EDA Industry Update JUNE 2009 -- What did the Last Quarter Bring?
by Dr. Russ Henke and Dr. Jack Horgan
In each of the 24 quarterly EDA Industry Commentaries published here since May 2003 by the authors, 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 originally 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, had been acquired by others and hence were dropped from the authors' quarterly EDA Commentaries. More recently, EDA vendor Synplicity was acquired by EDA vendor Synopsys, and EDA vendor Ansoft was acquired by MCAE vendor ANSYS. Consequently, both Synplicity and Ansoft will no longer independently appear in these EDA Industry reports.
This June 2009 report covers the performances of the remaining group of five (G5) EDA vendors for the nominal First Quarter. The timing of the publication of these quarterly commentaries is governed by the official release of quarterly results of the last vendor of the five to report for the quarter; this time it was Mentor Graphics, which reported on May 29, 2009 (Magma just beat MGC by two days). In this issue, EDA News Highlights are followed by the revenue & earnings performances of the selected group of EDA players for Q1 2009, and then EDA vendor by vendor details. EDA Vendor stock prices are discussed. Finally, individual EDA vendor forecasts for nominal Q2 2009 are provided. Enjoy!
Recent EDA Industry News Highlights:
As reported in the recently-issued Electronics IP Commentary for May 2009 by the authors, on May 07, 2009 Mentor Graphics and LogicVision announced the two companies had signed a definitive merger agreement pursuant under which Mentor Graphics will acquire LogicVision. Under the terms of the agreement, which was approved by the boards of directors of both companies, LogicVision stockholders will receive 0.2006 of a share of Mentor Graphics common stock for each share of LogicVision, for aggregate consideration of approximately $13 million dollars (as of May 07, 2009). LogicVision will operate as a wholly-owned subsidiary of Mentor Graphics. The transaction is subject to the approval of LogicVision stockholders as well as customary closing conditions (but is not subject to regulatory approvals). The transaction is expected to close during the third calendar quarter of 2009.
On June 1, 2009 Altium announced it was providing software worth nearly US$100,000 to the Rutgers University robotics club, which will use Altium’s next generation electronics design solution to design and manufacture a complete unmanned aerial system (UAS). The vehicle will feature in the UAS competition run by the Association for Unmanned Vehicle Systems International (AUVSI). The national competition requires university students to demonstrate the flight capabilities of an unmanned, electric powered, radio controlled aircraft they design and build. Entries are judged on design and ability to meet a range of mission objectives. The five-day event will be held at the Webster Field, St. Inigoes, Maryland, June 17-21, 2009. The Rutgers team will use Altium’s design solution to develop complex navigational controls, and the entire aerial sensing system and flight platform. A flight stabilization and control system, autopilot, and GPS navigation system will let the vehicle takeoff and land without human intervention, mimicking a military spy plane. It will search the arena and relay real-time video back to an operator who will identify the locations of mission targets.
On March 11, 2009 iSuppli announced its ranking of semiconductor suppliers in 2008. From that announcement, Table 1 reveals that the top ten firms were:
Note that only Qualcomm (+15%) and STMicroelectronics (+3.3%) experienced revenue growth relative to the prior year.
Total 2009 revenue from all firms surveyed by iSuppli was $258 billion, a decline of 5.2% from 2007.
On May 01, 2009 the Semiconductor Industry Association (SIA) reported that worldwide sales of semiconductors were $14.7 billion in March 2009, a slight gain of 3.3% from the prior month when sales were $14.2 billion. Sales for the entire first quarter of 2009 amounted to $44.0 billion, a disappointing 29.9% decline from the first quarter of 2008 when sales were $62.8 billion. Q1 2009 sales also declined by 15.7% from the fourth quarter of 2008 when sales were $52.2 billion.
March sales in all geographic regions except Japan showed month-to-month gains. Sales in Japan were sharply lower, reflecting a drop in the country’s economic output. However, all geographic regions reported lower first-quarter sales compared to the same period of 2008.
SIA President George Scalise said, “The modest sequential rebound in worldwide sales in March suggests that demand has stabilized somewhat, albeit at substantially lower levels than last year. While all major product sectors showed month-on-month growth, there continues to be limited visibility in end markets. There are some bright spots such as ‘smart phones’ and ‘netbook’ PCs, but there are no clear signs of early firming of demand in other major end markets such as automotive, corporate information technology, and consumer electronics.
Scalise continued, “The global chip industry continues to reflect the influence of the worldwide economic slowdown. We expect economic stimulus measures in the U.S. combined with other countries will begin to impact sales as we enter 2010.”
On June 01, 2009 Cadence announced that the Chinese Academy of Sciences Institute of Computing Technology (ICT) had adopted the Cadence® Incisive® Xtreme® III System for accelerating the development of RTL design with a verification flow for its next-generation 64 million-plus gates Loongson III advanced multi-core microprocessor. The deployment of the Incisive Xtreme III System for developing the ICT’s advanced 65- and 45-nanometer multi-core processor is said to have enabled ICT engineers to accelerate system-level verification while validating software operations.
On May 27, 2009 Magma announced the release of Talus ® 1.1, a new RTL-to-GDSII chip implementation system that is said to deliver the fastest timing closure on the largest and most complex semiconductor designs. Talus 1.1 utilizes the new Talus ® COre ™ technology, which leverages Magma's unified data model to perform timing optimization concurrently during routing. This is said to enhance designers' ability to achieve optimal results across a wide variety of designs -- while minimizing the need for user intervention. Talus 1.1 also introduces the Talus ® Flow Manager ™ with "out-of-the-box" design flows. Included with the release are out-of-the-box reference flows for RTL-to-GDSII, multi-Vdd, low-power design and high-performance design. Talus Flow Manager also introduces a new visual analysis environment, Talus ® Visual Volcano ™, that is said to integrate and present all design and analysis data via a common display.
On June 02, 2009 Synopsys announced that Semiconductor Manufacturing International Corporation (SMIC), one of the leading semiconductor foundries in the world, had adopted Synopsys' HSPICE® circuit simulator and WaveView Analyzer for design and verification of SMIC’s 65-nanometer (nm) and 45-nm IP blocks, I/O circuitry and standard cell characterization flows. Taking advantage of the features in the 2009.03 release of the Synopsys HSPICE circuit simulator, it is said that SMIC was able to cut simulation runtimes in half with improved silicon correlation over SMIC’s existing solution.
How did the G5 EDA Vendors fair during the First Quarter of 2009?
As shown in Table 3, the combined revenue performance of the five covered EDA firms for the quarter was $780 million, a decline of 7.2% from the first quarter of 2008, and a drop of 8.7% from the fourth quarter of 2008. Magma suffered the largest decline year-over-year at -38% on a lower base, followed by Cadence and Altium with declines in the neighborhood of -20%. Mentor Graphics and Synopsys delivered single digit percentage year-over-year revenue growths.
On a sequential quarterly basis, Altium was the largest percentage revenue decliner at -35% with Mentor a distant second at -20%. Magma was the only EDA vendor with a percentage increase (+11%) from the traditionally-strong fourth quarter.
Figures 1 and 2 below provide additional revenue comparisons among vendors. In Q1 2009 Synopsys exhibited the largest relative market share by far at 44%, Cadence was in second place at 26%, and Mentor was a very close third at 25%.
Turning to earnings performances in Q1 2009, Table 4 shows that the EDA group of 4 that reported quarterly income, endured a combined net loss of $38.5 million, compared to a combined net gain of $41 million in the comparable year ago quarter, and compared to a whopping combined net loss of $1,633 million in the just previous quarter.
Hello? Yes, you read the italics correctly. Read on…
For the first quarter of 2009, Cadence reported the largest Q1 2009 loss of the G4 in absolute terms (-$63.2 million), but the Q1 whopper pales in comparison to the reported net loss by Cadence of (gasp!) $1,638 million in the prior quarter! Note that the Q4 2008 loss included $1,316 million in impairment of good will. (The sad saga of Cadence in 2008 was reported in gory detail here in these EDA Industry Commentaries during 2008).
While still reporting a loss in Q1 2009, Magma showed significant earnings improvement from the just prior quarter, which itself contained a $60.8 million goodwill impairment charge.
The only vendor delivering black numbers, Synopsys enjoyed an 82% increase in Q1 2009 earnings over the same quarter last year. The slight earnings drop of almost 8% sequentially is not uncommon, as Q4 is traditionally the strongest of the EDA year.
Company by Company Q1 2009 details:
On April 16, 2009 Altium Limited reported sales and revenue results for its third fiscal quarter ending March 31, 2009. For the quarter, Altium reported sales of AU$14.58 million, an increase of 6% over the equivalent period a year ago; or sales of US$9.7 million, a decrease of 22% from the same period a year ago. For the same period, Altium reported revenue of AU$14.99 million, an increase of 13% over the equivalent period a year ago; or revenue of US$8.87 million, a decrease of 19% from the same period a year ago. Guess which currency Altium likes to use for its reports!
On a geographic basis the Americas accounted for 46% of total revenue, Europe for 28%, Asia Pacific for 11%, China for 12% and Consulting for just over 2%.
Nick Martin, CEO of Altium, commented, “The economic downturn is creating very difficult conditions for all companies, including Altium. However, we believe this also provides an opportunity to help our prospective users as they in turn assess how to stay competitive. We have already switched investment into regions showing stronger growth, particularly in China and Eastern Europe, whilst changing our direct presence and investment in the Japanese, Swiss and French regions to indirect sales channels.”
On April 29, 2009 Cadence Design Systems, Inc reported financial results for its first quarter ended March 31, 2009. Total revenue for the quarter was $206 million, a decrease of almost 24% from the first quarter of 2008 and a decrease of 9.3% from the fourth quarter of 2008. The $206 million for Q1 revenue was, however, in the middle of the range of management guidance given last quarter.
All revenue segments suffered declines in Q1 2009 compared to a year ago and compared to the just prior quarter. Product revenue in Q1 2009 was $87.5 million or 42% of total revenue. This was a drop of 37% year-over-year and a drop of 7% from the prior quarter. Maintenance revenue was $89.6 million, accounting for 43% of the total. This too was a decline of over 9% from the year ago quarter and a drop of almost 9% from the previous quarter. Service revenue was $29 million or 14% of the total. Service revenue dropped over 9% from the same quarter a year earlier and dropped almost 16% from the previous quarter.
On a geographic basis the Americas accounted for 42% of total revenue, Europe 24%, Japan 19% and the rest of Asia 15%. See more detail in Table 6.
In terms of product segments, Functional Verification accounted for 20% of total revenue, Digital IC Design for 19%, Customer IC for 26%, DFM for 9%, Systems Integration for 12% and Services for 14%. Table 7 shows only DFM exhibited gains.
Net loss for the quarter was $63 million compared to a net gain of $33 million a year earlier and a net loss of $1.6 billion in the last quarter. As stated earlier in this Commentary, that huge loss in Q4 2008 included $1.316 billion in impairment of good will.
Lip-Bu Tan, president and chief executive officer, said, “2009 is a year for Cadence to focus on execution, improve our productivity and invest in our core business. We will continue to bring to market the innovative, advanced solutions our customers have come to rely on in their design production. For example, customers using the new Virtuoso 6.1 platform report seeing a 25% to 40% improvement in productivity, and as a result, proliferation of the new platform at our top customers has nearly doubled compared to the first quarter a year ago.”
Kevin S. Palatnik, senior vice president and chief financial officer, added, “We continued to progress toward our goal of a 90/10 model, with a ratable mix above 85% in the first quarter. Revenue for the first quarter of 2009 met expectations, while non-GAAP net loss per share came in better than forecast.”
Cadence executives are clearly focused on the future.
Footnote: On May 18, 2009 Cadence introduced a scalable co-design solution for designing FPGAs onto PCB systems. The Cadence® OrCAD® and Allegro® FPGA System Planner is said to shorten time to design-in complex FPGAs -- those with large pin counts and elaborate banking and pin assignment rules -- while reducing risk by delivering an automated placement-aware FPGA pin I/O assignment synthesis. Developed by Taray, Inc. and available to Cadence customers through an OEM agreement, this joint solution reportedly offers an optimized correct-by-construction FPGA pin assignment that reduces the number of pin optimization iterations during PCB layout while reducing the number of layers required to route the FPGA on a PCB design.
This new Cadence capability is similar to a product suite introduced by Mentor Graphics Corporation some years ago. If you’re interested, check out the following:
On May 27, 2009 Magma Design Automation, Inc announced financial results for its fourth quarter and 2009 fiscal year, both ended May 3, 2009. Total revenue for the quarter was $34.1 million, a drop of 38% from the $55 million in the same quarter a year earlier, but an increase of 11% from the $30.1 million in the just prior quarter. The $34.1 million for its fourth fiscal quarter was just above the revenue guidance provided by Magma last quarter.
License revenue was $17.6 million, accounting for 51% of total revenue. This was a decrease of 51% year-over-year, but an increase of 34% sequentially. Bundled revenue was $7.8 million or 23% of the total. This was a drop of 25% from the year ago quarter and a drop of 5.8% from the previous quarter. Services revenue was $8.8 million, a dip of almost 1% year-over-year and a decline of 6.4% from the prior quarter. In the quarter the percentage of revenue from backlog-related transactions was greater than 90%.
Net loss for the quarter was $10.6 million, worse than a net loss of $5.8 million in the year ago quarter, but not nearly as deep in the red as the net loss of $78.1 million in the just previous quarter.
Revenue for the entire fiscal year was $147 million, down 32% from the $214 million in the previous fiscal year. The $147 million in revenue was in line with the range offered as guidance last quarter, License revenue was $76.5 million, or 52% of total revenue. This figure was down 45%. Bundled revenue was $33 million, or 23% of the total. Bundled revenue was down 17%. Services revenue was $37 million, up 6.3%. Net loss for the year was $127.1 million, compared to a net loss of $30.8 million last year.
Backlog at the end of the year was greater than $292 million. This represents a 25% decline from the backlog at the end of fiscal 2008, which was reported at greater than $390 million. Two factors contributed to this decline. First, in this current economic climate EDA customers exercised greater caution in their purchase decisions, particularly toward the end of calendar 2008. Second, over the past year customers renewed for shorter periods, often 1-2 years instead of the 3-4 year contracts more common in past years.
Magma said it intends to offer holders of its outstanding 2.0% convertible notes due in May 2010 the right to exchange those notes for 8.0% convertible notes due in 2014. The purpose of this exchange offer is to improve the firm’s liquidity and financial position.
Rajeev Madhavan, chairman and CEO of Magma, said, “In Q4 we exceeded our key financial guidance ranges and re-established positive cash flow. I anticipate our product teams will continue to deliver innovative technology advancements in fiscal 2010, such as the new Talus COre technology we announced today."
On May 29, 2009 Mentor Graphics Corporation announced financial results for the first fiscal quarter of 2010, ending April 30, 2009. Total revenue for the quarter was $193.8 million, an increase of 8.1% from the $179.2 million in the same quarter a year earlier, but a decrease of 20% from the $242.6 million in the just previous quarter. The $193.8 million was below the range of $200 million to $210 million revenue given as guidance last quarter.
System and Software revenue was $115 million, or 60% of total revenue, up over 19% year-over-year but down almost 27% sequentially. Service and Support revenue was $78.4 mi,llion accounting for 40% of the total. This was a decline of just under 5% from the first quarter of fiscal 2009, and a drop of 7.9% from the prior quarter.
Upfront revenue was responsible for 75% of total revenue, perpetual for 15% and ratable for 10%.
Net loss for the quarter was $13 million, compared to a net loss of $25.4 million in the year ago quarter and a net gain of $31.5 million in the last quarter.
Walden C. Rhines, CEO and chairman of Mentor Graphics, said, “We believe the semiconductor market has stabilized, and that customers who wish to remain competitive will sustain most of their design effort. Mentor’s investments in markets adjacent to traditional EDA helped drive the quarter’s results with 10% of total bookings from transportation companies and 5% from the thermal analysis market. The quarter’s strength was across Mentor’s broad customer base within EDA, spanning both semiconductor and systems companies. Systems companies contributed to a 55% increase in bookings for our Integrated Systems Design division, while semiconductor companies drove a 35% increase in IC Design to Silicon division bookings.”
On May 20, 2009 Synopsys, Inc reported financial results for the second quarter of its fiscal 2009 year. Total revenue for the year $337 million, an increase of 3.8% from the $324 million in the same quarter a year ago, and a slight drop of almost 1% drop from the $340 million in the previous quarter. The $337 million for the current quarter was above the middle of the range given as guidance last quarter.
Time-based license revenue was a remarkable $283 million, or 84% of total revenue. This was a 2% increase year-over-year, and a 0.4% dip from the prior quarter. Upfront license revenue was $16 million, or 4.7% of total revenue. This was a 31% increase from the year ago quarter and 1.3% increase sequentially. Maintenance and service revenue was $36.8 million, accounting for 11% of the total. This was an increase of 8% from the same quarter a year earlier and 1.3% increase from the prior quarter.
North America accounted 49% of total revenue, Europe 15%, Japan 20% and Asia Pacific 16%. See Table 10.
Revenue from Core EDA accounted for 75% of total revenue, revenue from IP & Systems accounted for 8%, DFM revenue for 12%, and Services revenue for4.5%.
Net income for the quarter was $48.3 million, an increase of 23% from the $39.4 million in the year ago quarte,r but a decrease of nearly 8% from the prior quarter.
In the quarter, Synopsys reached a tentative settlement with the IRS that would resolve a dispute regarding its 2002-2004 tax returns, primarily associated with the acquisition of Avant!. The tentative settlement is subject to further approval by the government. If approved, the company does not expect a material impact to its income statement. However, the firm does expect it to result in a cash payment to the IRS of approximately $50 million, most likely within the next 12 months. If the tentative settlement is approved, this payment would be fully offset by tax reductions in future years.
In an understatement, Aart de Geus, chairman and CEO of Synopsys, said, "Synopsys continues to execute well in an environment that still shows signs of economic stress. Customers are choosing Synopsys for its strong technology, global support, continued investment in the future, and financial strength."
EDA Vendor Stock Performances
The combined stock prices of the G5 EDA vendors fell over 42% in absolute terms and fell an average of over 35% year-over-year. All of the G5 stock prices tumbled. Magma was the largest decliner at -92% while Cadence and Mentor Graphics fell 62% and 51%, respectively. Synopsys provided the best stock price year-over-year performance by far; nevertheless, it still dropped over 9%.
On a sequential quarterly basis, the G5 EDA stocks rose almost 5% in absolute terms but dropped 5.2% on average. Cadence and Synopsys enjoyed good increases at 11.5% each. Altium and Magma dropped over 20%, while Mentor declined nearly 16%.
The G5 EDA stock performances compare to a year-over-year decline of 37% for the average of the major indexes and a decline of 10.6% versus the previous quarter.
MCAD versus EDA Q1 2009
The detailed first quarterly performances of a selected group of public MCAD Vendors have been provided in the authors' MCAD Commentary for May 2009, published on MCADCafe on May 28, 2009. As Table 12 below reveals, the combined Q1 2009 revenue from the top three MCAD vendors was $1,054 million, or 43% more than the $757 million combined Q1 2009 revenue of the top three EDA vendors. On the earnings side, the MCAD vendors had a combined net income of $66 million compared to a net loss of $28 million for the EDA firms. All of the MCAD companies generated net income in Q1 2009, while two of the EDA firms reported net losses.
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. Also, remember that Siemens PLM Software (previously UGS), a leading MCAD vendor, is now part of Siemens and does not disclose its financial performance.
The valuations of the G4 EDA vendors have each improved over the last two months save for Synopsys, which has given up a mere 3.7% of its elevated valuation. See the chart below which compares Market Caps of each vendor on March 31, 2009 and June 02, 2009:
Note: Synopsys is still (June 02, 2009) worth 1.4 times as much as Cadence and Mentor Graphics combined.
Another note: The top 3 MCAD companies (Autodesk, Dassault and PTC) combined are worth 2.43 times as much as the Big Three EDA vendors combined.
Forecast Guidance from Individual EDA Providers
The combined forecast for the next quarter from the four EDA vendors providing guidance calls for a drop of nearly 17% compared to the same quarter last year, but a dip of only 2.8% from the quarter just reported. Compared to a year ago Cadence and Magma are the most pessimistic forecasting a drop of around 37%. Mentor sees a drop of over 9%, while Cadence projects about the same. On sequential basis, Magma and Mentor foresee a percentage decline in the mid teens, while Synopsys and Cadence see a modest uptick.
EDA Consortium's Market Statistics
On April 7, 2009 the EDA Consortium Market Statistics Service (MSS) announced that the EDA industry revenue for Q4 2008 declined 17.7% to $1318.7 million, compared to $1602.7 million in Q4 2007. The four-quarter moving average declined 9.4%.
In the fourth quarter of 2008 the CAE segment accounted for 38.1% of the total EDA revenue, IC Design & Verification for 22.5%, Semiconductor IP for 21.7%, PCB/MCM for 10.3% and Services for 7.5%. CAE and IC D&V each declined over 24% while Services shot up 25% and SIP rose nearly 8%. See Table 14.
For the fourth quarter of 2008 North America accounted 43.2% of total EDA revenue, Europe for 22%, Japan for almost 20% and Rest-of-World for 15%.
Walden C. Rhines, EDA Consortium chair and Mentor Graphics CEO and chairman. Said “Declines in CAE, IC Physical Design & Verification, and PCB/MCM resulted in an overall decline for Q4, 2008. For Q4, the double-digit drop occurred in all regions except Western Europe, which showed an 8.4 percent decline.”
Note: Readers of the above EDA Industry Commentary for June 2009 may also be interested in the Electronics IP Industry Commentary. The most recent issue was published on May 10, 2009 and may be found at this URL:
Comments? Feedback? Tell us what you think about this topic, or share any additional information you may have on the subject! Submit your comments to: EDACafe-Editor.
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 MCAE/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 2009 EDA 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 seventy-eight (78) 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, 2009 marked the 13th Anniversary of the founding of HENKE ASSOCIATES.