Commentary: EDA Industry Update June 2008 -- What did the Last Quarter Bring?
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Commentary: EDA Industry Update June 2008 -- What did the Last Quarter Bring?

Commentary: EDA Industry Update June 2008 -- What did the Last Quarter Bring?

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


In the May 2003, December 2003, February 2004, August 2004, December 2004, February 2005, May 2005, August 2005, December 2005, February 2006, May 2006, August 2006, December 2006, February 2007, May 2007, August 2007, November 2007 and March 2008 EDA Commentaries by the authors (published on EDACafé.com), 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.

This June 2008 report covers their performances for the nominal First Quarter of 2008.

In this issue, EDA News Highlights are followed by the revenue & earnings performances of the selected group of EDA players for Q1 2008, and then EDA vendor by vendor details. EDA Vendor stock prices are discussed. Finally, individual EDA vendor forecasts for Q2 2008 are provided. Enjoy!

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 as independent entities from the authors' quarterly EDA Commentaries. As readers will see below, both Ansoft and Synplicity will soon join those ranks.


EDA News Highlights

On May 15, 2008 Mentor Graphics announced that it had acquired the assets of Ponte Solutions, Inc., the Mountain View, CA developer of model-based DFM solutions that analyze, predict, and reduce the impact of process variability during the manufacture and design of semiconductors. Terms of the transaction were not disclosed.

On March 11, 2008 Cadence announced that it had acquired Chip Estimate Corporation, a provider IC planning and enterprise-level IP reuse management solutions. Founded in 2003, Chip Estimate products are said to enable electronics design teams to predict the die size, yield, power consumption, performance, and cost of chips based on almost any design architecture, IP and silicon process node options.

On March 20, 2008 Synopsys announced it had signed a definitive agreement to acquire Synplicity, a supplier of FPGA and IC design and verification solutions. In addition to Synplicity's solutions for FPGAs, Synopsys will gain a rapid prototyping portfolio that complements its virtual prototyping business. Synopsys believes that combining Synplicity's hardware-based rapid prototyping and Synopsys' software-based virtual prototyping solutions will enable electronics companies to meet tight market windows with proven designs, even as software content continues to grow exponentially. Under the terms of the agreement, Synopsys will pay $8 cash per Synplicity share, resulting in a gross transaction of approximately $227 million, and approximately $188 million net of cash acquired. The acquisition was completed on May 16, 2008.

On March 31, 2008 ANSYS announced a definitive agreement whereby ANSYS would acquire Ansoft for a purchase price of approximately $832 million in a mix of cash and ANSYS common stock. ANSYS said that the strategic, complementary business combination of ANSYS and Ansoft would create the leading provider of 'best-in-class' simulation capabilities, with combined trailing 12-month revenues of $485 million (Ansoft's share = $98 million. Note: Ansoft has been covered every quarter in the authors' EDA Industry Commentaries in EDAcafe.com. Likewise, ANSYS has been covered every quarter in the authors' MCAD Industry Commentaries in MCADcafe.com).

When completed, ANSYS currently anticipates that the transaction will be modestly accretive to non-GAAP earnings per share in its first full year of combined operations. With over 40 direct sales offices and 21 development centers on three continents, the combined company will employ approximately 1,700 people. The two companies have headquarters in the Pittsburg, PA area.

Engineers use Ansoft software to achieve first-pass system success when designing mobile communication and Internet-access devices, broadband networking components and systems, ICs, PCBs and electromechanical systems. High performance electronics products account for 82% of revenue, electromechanical products 18%. In the latter group are electromagnetic field simulation software that is used for the design and analysis of 3D/2D structures, such as motors, actuators, transformers and other electric and electromechanical devices common to automotive, military/aerospace, and industrial systems and a software program that speeds the design and optimization process of rotating electric machines. (One of the authors of this EDA Industry Commentary, Dr. Russ Henke, came to know Ansoft when he helped sell the electromagnetic division of MCAE vendor MacNeal Schwendler Corporation to Ansoft in 1996. Henke served on the Board of Directors of MSC at the time).

IC's, systems on chips, and PCB's almost always end up as components in a larger system that has a mechanical engineering aspect, if only to house and to supply power and cooling to PCBs. Likewise, products from the consumer product segment like MP3 Players, digital cameras, GPS units, and cell phones are also a combination of electrical and mechanical elements. Hence the term “electromechanical” or “mechatronic”. Products that have long been thought of as principally mechanical, such as airplanes and automobiles, now are festooned with significant and increasing electronic content. Accordingly, most companies that manufacture industrial and consumer products today use a combination of EDA, MCAD and MCAE software tools.

Just in case some readers question this marriage, there is plenty of historical precedent for Computer Aided X (CAX) system and software vendors offering both electrical and mechanical software products. In the seventies and eighties, Burlington, MA-based Applicon (where both your current EDA Industry Commentary authors were once executives) offered three separate systems: PCB design; mechanical design, solid modeling, FEM analysis & manufacturing software; and IC photomask generation. Nearby neighbor ComputerVision also provided electrical and mechanical offerings. Both firms also developed and manufactured their own system hardware, incorporating OEM'd minicomputers to run the software. The highlight of any customer visit to either firm at that time, was a tour of the vendor's manufacturing facility.

CADAM was principally a mainframe-based 2D drafting system developed inside Lockheed. One of its major applications, however, was the creation of elementary wiring diagrams. CADAM also offered a mainframe PCB design system called PRANCE. In the late eighties, CADAM acquired PCAD, a microcomputer-based PCB systems.

Several firms today (e.g. Mentor Graphics, Dassault Systemes and UGS) offer products related to the creation, editing, routing and flattening of wire harnesses. Thermal analysis software is also often provided.

Most CAX firms also offer some form of data exchange between MCAD and EDA systems and some form of electronic schematic capture.

The reality is that the end-user engineers that sit in front of an EDA system to design chips and printed circuit boards, are almost never the people who sit in front of MCAD systems designing, say, aircraft engines or auto bodies. Likewise, these designers must eventually cooperate. For example, there may be a requirement for a 3D description of a PCB to be passed to a MCAD system to check for fit and clearance. There may also be a requirement for passing back a PCB's thermal profile to those concerned with the sizing of fans and with the control of air flow. These latter experts generally employ tools based on computation fluid dynamics (CFD) analysis. AEs and sales personnel of EDA and MCAD companies have considerably different educational backgrounds, experience and expertise. Offering both EDA and MCAE tools by one vendor becomes an interesting management challenge, but such challenges have been overcome successfully in the past.


With the two EDA vendors Ansoft and Synplicity having been acquired recently, the EDA Industry authors would welcome suggestions for new additions. To be eligible, a firm must be first an EDA company, secondly be a public company, and thirdly be a firm that publicly reports its financial data in a timely fashion.




How did the covered EDA Vendors fair during the First Quarter of 2008?

As shown in Table 1, the combined revenue performance of seven EDA vendors for Q1 2008 was $911 million, a decrease of 4.7% from the $956 million in the year ago quarter, and a drop of 22% from the $1,172 million in the just previous quarter.

Synplicity and Altium had year-over-year revenue increases in excess of 20% with Ansoft close behind at almost 19%. Magma and Mentor Graphics had revenue growth just over 10%. Cadence was the only decliner at -21%.

On a sequential basis, Ansoft was the growth leader by far at 30%. Altium and Synopsys reported modest growth. Both Cadence and Mentor dropped about 37% from their strong fourth quarters.

Figures 1 and 2 above provide additional revenue comparisons among vendors. Reversing recent roles, Synopsys was number one in Q1 2008 at 35%, with Cadence a close number 2 at 32%. Mentor continued in third place at 20%. Magma was a distant fourth at 6%.

Turning to earnings performances in Q1 2008, Table 2 shows that the EDA group of six (Altium did not report earnings) reported a combined net loss of $7.4 million compared to net income of $70 million in the same first quarter last year and compared to net income of $212 million in the just previous quarter. Synopsys and Ansoft were the only EDA vendors that delivered net income in Q1 2008. Both Cadence and Mentor Graphics reported substantial losses in Q1 2008 and significant swings from both the year ago quarter and from the just previous quarter. Magma's loss in the first quarter this year was nevertheless a considerable year-over-year improvement.


Company by Company Q1 2008 details:
On April 3, 2008 Altium Limited reported financial results for its third fiscal quarter, the period ended March 31, 2008. Total revenue was AU$13.31 million, an increase of 9% over the equivalent period a year ago; in US dollars, revenue of US$12.11 million, an increase of 25% over the equivalent period a year ago. Sales were AU$13.72 million, an increase of 6% over the equivalent period a year ago; in US dollars, sales of US$12.48 million, an increase of 23% over the equivalent period a year ago.

All regions saw growth in sales for the fiscal period, measured in local currencies. Sales grew by 16% in the Americas (US$); by 21% in Europe (€); by 55% in China (US$) and by 2% in APAC excluding China (US$). Sales in consulting services in Europe fell 26% (measured in euros) as part of a continuing and planned reduction in these services. Altium reports geographic information in dollars or euros. Table 3 below shows the results in US dollars.





On May 29, 2008 Ansoft Corporation announced financial results for its fourth fiscal quarter and its entire fiscal year 2008, the periods ended April 30, 2008. Total revenue for the quarter was $33.9 million, an increase of nearly 19% from the $28.6 million in the forth quarter of fiscal 2007, and an increase of almost 30% from the $21.1 million in the just prior quarter. License revenue was $22.7 million, accounting for 67% of total revenue. Service and other revenue was $11.2 million, 33% of total revenue, an increase of 14.5% year-over-year and an increase of nearly 1% sequentially.

Net income for the quarter was $8.5 million, or 25% of revenue. The $8.5 million was an increase of just over 7% from the $7.9 million in the year ago quarter, and an increase of 31% from $6.5 million in the previous quarter. Current quarter results include $1.7 million in merger-related expenses. (See details of the acquisition of Ansoft by ANSYS in the News Highlights section of this EDA Industry Commentary above).

Total revenue for the entire fiscal 2008 was $103 million, a healthy 16% increase from the $89 million in fiscal 2007. License revenue was nearly $60 million, or 58% of total revenue. This figure was up 17% from the prior year. Service and other revenue was $43.6 million, a 14.4% increase from fiscal 2007. Net income for the year was $24.1 million, a 19% increase from the $20.2 million in the previous year.

Nicholas Csendes, Ansoft's president and CEO, said, "We experienced revenue growth in both domestic and international markets and in both product lines. We are pleased to have had such a strong finish to our fiscal year with nearly 20% growth in revenue during the fourth quarter."

Csendes noted, "On March 31, 2008, we announced that Ansoft and ANSYS had signed a definitive agreement for ANSYS to acquire Ansoft. We believe there are strong synergies between the two companies and are very excited about the combination. In light of the proposed transaction, we will not be providing guidance for future periods."

In light of the press release issued on March 31, 2008, announcing the signing of a definitive agreement relating to the acquisition of Ansoft Corporation by ANSYS Inc., there was no conference call to discuss the results of the fourth fiscal quarter of 2008.


On April 23, 2008 Cadence Design Systems, Inc. reported on financial results of the first quarter, the period ended March 31, 2008. Total revenue for the first quarter was $287 million, a decrease of 21.4% from the $365 million in the first quarter of 2007 and a decrease of 37.3% from the $458 million in the fourth quarter of 2007. The $287 million was toward the high end of the revenue guidance given last quarter. Product revenue was $156 million, or 54% of total revenue. This was a year-over-year decrease of 34%, and a 52% decrease sequentially. Maintenance revenue was $98.8 million, accounting for 11% of total revenue. This was an increase of 3.6% year-over-year, and a sequential decrease of nearly 1%. Services revenue of $32 million accounted for the remaining 11% of total revenue. Service revenue was up almost 1% year-over-year, and 7.8% sequentially.

Revenue from North America accounted for 40% of total revenue, revenue from Europe for 22%, revenue from Japan 26% and revenue from the rest of Asia for 12%. Revenue from North America was down 34%, revenue from Japan was down 24% and revenue from the rest of Asia was down 5.6%. By contrast revenue from Europe was up 15%.

In terms of functional areas, Functional Verification accounted for 20% of total revenue, Digital IC Design for 27%, Custom IC for 25%, DFM for 6%, System Integration for 11% and Services for 11%. One customer accounted for approximately 11% of total revenue.


On March 11, 2008 Cadence announced that it had acquired Chip Estimate Corporation, said to be a leader in delivering IC planning and enterprise-level IP reuse management solutions. Founded in 2003, Chip Estimate's products enable electronics design teams to predict the die size, yield, power consumption, performance, and cost of chips based on almost any design architecture, IP and silicon process node options.

In addition to its chip planning technology, Chip Estimate has developed the Internet portal, ChipEstimate.com, which hosts collaborative partnerships of over 175 IP suppliers and foundries featuring over 6,000 IP components.

Cadence also announced the appointments of Bill Porter as Chief Administrative Officer and Kevin Palatnik, a twelve-year veteran of Cadence, as Chief Financial Officer. Porter joined Cadence in 1994 and became CFO in 1999. As executive vice president and CAO, Porter will oversee Finance, Treasury, Legal, Human Resources, and Business Development as well as Corporate Marketing and Strategy. Palatnik has served as controller for the past two years. He has held a number of senior financial and operational positions, including corporate vice president, finance and operations, and corporate vice president, Technical Field Operations.

Net loss for the quarter was $18.7 million, compared to net gain of $44 million in the year ago quarter, and a gain of $120 million in the just prior quarter. Total costs and expenses for the recent quarter were $4 million less than the year ago quarter, but in that year-ago quarter, other income was more by about $14 million.

Bill Porter, executive vice president and chief administrative officer, said, “First quarter results met our expectations and we'll continue to focus on improving our operating performance throughout the year.”


On May 1, 2008 Magma Design Automation Inc announced the financial results for its fourth fiscal quarter and the full year of its fiscal 2008. Total revenue for the quarter was $55 million, an increase of 10.3% from the $49.9 million in the same quarter last year, and a slight decrease of 1.3% from the $55.7 million in the previous quarter. The $55 million was just below the revenue guidance range given last quarter. License revenue of $35.8 million, accounting for 65% of total revenue, was an increase of 15.7% year-over-year, and an increase of 0.6% sequentially. Service revenue was $8.8 million, accounting for 16% of total revenue. This was an increase of 6.9% year-over-year, and a decrease of 0.2% sequentially. Bundled software and service revenue was $10.3 million, or 19% of total revenue. This was down 2.7% year-over-year, and down 8.2% sequentially. In the quarter, 82% of revenue came from backlog-related transactions and 18% came from upfront orders completed in the quarter. This is the same mix Magma had in the prior quarter.

In the quarter, North America accounted for 63% of total revenue, Europe for 9.4%, Japan for 12.5% and the rest of Asia Pacific 15%. On a sequential basis, North America was down 6.6%, Europe down 20%, Japan down 1.1% but the Rest of AP was up 59%.

February 27, 2008 was a busy day for Magma Design Automation. They announced they had acquired Sabio Labs; introduced Titan full-chip mixed-signal design, analysis and verification platform; and launched QuickCap TLx, adding advanced transistor-level extraction support to its gold-standard 3D capacitance extractor.

Net loss for the recent quarter was $7.3 million, a considerable improvement over the loss of $24.5 million in the year ago quarter, but a larger loss than the $5.9 million loss in the previous quarter. In the year ago quarter, there were litigation expenses of $14.4 million and relocation expenses of $1.8 million.

On April 30, 2008 Magma announced that Bruce Eastman had joined the company as corporate vice president, Worldwide Sales. Eastman will report to Roy E. Jewell, Magma president and chief operating officer. Eastman's EDA career began in sales management with ECAD, through that company's initial public offering and eventual merger with SDA to form Cadence Design Systems. While at Cadence, he served as vice president of Worldwide Major Accounts and Technology Partners. He later served as vice president of North America Sales for Quickturn Systems through its IPO, and as vice president of Sales for Avant!.

Total Magma revenue for fiscal 2008 was $214 million, a 20% increase over the $178 million in the prior fiscal year, and a record for Magma. License revenue was $139 million, or 65% of total revenue, an increase of 36%. Services revenue was $35 million, or 16% of total revenue, an increase of 5%. Revenue from bundled software and services was $40.5 million, accounting for 19% of total revenue. This was a decline of 5.6% versus the prior year. Backlog at the end of the year, which will be reported in Form 10-K in mid-June, was greater than $390 million. This represented a decline from the backlog at the end of fiscal 2007, which was reported at greater than $420 million. Net loss for the entire fiscal 2008 was $30.9 million, compared to a new loss of $61.1 million in the prior year.

For fiscal 2008, North America revenue accounted for 59.5%, Europe for 12.4%, Japan for 16.4% and the rest of Asia Pacific for 11.7%. North America was up 5%, Europe up 36.5%, Japan up 59% and Rest of AP up 68%.

Rajeev Madhavan, chairman and CEO of Magma, said, "We reached major market and financial milestones this year. Revenue grew more than 20 percent, new products established greater traction, and products released toward the end of the year were well received."

Madhavan further said, “We finished fiscal 2008 with record revenue of $214.4 million, breaking the $200 million threshold for the first time in Magma's history. Fourth quarter revenue of $55 million was slightly below target as some orders were pushed out, but by and large we again put up solid numbers. EPS and operating margin were both within our guidance ranges.”

“Some competitors have expressed concern over the economic conditions our customers face, but many of our customers are actually doing well, some very well. But while these companies are not seeing broad-based weakness in their businesses, some are experiencing near-term softness and lack of visibility. They are therefore exercising heightened caution in making purchase decisions and paying attention to near-term financial metrics. Specifically, our revenues shortfall this quarter was due to a stringent expense controls at a particular customer that resulted in a decision on the last day of the quarter to delay an expected order. This order was not canceled and is in process as we speak.”


On May 27, 2008 Mentor Graphics reported its financial results for the first quarter of its fiscal 2009, the period ended April 30, 2008. Total revenue for the quarter was $179 million, a drop of almost 8% from the $194 million in the same quarter a year earlier and a drop of 37% from $284 million in the historically strong fourth quarter. The recent $179 million in the quarter's revenue was above the guidance of $170 million given in the last quarter. System and software revenue was $96.8 million, or 54% of total revenue, a decline of 17.8% year-over-year, and a decline of 52% sequentially. Service and support revenue was $82.4 million, or 46% of total revenue, an increase of 7.5% year-over-year and a drop of 1.6% from the prior quarter.

In the quarter, America accounted for 40% of total revenue, the same percentage in the previous quarter, but down from 50% a year earlier. Europe accounted for 30% of total revenue, Japan for 20% and Pacific Rim for 10%.



Revenue by product area was 20% Integrated System Design, 40% IC Design2Silicon, 20% Scalable Verification, 10% New & Emerging and 10% Services. This was the same percentage breakdown as a year ago.


Net loss for the quarter was $27.5 million, compared to net incomes of $290,000 and $35.7 million in the year ago quarter and in the just previous quarter, respectively.

As reported in the News Highlights section in the foregoing, on May 15, 2008 Mentor announced that it had acquired the assets of Ponte Solutions, Inc., the Mountain View, CA developer of model-based DFM solutions that analyze, predict, and reduce the impact of process variability during the manufacture and design of semiconductors. Terms of the transaction were not disclosed.

Walden C. Rhines, chairman and CEO of Mentor Graphics, said, “In a difficult environment, the company performed as we forecast. Our investments in new technologies and markets continue to pay dividends, with growth in analog/mixed-signal design, electronic system level (ESL) design, automotive and design-for-test, among others.”


On May 21, 2008 Synopsys, Inc. announced financial results for its second quarter of its fiscal 2008, the period ended April 30, 2008. Total revenue for the quarter was $324 million, an increase of nearly 11% from the $293 million in the same quarter a year ago, and an increase of almost 3% from the $315 million in the prior quarter. The $324 million was at the high end of the guidance given last quarter. Time-based license revenue at $278 million accounted for 86% of total revenue. This was an increase of 14% from the year ago quarter, and an increase of 3.9% from the previous quarter. Upfront license revenue was $12.2 million, or 3.8% of total revenue. This was down 14.4% year-over-year, and down 2.5% sequentially. Maintenance and service revenue was $34 million, accounting for 10.5% of total revenue. This was a drop of about 3% both year-over-year and sequentially.

North American revenue was 48% of total revenue, European revenue 14%, Japan 23% and Asia Pacific 15%. North American revenue was up 6.8% year-over-year, but essentially flat sequentially. European revenue was up 8.2% year-over-year, but declined 1% sequentially. Revenue from Japan was up 74% from the prior year, and up 53% from the prior quarter. AP revenue was up 7.7% year-over-year, and 4.6% sequentially. One customer accounted for slightly more than 10% of the quarter's revenue.

Core EDA revenue accounted for 75% of total revenue, IP and Systems for 7.3%, DFM for 12% and Services for 5.5%.


Net income for the quarter was $39.3 million, a drop of 4.6% from the same quarter last year, and a drop of 15% sequentially.

Aart de Geus, chairman and CEO of Synopsys, said, “Synopsys continues to deliver predictable revenue growth and solid earnings expansion. We are seeing good momentum as our leading technology, comprehensive solutions and strong field support make us a long-term, reliable partner to our customers."

Commenting on the Synplicity acquisition Aart de Geus said, “Finally, last week we closed our acquisition of Synplicity, which is very positive from at least four angles: One, we're being joined by a very capable technical team; Two, Synplicity is a clear leader in the directly adjacent FPGA design area; Three, Synplicity brings an opportunity to cross-sell products to each other's customer base; And last, but certainly not least, Simplicity's growing rapid prototyping business will allow us to put increased emphasis on the embedded software market segment.


On April 22, 2008 Synplicity, Inc announced financial results for the first quarter, the period ended March 31, 2008. Total revenue for the quarter was $18.6 million, an almost 25% increase over the same period a year ago, but a 7.4% decline from the prior quarter. The $18.6 million was just above the revenue guidance range given last quarter. License revenue was $8.1 million, accounting for 44% of total revenue. This was a jump of 109% from the first quarter of 2007, but a 9.5% decline from the last quarter. Maintenance revenue was $7.2 million, or 39% of total revenue. This was an increase of 8.2% year-over-year, and a drop of 3.5% sequentially. Bundle Service revenue was $3.3 million, or 18% of total revenue. This was a drop of 25% year-over-year, and a drop of 10% sequentially.

Net loss for the quarter was $1.86 million, compared to net income of $654,000 in the same quarter of 2007, and compared to net income of $10.3 million in the fourth quarter of 2007. GAAP net loss included $1.4 million in expenses related to the pending merger of Synplicity and Synopsys, Inc, $849,000 in amortization of intangible assets and $809,000 of stock-based compensation expense. For the quarter ended March 31, 2007, GAAP net income included $248,000 in amortization of intangible assets and $879,000 of stock-based compensation expense.

Gary Meyers, president and CEO of Synplicity, said, “We are pleased to report that revenue in the first quarter of 2008 came in ahead of our expectations. Our ConfirmaTM product line for ASIC verification again showed substantial year over year revenue growth. Our unique combination of hardware, software and global support organization is driving market share gains in this important segment.”


EDA Vendor Stock Performance

As shown in Tables 8 and 9 and Figure 3 below, the combined stock prices for the EDA vendors unfavorably decreased in absolute terms almost 22% year-over-year compared to a decrease of only 4.5% for the major stock indexes year-over-year. Oddly, the combined stock prices for the EDA vendors favorably decreased in absolute terms only 1.1% sequentially, compared to a decrease of 10.5% for the major stock indexes sequentially. (The average percentage EDA change was down 25.7% year-over-year and decreased 6.0% sequentially).



On a year-over-year basis only Synplicity (+12%) increased its stock price. Altium, Cadence and Mentor Graphics saw stock price declines around 50%. Magma and Synopsys also had significant declines at 20% and 15% respectively. On a sequential basis Synplicity stock rose 35% followed by Ansoft at 18%. Cadence was a distant third at +5.2%. Altium suffered the largest stock price decline at -48%. Magma and Mentor Graphics had price declines in the neighborhood of 20%.


As the current recession in the US deepens, EDA vendors may well continue to suffer stock market troubles, if not flatter revenues and earnings going forward. US economic data are not improving during Q2 2008.

In a new US corporate IT spending survey by ChangeWave Research in April 2008, 25% of the respondents said their company will spend less on software in coming months. This figure is 3 points higher than a study ChangeWave conducted in January and 11 points higher than one completed in October 2007, indicating a deepening trend.

Consumer prices increased a hefty 0.6% in April 2008, the US Labor Department said on May 15, 2008, if you take out seasonal adjustments. Of course, if one does not eat or drive (i.e. ignoring price increases in food and gas), April consumer prices increased only 0.2%. During the last 12 months, overall US consumer prices increased 3.9%. Food alone has risen 5.1%; gasoline has risen 20.7%.

The US government also reported that oil imported in April 2008 cost 67% more than oil imported a year earlier - but the trend in import prices is clear even if energy prices are ignored. For all non-petroleum imports, prices in April were up 6.2% from a year earlier. That is the fastest rate of gain in almost 20 years.

According to the May 16, 2008 Wall Street Journal, "US economic reports released May 15 are keeping recession worries afloat, showing continued weakness in the labor market and a struggling manufacturing sector." The US Federal Reserve announced on May 15 that "US industrial production plunged a sharp 0.7% in April 2008, as output of motor vehicles and parts plummeted 8.2%." US industrial production had risen 0.2% percent in March 2008, but also dropped 0.7% percent in February.

The Reuters/University of Michigan index of US consumer confidence dropped to 59.5 in May 2008 - the lowest level since June 1980.

The president of Alliance for Excellent Education, in a new book, “Raising the Grade: How High School Reform Can Save Our Youth and Our Nation”, stated the following: “We can't even keep our (US) kids in school. A third of them drop out. Half of those who remain go on to graduate without the skills for college or a decent job. International comparisons rank the United States a stunningly unimpressive eighteenth for high school graduation rates, a lackluster ranking of fifteenth for high school reading assessments among 15-year-olds in developed countries, and an embarrassing 25th for high school math.”

While the price of oil did close down a few percentage points on May 27, 2008, US average gas prices hit another record high at almost $3.94 a gallon of regular, according to a survey of stations by the AAA and the Oil Price Information Service. Now, enterprising thieves have added puncturing gas tanks and gas lines to steal gasoline to their previous nefarious methods of either siphoning gas, or just driving off without paying after fill ups at gas stations.

Also on May 27, The New York-based Conference Board reported that its Consumer Confidence Index dropped to 57.2, down from a revised 62.8 just last month. The May reading marks the fifth straight month of decline in US Consumer Confidence and is now lower than it was during Bush 43's first recession in 2001. In fact, it is the lowest reading since the index registered 54.6 in October 1992 - you know, 16 years ago, when the US economy and the citizenry were suffering during Bush 41's recession.

The downbeat news about Consumer Confidence arrived May 27 just as we also received apparently mixed news about the US housing market. The Standard & Poor's/Case-Shiller index released May 27 showed that US housing prices dropped during Q1 2008 at the sharpest rate (-14.1%) in two decades, indicating that the US housing slump is still worsening. This index is now at its lowest level since its 1988 inception - you know, the year Bush 41 was elected.

Meanwhile, the US Commerce Department reported May 27 that new US home sales unexpectedly rose 3.3% from March to April. It was the first increase in six months and might seem like a harbinger of happier days ahead. But perhaps the May 27 housing news isn't “mixed” after all! April's new home sales looked better mostly because of a large downward revision to the March 2008 numbers! And the median home price fell 4.2% last month. Alas, even after the slight uptick in April 2008, sales of new US homes are still at their lowest level in 17 years.


MCAD versus EDA Q1 2008

The detailed quarterly performances of a selected group of public MCAD Vendors has been provided in the authors' MCAD Commentary for May 2008 recently published on MCADCafe.

The Q1 2008 revenue from the top three MCAD vendors was $1.32 billion, a whopping 66% higher than the revenue from the top three EDA vendors. The three leading MCAD vendors all sported net earnings for the first quarter of 2008, while two of the Big 3 EDA Vendors (Cadence and Mentor Graphics) endured net losses. So in Q1 2008 at least, the Top 3 MCAD Vendors were separated by $181.1 million in earnings from the Big 3 EDA Vendors. See Table 10.


Keep in mind that Autodesk sells its products predominantly through valued added resellers and distributors. Dassault Systemes sells predominantly through IBM and its Business Partners and in some instances, notably SolidWorks, through VARs. Thus, if one were to count actual end-user purchases of MCAD products, the combined MCAD revenue total would raise the Big 3 MCAD dollar total substantially. On the other hand, Autodesk has not-insignificant revenue outside MCAD in AEC, GIS and Media/Entertainment.


Forecast Guidance from Individual EDA Providers

Altium, Ansoft and Synplicity did not provide guidance. The four firms providing guidance are forecasting an average year-over-year decline of -7.7% for the next quaarter. Magma is the most optimistic at -5%. On a sequential basis the four forecast an average 4.5% gain. Cadence is the most optimistic at almost 10% revenue growth, while Magma sees a drop of almost 8%. See Table 11.



Individual Company by Company Guidance

Altium and Ansoft did not provide guidance for the next quarter.

For the second quarter of 2008, Cadence expects total revenue in the range of $310 million to $320 million, compared to $287 million in the quarter just reported, and a decrease compared to $391 million in the second quarter last year. For the full year 2008, Cadence expects total revenue in the range of $1.490 billion to $1.540 billion compared to $1.615 billion achieved in 2007.

As guidance for Magma's fiscal 2009 first quarter, ending Aug. 3, 2008, the company expects total revenue in the range of $50.0 million to $51.5 million, compared to $55 million in the quarter just reported and compared to $53.5 in the “same” quarter last year (Magma is shifting its fiscal year by a month). Revenue for fiscal 2009 is expected to be in the range of $225 million to $230 million, representing growth in the range of 5% to 7.5% over the $214 million in fiscal 2008.

For fiscal second quarter, consistent with the previously-forecast weaker first half, Mentor Graphics expects revenue of about $173 million, compared to $179 million in the quarter just reported, and compared to $206 million in the same quarter a year ago. For fiscal year 2009, the company expects revenue of approximately $915 million, compared to $880 million in fiscal 2008.

As guidance Synopsys expects revenue in the next quarter (third quarter of fiscal 2008) to be in the range of $335 million to $343 million, compared to $324 million in the quarter just reported and compared to $304 million in the same quarter last year. This represents a growth rate of approximately 9 ½ to 10 ½ percent. Synopsys anticipates that Synplicity will contribute approximately $20-23 million. For full fiscal 2008 Synopsys expects revenue to be in the range $1.325 billion and $1.340 billion.


EDA Consortium's Market Statistics

On April 2, 2008 the EDA Consortium's Market Statistics Service (MSS) announced that the EDA industry revenue for Q4 2007 grew 6.7% to $1,602 million, versus $1,501 million in Q4 2006. The EDA Industry's growth of 6.7% in Q4 2007 easily eclipsed the US GDP, which grew only 0.6% in Q4. The four-quarter average EDA Idustry growth rate, which compares the most recent four quarters to the same four quarters in the prior year, was 9.1%.

In the fourth quarter of 2007, the CAE segment accounted for 41% of total EDA revenue, IC Design & Verification for 28%, Semiconductor IP for 17%, PCB/MCM for 10% and Services for 5%.


For the fourth quarter of 2007 North America accounted for 46% of total EDA revenue, Europe for 20%, Japan for 20% and ROW for 15%.



Robert Gardner, executive director, EDA Consortium, said, “The reported worldwide EDA industry showed continued growth in Q4 2007, with double digit growth in Japan and the Rest-of-World. Overall industry revenue increased relative to both Q4 2006 and the four quarter moving average. EDA employment has seen steady growth over the course of 2007.”


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About the Authors:

Since 1996, Dr. Russ Henke has been president of HENKE ASSOCIATES, a San Francisco Bay Area high-tech business & management consulting firm. The number of client companies for Henke Associates now numbers more than forty. During his corporate career, Henke operated sequentially on "both sides" of MCAD and EDA, as a user and as a vendor. He's a veteran corporate executive from Cincinnati Milacron, SDRC, Schlumberger Applicon, Gould Electronics, ATP, and Mentor Graphics. Henke is a Fellow of the Society of Manufacturing Engineers (SME) and served on the SME International Board of Directors. He is also a member of the IEEE and a Life Fellow of ASME International. In April 2006, Dr. Henke received the 2006 Lifetime Achievement Award from The CAD Society, presented by CAD Society president Jeff Rowe at COFES2006 in Scottsdale, AZ. In February 2007, Henke became affiliated with Cyon Research's select group of experts on business and technology issues as a Senior Analyst. This Cyon Research connection aids and supplements Henke's ongoing, independent consulting practice (Henke Associates).

An affiliate of the HENKE ASSOCIATES team since 2001, LA-based Dr. John R. (Jack) Horgan co-authored this June 2008 EDA Industry Commentary. Dr. Horgan's prior corporate career has included executive positions at Applicon, Aries Technology, CADAM and MICROCADAM, as well as a stint at IBM. Dr. Horgan is also an editor of EDAcafé Weekly.

Since May 2003 the authors have now published a total of sixty-six (66) independent articles on MCAD, PLM, EDA and Electronics IP on IBSystems' MCADCafé and EDACafé. Further information on HENKE ASSOCIATES, and URL's for past Commentaries, are available at http://www.henkeassociates.net. March 31, 2008 marks the 12th Anniversary of the founding of HENKE ASSOCIATES.

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