 and May 12, with arguably at least eleven of these aimed directly at persuading shareholders that current management and then-current board members collectively knew what’s best for Mentor. 

Such news release titles included (last one first):

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