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May 31, 2004
Commentary: EDA Industry Update May 2004 -- What did the Last Quarter Bring?
Please note that contributed articles, blog entries, and comments posted on EDACafe.com are the views and opinion of the author and do not necessarily represent the views and opinions of the management and staff of Internet Business Systems and its subsidiary web-sites.
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 EDACafe.com. 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!

In
February 2004 EDA Commentaries by the authors (published on EDACafé.com), the then-current yearly and quarterly financial performances of a selected group-of-nine (G9) 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. This May 2004 report covers their performances for the first quarter of 2004.


News highlights


The major news item of the first quarter of 2004 was the on-again off-again merger of Synopsys and Monolithic Systems Technology (MoSys). This was covered in detailed in the authors'
May 2004 Electronics IP Commentary. At Synopsys' quarterly conference call on May 19, 2004, CFO Steve Shevick commented “As you know, we terminated the MoSys transaction and paid a $10 million termination fee on April 16, 2004. MoSys has sued us in Delaware seeking to force closure of the acquisition or, alternatively, damages. The trial is scheduled to begin on July 6, 2004. Given that this is active litigation we cannot provide any comment or additional color beyond what is already in the filed court
documents. However, we firmly believe that we terminated the transaction validly and in good faith, and we continue to move aggressively with our IP strategy.”


The other significant piece of recent news was that Cadence named Michael Fister as president and CEO, succeeding Ray Bingham who has been elected chairman of the Cadence Board of Directors. Mr. Bingham will continue as a full-time executive, working with Mr. Fister to help ensure a seamless transition. Mr. Fister was most recently senior vice president at Intel Corporation and general manager of the Enterprise Platforms Group.


How did the G9 EDA Vendors fare during the first quarter of 2004?


Company Last QTR Revenue Prev QTR Revenue Last vs. Prev QTR Comparable 2003 QTR Last QTR vs. Comparable QTR
Altium (AUD) 8,590 9,984 -14.0% 10,630 -19.2%
Altium $ 6,254 6,869 -9.0% 6,208 0.7%
Ansoft 17,761 13,982 27.0% 15,112 17.5%
Cadence 265,724 307,608 -13.6% 263,052 1.0%
Magma 34,047 31,052 9.6% 20,529 65.8%
Mentor 164,405 201,909 -18.6% 159,340 3.2%
Nassda 9,787 9,727 0.6% 8,799 11.2%
Synopsys 294,600 285,300 3.3% 292,000 0.9%
Synplicity 13,498 13,212 2.2% 11,563 16.7%
Verisity 11,042 12,260 -9.9% 11,697 -5.6%
Total 817,118 881,919 -7.3% 788,300 3.7%

Table 1 -- Nine Public EDA Companies' Latest Quarterly Revenue Performances

($000)


The combined revenue performance of the nine EDA vendors was down 7.3% sequentially and up only a meager 3.7% year-over-year, as Table 1 reveals. On a sequential quarterly basis, Ansoft and Magma were the revenue growth % leaders while Synopsys and Synplicity had modest growth. Altium, Cadence, Mentor Graphics and Verisity experienced double-digit declines, not unusual just after traditionally hearty Q4's.


On a year-over-year basis, Magma had a whopping 66% growth with a record quarter. Ansoft, Synplicity and Nassda enjoyed double digit growth.


Figure 1 - EDA Vendor Relative Size

(based upon Q1 2004 Revenues)


Among this group-of-nine public EDA vendors, Cadence, Mentor and Synopsys continue to dominate with a combined 89% share of the revenue pie (Figure 1).


Company Last QTR Earnings Prev QTR Earnings Delta Last vs. Prev Comparable 2003 QTR Delta Last vs. 2003
Altium $ --- ---
Ansoft 941 -22 963 -58 999
Cadence -8,755 25,523 -34,278 -13,038 4,283
Magma 4,226 3,761 465 2,647 1,579
Mentor 2,178 13,050 -10,872 3,599 -1,421
Nassda 752 572 180 1,022 -270
Synopsys 28,739 32,152 -3,45 22,289 6,4
Synplicity 296 445 -149 -632 928
Verisity -2,212 2,343 -4,555 1,877 -4,089
Total 26,165 77,824 -48,249 17,706 2,015

Table 2 - Eight Public EDA Companies' Latest Quarterly Earnings Performances

($000)


Net income for the reporting group of EDA vendors was down 66% sequentially this last quarter but up an impressive 48% from the first quarter in 2003 (Table 2). Overall earrings amounted to 3.2% of revenue versus 8.8% the previous quarter and 2.2% last year.


During the last quarter, Cadence and Verisity were the only firms to lose money. Synopsys had the largest profit by far in each of the reference periods. On a sequential basis, Synopsys earnings were down 11% but up 29% year-over-year. Cadence, Mentor Graphics and Verisity had significant earnings reverses over the previous sequential quarter due to the traditionally strong seasonal revenue performances in the fourth quarter of 2003. With respect to last year, Mentor Graphics, Nassda and Verisity had lower earnings. Cadence reduced its loss by a third. Magma was the earnings growth leader at 62% above last year's comparable quarter, followed by Synopsys at +30%.


Company by Company Q1 2004 details:


On April 21, 2004, Altium Limited, an Australian EDA firm, reported its results for the third quarter ending March 31, 2004. Revenues for the quarter were AUD8.6 million, down 14% sequentially and down 20% from the same period last year. (Altium had not provided a forecast for the quarter just ended). Altium does the vast majority of its business outside Australia (34% in the US, 20% in Europe and 9% in Japan). Therefore, currency exchange rates play a major factor. If reported in $US, total revenue was down 10% sequentially but flat year over year. However, actual revenues were in line with those of the 2003 March quarter due to the appreciation of the AUD versus the US dollar
(25% year-over-year). On a product by product basis, compared to quarter three 2003, Protel sales were up, P-CAD sales were down, and TASKING sales were flat, with the exception of a reduction in a long-term service contract.


In the financial year to date on a regional basis (in local currencies), US sales were down 7% and Europe sales were down 5%, while Japanese sales were up 3%, Australian sales were up 9%, and reseller sales were up 5%. Quarter three brought the total reported revenue (in AUD) for the year to date to $27.6 million, a drop of 17% compared the first nine months of the previous fiscal year.


During the March quarter Altium released three new versions of existing products and two new products, including Nexar which was launched at prominent industry tradeshows in the US, Germany, and China.


“The products we have released in the last quarter represent our greatest product development milestone to date and we expect to experience the benefits in the coming quarters,” says Kayvan Oboudiyat, Joint CEO, Altium. “Although sales were slow in January, they accelerated after the release of our 2004 products. We are also excited about the overwhelming response we received from customers and industry partners in response to the launch of our new Nexar product.”


On May 27, 2004, Ansoft Corporation announced financial results for its Fiscal fourth quarter and the entire year of Fiscal 2004 which ended April 30, 2004. Revenue for the quarter was $17.8 million, a 27% growth sequentially and an increase of 18% over the same period last year. The $17.8 million in revenue was 3% higher than the top end of the forecast range provided by Ansoft on February 18, 2004. Most of the growth was in the licensing versus the service segment. On a geographic
basis, North America accounted for 41%, Asia 42% and Europe 16%. The High Frequency product line contributed 67%, Electromechanical 19% and Signal Integrity 14%. The three largest customers in the quarter were NEC, Honeywell and Boeing. Net income for the quarter was $2.8 million, a 200% increase over the $941K the prior quarter and a 14% growth year- over-year.


For Fiscal 2004 revenue, was $54.6 million, a 15.5% increase over the $47.3 million in Fiscal 2003. The geographic and product segment breakdown was similar to the fourth quarter. The three largest customers in the year were Intel, Northrop-Grumman and NEC. The top ten customers accounted for less than 20% of revenue. Net income for the fiscal year was $2.5 million, a significant reversal form the loss of $3.1 million last year.


Nicholas Csendes, Ansoft's President and Chief Executive Officer said, “I pleased with quarter. All regions and segments returned to solid growth.”


On April 21, 2004, Cadence Design Systems, Inc. reported results for the first quarter of 2004. Total revenue was $266 million, down 14% compared to $307 million last quarter and flat compared with $263 million in the same period last year. The $266 million for Q1 2004 was in line with Cadence's forecast of January 28, 2004. Revenue splits by geography and product segment were consistent with previous quarters. North America accounted for 53% of revenue, Japan 22% and Europe 16%. Custom IC design accounted for 27%, Digital IC Design for 25% and Functional Verification for 20%.


On a GAAP basis, Cadence recognized a net loss of $9 million, or $0.03 per share in the first quarter of 2004, compared to a net loss of $13 million, or $0.05 per share in the same period last year. Cadence's Q1 EPS loss was a few cents worse than its forecast in February. On a non-GAAP basis (i.e. eliminate amortization of intangibles, deferred stock compensation and restructuring charges…), earnings were $28 million this quarter compared to $12 million a year ago.


The number of tape-outs with the full SoC Encounter flow grew to over 150, more than 30 of which were 90 nanometer designs. 70 percent of Cadence's software-based verification business was generated by sales of the full Incisive platform -- up from 50 percent for the prior quarter.


In April, Cadence completed its acquisition of Neolinear, Inc. This will presumably enhance the analog/mixed-signal and radio frequency capability in the Virtuoso platform, and deliver higher-performance designs, with improved yield, in less time for customers. Neolinear's NeoCircuit and NeoCell are already an extended part of the industry-leading Virtuoso platform through an OEM agreement between the two companies. Terms of the acquisition were not disclosed.


"We are gaining widespread customer support for our best-of-breed technologies, integrating them into platforms, and validating them through open collaboration," said Bingham. "Our focus is to deliver design automation solutions that generate more profit for our customers."


On April 29, 2004, Magma Design Automation announced its results for the fourth quarter and fiscal year that ended March 31, 2004. Total revenue for the quarter was a record $34 million, an increase of 66% compared to $20.5 million a year ago and an increase of 10% over the prior quarter. The $34 million of Q1 2004 was at the high end of Magma's forecast of January 29, 2004. License revenue of $29.5 million, 87% of total revenue, grew along these lines. Service revenue of $4.5 million grew at a much faster pace, 103% year-over-year and 25% sequentially.


Net income in Q1 2004 was $4.2 million compared to $2.6 million a year ago and $3.8 million last quarter.


“The fiscal year just concluded was a period of significant growth for Magma, in terms of financial performance, product offerings and market penetration,” said Rajeev Madhavan, chairman and CEO of Magma. “We again set records for revenue and profitability, and our product expansion during the year positioned us solidly in new segments, such as logic synthesis and signoff capability. It was also a year in which we became more deeply involved with the industry infrastructure, as we established or deepened relationships with key foundry, ASIC, IP and EDA partners.”


On April 22, 2004, Mentor Graphics announced results for the first quarter. Revenue was $164 million, down 19% sequentially and up only 3% over the same quarter last year. The Q1 2004 revenue was “just a tad” below Mentor Graphics' Q1 forecast of $165 million made in late January 2004. The reduced sequential quarter over quarter performance was driven largely by seasonality factors.


Japanese revenue was 25% of total, a level that Mentor Graphics has not achieved since the early 1990s. Revenue by region was 40% Americas, 25% Europe, 25% Japan, and 10% Pacific Rim.


Earnings for Q1 2004 were $2.2 million, down from the earnings of $13 million of last quarter but an improvement over last year's loss of $1.4 million in the same quarter.


First quarter bookings were up 17%, an all time Q1 record. Seven product lines had Q1 booking records, ModelSim and PADS had all time quarterly booking records. Bookings in Japan climbed 65% and Pacific Rim bookings grew 35%. Deferred revenue was up 20%, also an all time record. Revenue by product segment widely variable on a percentage basis due to a few very large orders in this or in a prior quarter.


“Mentor saw strength within all product areas, but particularly in our Scalable Verification Environment, driven in part by the second largest order in the company's history, for ModelSim," said Walden C. Rhines, chairman and CEO of Mentor Graphics. "But the strength in Scalable was broad-based, with analog-mixed signal bookings up 40% year-on-year and with 18 new customers in the quarter. VStation emulation also made excellent progress and was also up strongly year-on-year."


“With record bookings for the first quarter, and a 20% market share according to EDAC numbers for the fourth quarter of 2003, Mentor believes that we continue to outgrow the overall EDA market," said Gregory K. Hinckley, president of Mentor Graphics. "And, still being early in the deployment cycle of Calibre products, as well with a number of strong emerging businesses like TestKompress, cabling, and embedded software, we believe Mentor is positioned to outgrow the market for some time to come."


For the record, Mentor Graphics revenue grew 13.3% in 2003 over 2002.


On April 14, 2004, Nassda announced the results for its second quarter of fiscal 2004 ending March 31, 2004. Revenue for the quarter was $9.8 million, a 1% sequential increase from $9.7 million and an 11% increase from $8.8 million in the same quarter last year. The $9.8 revenue figure was at the low end of the company's forecast made in mid-January 2004. Net income was $752K, an increase of 31% from $572K for the previous quarter and a decrease of $270K from $1.0 million, for the same quarter last year. Time-based licensing was lower (48% of revenue) than expected as was major account business. Geographical breakdown was as follows: domestic 60%, Europe 12%, Japan 20% and rest of
Asia 8%.


“We are happy to have met market expectations for quarterly revenue and earnings,” said Sang Wang, Chief Executive Officer. “More importantly, bookings from our newer products and options, other than HSIM, had also increased both in absolute dollars and as a percent of total bookings. Although customers' budgets have been cautiously controlled, particularly with the major semiconductor companies, we now have all of the top 25, and 43 of the top 50, of the 2003 worldwide IC sales leaders as our customers. We are on track to deliver our upcoming 5.0 software release, which includes the new HSIMplus platform, and our suite of advanced circuit verification and
analysis products to meet the challenges of complex nanometer silicon success.”


On May 19, 2004, Synopsys reported results for its second fiscal quarter ending April 30, 2004. Total revenue was $295 million, a 3.3% sequential increase and a 1% increase over its Fiscal Q2 last year. On February 23, 2004, Synopsys forecast revenues for its second fiscal quarter of between $285 million and $300 million. On a geographical basis, North America (NA) accounted for 53% of revenue, Europe 14%, Japan 20% and Asia-Pacific (AP) 13%. As a percentage of revenue, NA and AP grew sequentially, while Europe dropped by half and Japan was flat. In terms of revenue, Japan grew an impressive 52% sequentially but was nevertheless down 42% from a very impressive quarter ($102
million)
a year ago. On the product segment front, Galaxy Design products accounted for 63% of total revenue and grew a modest 4% sequentially (but dropped 8% year-over-year). Discovery Verification products (which accounted for 20% of revenue) were flat sequentially and up nearly 6% from the prior year. IP, DFM and Services revenues averaged around 50% year-over-year growth.


Net income for the quarter was $28.7 million, down almost 11% sequentially but up 30% year-over-year. This quarter's net income was $10 million less opulent due to the fee paid by Synopsys to Monolithic System Technology, Inc (MoSys) in connection with the termination of the acquisition agreement. On a non-GAAP basis, net income was up 5.6% sequentially and down 6.6% year-over-year.


“Recently, the overall spending environment for our solutions has firmed up,” said Aart de Geus, Chairman and Chief Executive Officer of Synopsys. “Customers are moving more aggressively to smaller geometries and we are unveiling some remarkable new technology that cements our position as the industry leader. These trends should bode well for us for the remainder of the year.” During the quarterly conference call, he noted that, “We have been tracking design starts for some time, and currently, we tally 194 designs at 90nm. Synopsys' back-end tools account for two-thirds of all 90nm tape-outs to date. ... Today, we are already tracking 24 designs at
65nm.”


On April 20, 2004, Synplicity Inc. reported results for its first quarter of Fiscal 2004. Revenue was $13.5 million, a modest 2.2% growth sequentially but up nearly 17% year-over- year. The $13.5 million in Q1 2004 revenue was slightly above the upper range of Synplicity's guidance of late January 2004. License revenue comprised 55% of total revenue, increasing 16% from the 1st quarter of 2003 and flat with the 4th quarter 2003. Maintenance revenue increased 18% over the 1st quarter 2003 and 5% from the 4th quarter 2003, primarily due to a large amount of back-maintenance charges for customers returning to active maintenance, as well as improved maintenance renewal rates. The
percentage of revenue coming from recurring sources, which includes maintenance, time-based licenses, and OEM relationships, accounted for a record 67% of revenue in the 1st quarter 2004.


FPGA product bookings were up slightly year-over-year and comprised 76% of product bookings for the quarter. For the quarter, international business comprised 50% of total bookings.


Net income was $296K, a sequential drop of 33% but over $900K better than a year earlier.


“Our first quarter performance was outstanding on many levels. Most importantly, we saw an increase in customer activity, which led to our record high quarterly revenue and deferred revenue," said Bernard Aronson, president and CEO of Synplicity. "Maintenance revenue increased 18 percent on a year over year basis and maintenance renewal rates improved as well. We were also pleased by the improvement in our North American FPGA product bookings, which were up on a year over year basis, after having declined year over year each quarter for the last two years. Our cell-based and Structured ASIC bookings nearly doubled over the same quarter last year," Aronson concluded.


On April 26, 2004, Verisity Ltd announced its financial results for the first quarter. Revenue for the quarter was $11 million compared to $12.3 million for the prior quarter and $11.7 million for the same quarter a year earlier. This revenue includes contribution from the acquisition of Axis Systems on February 10, 2004. The $11 million of actual Q1 2004 revenue was below the range of $11.5 to 11.9 million forecast by Verisity in January 2004. License revenue was $5.9 million down 19.6% sequentially and down 15.6% year over year. Maintenance revenue of $5 million was up 6% sequentially
and 10.3% year over year. Time based licenses accounted for 98% of license revenue and 61% of bookings. Existing customers accounted for 99% of revenue. The semiconductor sector contributed 65% of revenue and the system sector 25%. There were several significant orders from new customers.


The net loss for the quarter was $2.2 million compared to net income of $2.3 million in the prior quarter and net income of $1.9 million a year ago. There was a ~$2 million non-cash charge related to equity issuances, amortization of deferred compensation, and amortization of intangible assets related to the acquisition of Axis Systems. For its Fiscal 2003 ending July 31, 2003, Axis had revenue of $20 million and a net loss of $2.4 million.


On April 19, 2004, Verisity announced SpeXsim, a product that integrates its flagship Specman Elite with the Xsim mixed language simulator from Axis.


"The completion of our acquisition of Axis Systems is the first step toward significantly broadening our product offerings and market opportunity," said Moshe Gavrielov, chief executive officer of Verisity. "We're off to a rapid start with the announcement of our first integrated solution, SpeXsim, providing customers with the highest performance and value for their verification investments. Our strategy is to continue to invest in providing a broad range of best in class verification solutions to this rapidly growing market and was driven by our large strategic customers," added Gavrielov.


EDA versus MCAD


The most recent quarterly performances of nine public MCAD Vendors were provided in the authors'
May 2004 MCAD Commentary published on MCADCafe. How did the top three EDA companies fair against the top three MCAD companies in Q1 2004? See Table 3.


1Q04 Rev Earnings
Company
EDA
Cadence 266 -8.7
Mentor 164 2.2
Synopsys 295 28.8
Total EDA 725 22.3
     
MCAD
AutoDesk 295 57.6
Dassault 220 35.3
UGS PLM 230 52.9
Total MCAD 745 145.8

Table 3 - Top three EDA vendors versus the top three MCAD vendors

($ millions)


In this quarter, the top three EDA companies had slightly less combined revenue than their MCAD counterparts (by only $20 million). The EDA trio's earnings were also smaller ($123 million less!). EDA vendor earnings were only 3.1% of revenue compared to 19.6% for MCAD vendors.


EDA Vendor Stock Performance


1Q03 4Q03 1Q04 mn/mn Yr/Yr
ALU 0.81 0.55 0.54 -1.5% -33.6%
ANST 7.52 12.75 14.42 13.1% 91.8%
CDN 10.00 17.98 14.74 -18.0% 47.4%
LAVA 7.75 23.34 20.88 -10.5% 169.4%
MENT 8.94 14.54 17.82 22.6% 99.3%
NSDA 6.60 7.25 6.94 -4.3% 5.2%
SNPS 21.28 33.86 28.73 -15.2% 35.0%
SYNP 3.19 7.85 7.20 -8.3% 125.7%
VRST 9.24 12.75 9.21 -27.8% -0.3%
Total 75.33 130.87 120.48 -7.9% 59.9%

Table 4 - Nine Public EDA Companies' Stock Prices

(Synopsys adjusted for 2:1 split September 2003)


1Q03 4Q03 1Q04 mn/mn Yr/Yr
DJIA 7,992 10,584 10,358 -2.1% 29.6%
NASDAQ 1,342 2,030 1,994 -1.8% 48.6%
S&P 848 1,145 1,126 -1.7% 32.8%

Table 5 - Statistics of three major stock indices



Figure 2 - EDA vendor stock prices


As a group, the EDA vendors grew 60% in a year, outpacing the three major stock indices. Altium was the biggest loser after conversion from Australian currency. Verisity and Nassda performed poorly in comparison to the stock indices. Synopsys bettered the Dow and S&P performance but trailed the NASDAQ. Cadence did better than Synopsys. The remaining four EDA vendors out-performed the major indices. On a quarterly sequential basis, the EDA vendors as a group underperformed the market. Only Mentor Graphics and Ansoft experienced positive change in their stock prices.


EDA Vendor Forecasts for next quarter


Company Forecast 2Q 2004 Actual 1Q 2004 Forecast vs Last Actual 2Q 2003 Forecast vs Prior Year
Ansoft 12 18 -30.8% 11 11.4%
Cadence 290 266 9.0% 276 5.1%
Magma 35 34 2.9% 23 52.2%
Mentor 170 164 3.7% 157 8.3%
Nassda 11 10 7.1% 7.5 40.0%
Synopsys 310 295 5.1% 300 3.3%
Synplicity 14 14 3.0% 12.2 13.9%
Verisity 14 11 22.7% 12.5 8.0%
Total 855 811 5.4% 799.2 7.0%

Table 6 --Quarterly Forecast for Nine public EDA Vendors



The combined forecast for the second quarter calls for 5.4% growth over the first quarter and for 7.0% growth over the same period last year. Most vendors are calling for positive sequential quarter-over-quarter growth with Verisity leading with around 23%. On a year-over-year basis, Magma is forecasting over 50% growth, with Nassda close behind with 40%. Synplicity at 14% and Ansoft at 11% are the only other firms in double digits.


Detailed EDA Vendor by Vendor Financial Forecasts for 2Q2004


Altium did not provide any guidance.


Ansoft is predicting quarterly revenue for Fiscal 2005 as follows: $12 million to $12.5 million in Q1, $14 million in Q2, $16 million in Q3 and $19 million in Q4, for a total of $61 million, a 12% growth of F2004. Earnings per diluted share are expected to be $0.50 to $0.55 for F2005 versus $0.19 in F2004.


"Our revenue growth for the year was 15%," said Nicholas Csendes, Ansoft's President and Chief Executive Officer. "For the next fiscal year, we expect to see revenue growth of 12% to 15% for the full year as well as increasing profitability."


For the second quarter, Cadence said it expects to revenue to be in the range of $285 million to $295 million with earnings per share between $0.03 to $0.05. On a non-GAAP basis, the company expects to earn 14 cents to 16 cents a share.


For the full year 2004, the company expects total revenue in the range of $1.175 billion to $1.225 billion. On a GAAP basis, the company expects net income per fully diluted share for fiscal 2004 in the range of $0.31 to $0.38. This represents a 12% reduction relative to prior guidance, due to the Neolinear acquisition. Using non-GAAP measures, the company expects fully diluted earnings per share for fiscal 2004 to be in the range of $0.70 to $0.77. They are maintaining non-GAAP guidance despite expecting a $0.01 to $0.02 dilutive effect from Neolinear acquisition.


For guidance, Mentor Graphics anticipates quarterly total revenue of $170 million in each of the second and third quarters, and $217 million in the fourth quarter. For the year, revenue would be $721 million versus $675 million in 2003.


Gross margin, before amortization of intangibles, should run approximately 85% during the second quarter, increasing to 86% in the third quarter and 88% in the fourth. On a GAAP basis, gross margin should run approximately 84% during the second quarter, increasing to 85% in the third quarter and 87% in the fourth.


Operating expense, excluding amortization of intangibles, is forecasted at approximately $132 million in Q2, $134 million in Q3 and is increased from prior guidance by $2 million to $141 million in Q4. Mentor Graphics expects GAAP operating expenses of about $133 million in Q2, $135 million in Q3 and $142 million in Q4. “Other income and expense” is expected to average about $3.5 million per quarter. The tax rate, both GAAP and pro forma, is expected to be 17%.


Mentor Graphics expects pro forma earnings per share of 10 cents in Q2 and Q3 and 53 cents in Q4, while GAAP earnings per share should be 6 cents, 6 cents and 49 cents, Q2 through Q4, respectively. For 2004, diluted shares outstanding are expected to be approximately 73 million.


For guidance Nassda expects total revenue of $10.4 million to $10.6 million in the next quarter, an increase of 7% from the current quarter. Nassda also expects fully diluted earnings per share of approximately $0.04, a one hundred percent increase over the current quarter. For fiscal 2004, Nassda anticipates total
revenue of $40.0 million to $41.0 million and fully diluted earnings per share of approximately $0.13. This compares to $35 million (up 16%) and $0.12 for fiscal 2003.


“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.


####


EDACafe.com 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
http://www.henkeassociates.net.


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