May 31, 2004
Commentary: EDA Industry Update May 2004 -- What did the Last Quarter Bring?
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Dr. Russ Henke and Dr. Jack Horgan - Contributing Editor

by Dr. Russ Henke and Dr. Jack Horgan - Contributing Editor
Posted anew every four weeks or so, the EDA WEEKLY delivers to its readers information concerning the latest happenings in the EDA industry, covering vendors, products, finances and new developments. Frequently, feature articles on selected public or private EDA companies are presented. Brought to you by If we miss a story or subject that you feel deserves to be included, or you just want to suggest a future topic, please contact us! Questions? Feedback? Click here. Thank you!

“Even though there seems to have been gradual improvement in the EDA industry, we have not experienced material changes in customer purchasing behavior in calendar 2004 so far. Customers remain cautious in their spending, negotiating intensely for discount and special payments terms, often using competitors' aggressive pricing and bundling as leverage.” said CFO Tammy Liu.

For guidance, Synplicity expects revenue for the next quarter to be in the range $13.8 million and $14.0 million, a modest 2% over the quarter just ended and 14% over the same period in 2003. Synplicity expects its worldwide ASIC synthesis business to grow substantially in the second half of 2004, driven by both its further penetration into the standard cell synthesis market and growth in the structured/platform ASIC market. Synplicity anticipates that a little over 30% of total 2004 product bookings will come from time-based arrangements. The firm expects net income to be flat sequentially, which is much better than the $600K loss for 2Q F2003. For the year 2004 Synplicity has
raised expectations slightly to between $54 million and $56 million, compared to $49.6 million in 2003. Net income per fully diluted share is forecast to be in the range $0.05 to $0.07, versus a net loss of $0.01 in 2003.

Verisity's guidance for the second quarter is for revenue in the range of $13.3 million to $13.7 million, a growth of 23% over the just reported quarter. The firm expects a net loss per share of $0.04 to $0.05, an improvement from the loss of $0.10 this quarter. For Fiscal 2004 revenue is expected to be between $56 and $58 million, up ~22% over 2003 with a net loss per share between $0.07 to $0.11. Verisity expect cash expenses to grow 20% in the next quarter and 3% in quarters thereafter. Non-cash charges related to the acquisition are expected to be $3.1 million in 2Q and $11.3 million in 2004.

For Magma's Fiscal 2005 first quarter, which will end June 30, 2004, the company expects total revenue in the range of $34 million to $36 million. Pro forma EPS is expected to be in the range of $0.16 to $0.20.

On February 24, 2004, Magma announced the signing of a definitive agreement for the acquisition by merger of Mojave, Inc., a developer of advanced technology for integrated circuit manufacturability and verification. The acquisition will be effected by means of a merger in which Mojave shareholders will receive initial consideration of $25 million. Provided certain technology milestones are achieved, Magma will also make periodic payments of contingent consideration, potentially totaling $115 million, based on product orders over a period ending March 31, 2009. All consideration will be payable half in stock and half in cash.

On April 28th Magma announced an expanded licensing agreement with NEC Electronics Corporation, a leading provider of advanced semiconductor products. Under the terms of the multi-year agreement NEC Electronics will deploy Magma's complete line of IC implementation solutions.

For guidance, Synopsys expects next quarter revenues to be in the range $300 million to $320 million. Non-GAAP expenses are forecast in the range of $200 million to $230 million with non-GAAP EPS $0.35 to $0.40. For fiscal 2004 the revenue target is $1.20 billion to $1.23 billion with non-GAAP earnings of $1.37 to $1.47.

#### tracks the financial performance of some seventeen (17) public companies across the broader electronics tools market, from which we have arbitrarily selected nine (9) to represent EDA vendors in the software & programming industry.

Taken together, three of these EDA companies (Cadence, Mentor Graphics, and Synopsys) represent a dominant 90 percent of the total revenue in this grouping, and each of these three companies offers a wide array of software products and services.

The remaining six (6) EDA public companies selected - Altium, Ansoft, Magma, Nassda, Synplicity, and Verisity - offer specialized software/services products in specific EDA niches. Combined, they generate the remaining 10 percent of the revenue of the nine companies being considered here. Not infrequently, some of these six smaller companies partner with one or more of the Big Three (Cadence, Mentor, Synopsys) to provide end-customers with broader solution suites. (Of course, the possibility always remains that one or more of the smaller six could become acquisition candidates for the Big Three as well).

The collective annual revenue of these nine selected EDA companies worldwide is just north of $3 billion, a total which compares favorably to the combined ~$4 billion in annual revenue created by the eight MCAD companies covered in May 2003 and the nine MCAD companies covered in five (5) previous MCADcafe Industry Commentaries by the authors. However, even the pooled ~$7 billion in revenues of both of the selected MCAD and EDA company groupings pales in comparison to the $150 billion spent globally on an annual basis across all categories of software.

As with MCAD software, however, the importance of the EDA software niche lies in the leverage it provides to users applying the tools. EDA helps to create the electronic integrated circuits, microprocessors, memories, boards, MCMs, computers, PDAs, cell phones, automotive electronics and avionics, smart appliances, and other such electronic systems now clearly omnipresent in our everyday lives. Indeed, most of products mentioned above are electromechanical - demanding a smooth merger of EDA and MCAD software tools (still an objective yet to be fully realized).

Both MCAD and its slightly more youthful companion industry of EDA are arguably responsible for enabling virtually all contemporary design - analysis - manufacturing industries - industries which are key to creating real productivity and national wealth in every modern economy.

Note: Lawsuits; acquisitions of outside public & private companies; acquisitions of intellectual property; purchases of other assets; strategic changes in pricing and software license/lease practices; and/or other similar events frequently affect both the reported revenues and GAAP net income of all companies. Both EDA and MCAD companies are no strangers to these many and varied actions. Many of these “non-operating” company activities lead to entries “below the Operating Income line”. Often these entries -- such as “integration costs, in-process R&D, amortization of intangible assets & deferred comp, interest income, pro or con income tax effects,
etc” - can make large differences between pro-forma net income and GAAP net income.

Nevertheless, these impacts, positive or negative, are almost always the results of explicit employee actions and/or management decisions designed to supplement organic revenue growth in revenues, in earnings, or both. Accordingly, both the gain and the pain must be borne, in one accounting period or another. Accordingly, total revenues, GAAP net income and GAAP Earnings Per Share (EPS) are universally accepted measures to analyze fairly the relative and absolute performances of most private and public companies.

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About the Authors:
Since 1996, Dr. Russell F. Henke has been president of HENKE ASSOCIATES, a San Francisco Bay Area high-tech business & management consulting firm. 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 Fellow of ASME International. An affiliate of the HENKE ASSOCIATES team since 2001, LA-based Dr. John R. (Jack) Horgan
co-authored this article. Jack's career has included executive positions at Applicon, Aries Technology, CADAM and MICROCADAM, as well as a stint at IBM. Since May 2003 the authors have now published a total of eighteen (18) articles on MCAD, PLM, EDA and Electronics IP on IBSystems' MCADCafe and EDACafe. Further information on HENKE ASSOCIATES, and URL.s for past Commentaries, are available at

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-- Dr. Russ Henke and Dr. Jack Horgan, Contributing Editor.

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