Commentary: EDA Industry Update August 2007 -- What did the Last Quarter Bring?


Commentary: EDA Industry Update August 2007 -- What did the Last Quarter Bring?

by Dr. Russ Henke and Dr. Jack Horgan
Henke Associates

In each of the last seventeen quarterly EDA Industry Commentaries written by the authors (published on EDACafé.com beginning May 2003), the then-current yearly and quarterly financial performances of a selected group of publicly traded Electronic Design Automation (EDA) companies were analyzed and compared. Expectations regarding the future financial performances of these same EDA entities were documented as well. The selected companies were Altium, Ansoft, Cadence, Magma, Mentor Graphics, Nassda, Synopsys, Synplicity and Verisity.

Note: As part of continuing EDA industry consolidation, two previously-selected EDA vendors, namely Verisity and Nassda, have been acquired by others and hence have been dropped from the authors' quarterly EDA Commentaries.

This eighteenth, August 2007 report covers the performances of the remaining seven EDA Vendors for the nominal Second Quarter of 2007.

In this issue, EDA News Highlights are followed by the revenue & earnings performances of the selected group of EDA players for Q2 2007, and then EDA vendor by vendor details. EDA Vendor stock prices are discussed. Finally, individual EDA vendor forecasts for Q3 2007 are provided. Enjoy!

EDA News Highlights - Acquisitions continue…

On June 1, 2007 Synplicity announced the signing of a definitive agreement to acquire all of the outstanding shares of HARDI Electronics AB, a leading developer of off-the-shelf ASIC prototyping boards, for $24.2 million in cash.

On June 11, 2007 Mentor Graphics announced it had acquired Sierra Design Automation, a provider of high-performance place and route solutions. The company was purchased for $90 million, payable 50% in cash and 50% in Mentor Graphics common stock.

On August 16, 2007 Cadence announced that it had acquired Clear Shape Technologies, Inc., a DFM technology company specializing in design-side solutions to minimize yield loss for advanced semiconductor ICs. The acquisition was completed on August 15, 2007. Terms of the agreement have not been disclosed.

How did the selected EDA Vendors fair during the Second Quarter of 2007?

As shown in Table 1, the combined revenue performance of seven EDA vendors was $1 billion, an increase of nearly 11% from $899 million in the second quarter of 2006, and an increase of over 5% from the $952 million in Q1 2007. All covered firms reported year-over-year quarterly revenue growth. Magma was percentage revenue growth leader at 22%. Altium, Ansoft and Mentor Graphics delivered growth rates in the mid-teens while Cadence, Synopsys and Synplicity exhibited growth in the high single digits. On a sequential quarterly basis, Ansoft was the only decliner at -30%. Altium was the runaway sequential growth leader at 39%. Synplicity was the only other firm to reach double digit sequential growth.

Figures 1 and 2 above provide additional revenue comparisons among vendors for Q2 2007. Cadence was number one at a 39% share, Synopsys number two at 30% and Mentor Graphics number three at 21%. As usual, the big three EDA firms accounted for 90% of total revenue of the selected group. Magma was a distant fourth at 5%.

Turning to earnings performances in Q2 2007, Table 2 shows that the EDA group of six (Altium did not report earnings) reported a combined net income of $80 million, a huge percentage increase of 165% from the $39 million in the year ago quarter and a modest increase of 14% from the $70 million in the just prior quarter. Magma was the only firm to have a net loss for the quarter (-$11.2 million). On a year-over-year basis Magma and Synplicity had small (~$500K) net income drops. Synopsys and Cadence had significant earnings percentage growth at 230% and 96%, respectively. Ansoft also had good earnings growth at 69%. On a sequential basis, Magma's net loss was less than half its loss in the previous quarter. Major sequential decliners were Ansoft and Synopsys at -51% and -40%, respectively.

Company by Company Q2 2007 details:
On July 12, 2007 Altium Limited announced financial results for its fourth quarter and its fiscal year, the periods ending June 30, 2007. For the quarter, sales were AU$19.2 million, up 19% from the corresponding quarter a year ago. All three regions recorded sales growth in the three months ending 30 June 2007. Sales for the Americas grew 28% measured in US$; European sales grew 24% measured in euros; and Asia Pacific sales grew 51% measured in US$, all compared with the corresponding quarter a year ago. For the same period, revenue was AU$17.3 million, up 13% from AU$15.3 million for the corresponding quarter a year ago, and up 34% from the AU$12.9 million on the prior quarter. (As reported by Altium, the difference between sales and revenue figures reflects those orders for which revenue is recognized over time, e.g. a maintenance contract).

The table below shows the sales results by geographic region. If all the data are converted to US$, Americas account for 43.5% of total sales, Europe 33%, and AP 22%.

For the year, sales were AU$57.5 million, up 26% from AU$45.5 million for the corresponding period a year ago. Altium operates in three regions around the world: the Americas, Europe (also including the Middle East and Africa), and the Asia-Pacific region (AP). For the full year, sales for the Americas grew 30% measured in US$; European sales grew 17% measured in euros; and AP sales grew 67% measured in US$, all compared with the corresponding period a year ago. Revenue for the full year ending 30 June, 2007 is AU$53.3 million, up 18% from AU$45.1 million reported for the corresponding period a year ago.

Nick Martin, CEO of Altium Limited, commented, “It's pleasing to see our company strategy driving our positive financial results. All our key markets are starting to see the effects of the way our sales force is helping our customers understand and use the benefits of this unified approach in their organizations. Altium is also seeing increasing sales of maintenance and support contracts, on the back of our increasing license sales.”

August 14, 2007 Ansoft Corporation announced financial results for its first quarter of fiscal 2008, ending July 31, 2007. Total revenue for the quarter was $19.9 million, an increase of 15% from the $17.3 million in the same quarter a year earlier, but a 30% drop from the $28.6 million in the previous (traditionally strong fiscal 4th) quarter. License revenue at $9.7 million accounted for 48.5% of the total first fiscal quarter revenue, an 18% increase year-over-year, but a 48% drop sequentially. Service revenue at $10.2 million accounted for 51.5% of total revenue, a 12% increase year-over-year, and a 4.4% increase sequentially.

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