In his August 16, 2010 issue of EDA WEEKLY, entitled “The State of IP,” the writer complained among other comments, that once a smaller electronics intellectual property (IP) company was acquired by one of the Big 3 EDA vendors (Synopsys, Cadence, Mentor Graphics), the visibility of the acquired company's performance in terms of both revenue and earnings often disappeared from public view. This was true of the acquisition's performance in detail, which one expects to be melded into the acquiring company's totals, but also it was true of the acquisition's overall impact of that niche on the acquiring company.
Examples cited last month included acquired IP companies LogicVision into Mentor Graphics in 2009 and Virage Logic into Synopsys (first announced in June 2010 and completed September 2, 2010). [5]
Also mentioned was the disappearance of financial data from public view of previously-public MCAD/MCAE vendors, either via merging into larger MCAD/MCAE entities or by going temporarily private. As examples:
And finally coming to our topic for the current (September 13, 2010) EDA WEEKLY: the classical EDA sector, from whence each of the following EDA entities (save Ansoft) has been absorbed in recent years by Big 3 EDA vendors:
With EDA vendor MAGMA Design Automation announcing its financial results in late August for its financial quarter ending August 1, 2010, we now have in place all the G5 EDA vendors' nominal Q2 2010 data to report and discuss.
Contents to follow:
Accordingly, in this issue of EDA WEEKLY, recent News Highlights (including fresh news from the Semiconductor Industry Association) are preceded by the overall revenue & earnings performances of the selected group-of-five EDA players for nominal Q2 2010, followed immediately by G5 vendor by vendor Q2 financial details. When available, these details include original G5 EDA vendor forecasts for nominal Q2 2010, as well as for the nominal third quarter now underway. G5 EDA vendor stock prices are also discussed. Finally, some EDA Consortium (EDAC) statistics are included.
Major Categories in the sequel:
How did the EDA G5 fair during Nominal Q2 2010?
Vendor by Vendor Q2 2010 Details
EDA Big 3 vs. MCAD Top 3 Vendors Q1 & Q2 2010
Recent News Highlights
Final Comment on, “Whither EDA?”
Latest EDA CONSORTIUM REPORT {Q1 2010}
How did the EDA G5 fair during Nominal Q2 2010?
By combing the EDA financial reports for nominal Q2 2010 and gathering similar data from the recent past, we can create Tables 1 and 2 below regarding quarterly revenues and earnings comparisons, respectively [1]. Not only are comparisons possible within any single vendor line, but also the combined group totals provide additional insight. These data will begin the process of assembling an opinion regarding the title question of this issue of EDA WEEKLY for September 13, 2010, namely, “Whither EDA?”
Table 1 reveals that the total nominal Q2 2010 revenue of $800.12 million for the G5 was in fact an increase compared to the $785.55 million of the just prior quarter, but the increase was skimpy at less than +2%. While meager, both Cadence and Mentor delivered improved revenues for Q2 vs. Q1 2010, but Magma was down and Synopsys was flat.
Year over year, Q2 2010's revenue increase vs. Q2 2009 also hardly moved the needle; in this case, while every one else was up slightly, heavyweight Synopsys was down $8.3 million, enough to limit the year over year revenue improvement for the G5 to only $18.45 million, a disappointing 2.36% improvement.
With Q2 2010 's G5 revenue total barely growing sequentially, and moreover barely budging off the revenue level of the recession days of Q2 2009, it's difficult to conclude from the data in Table 1 that happier EDA days have finally arrived. We'll have to examine other information presented in the sequel, before concluding anything about the potential of the EDA industry, a.k.a. “Whither EDA?”
Indeed, the nominal Q2 2010 earnings data in Table 2 below provide some immediate additional concern in pursuing an answer to, “Whither EDA?”
One might get excited to see the G4 total profit of $70.48 million for nominal Q2 2010, a respectable $66.44 million improvement over the earnings in the just prior nominal Q1 2010. However, the excitement soon wanes when one realizes that the bulk of the G4's total improvement in the profit column for Q2 2010 comes from Cadence, whose Q2 2010 earnings of +$48.61 million came mostly from a $67 million acquisition-related tax benefit. Without the tax benefit, Cadence would have again been in the loss column in Q2 2010, and a repeat of Q1 2010's barely black ink for the G5 would have also occurred in Q2 2010.
On the other hand, with Cadence losses under better control this year compared to last year at this juncture, the G4 delivered $123.01 million more in year over year earnings in Q2 2010 than in Q2 2009, and the improvement would still have been some $56 million to the good in Q2 2010 than Q2 2009 even without the Cadence $67 million tax windfall in Q2 2010. “Net net,” a trend toward improved future earnings from Cadence and Mentor deserves some credibility, but from the data in Table 2, one can assert that the G4 is still operating way too close to breakeven to generate much enthusiasm at this juncture. Accordingly, it's still difficult for this observer to predict that happier, more prosperous EDA days will soon arrive. So the answer to, “Whither EDA?”… Still blowin' in the wind. Read on…
Vendor by Vendor Q2 2010 Details
On July 12, 2010 electronics design software company Altium Limited (ASX:ALU) announced an unaudited update on its financial performance for the three months ending June 30, 2010, referred to herein as nominal Q2 2010.
Total sales for nominal Q2 2010 grew to US$15.1 million, up +4% compared to $14.5 million in the corresponding period a year ago, and up +36% compared to sales of $11.1 million in sequential nominal Q1 2010. (Revenues were not reported, but revenues tend to be about 4% higher than sales).
In nominal Q2 2010 the Americas were up 72.5% in sales vs. sequential Q1 2010, in Europe up 18.1%, in AsiaPacific up 23.9%, in China down 5.7%, and in consulting services up 625%.
Altium's cash balance as of June 30, 2010 was US$4.8 million, up +37% from the corresponding period a year ago.
“We are pleased to see a stronger sales result for the quarter. There are definitely some positive signs here, particularly in the USA, in what remains a volatile economic environment,” said Altium CEO Nick Martin.
Altium earnings for nominal Q2 2010 remain unreported.
For the nominal First Half of 2010, worldwide sales in total for Altium were up +9% year over year compared to the First Half of nominal 2009. In this comparison, the Americas were up 20%, Europe up only 1%, Asia Pacific up 7%, China down 33%, and consulting services up 22%. The nominal First Half sales of 2010 were up 29% sequentially compared to the Second Half of 2009.
The entire 12 months July 2009 to June 2010 found Altium worldwide sales at only $46.5 million vs. $51.4 million for the 12 months July 2008 to June 2009, causing a total sales decrease of -9% year over year. All the regions noted above contributed to this year over year decrease, as follows: Americas down 2%, Europe down 4%, Asia Pacific down 7%, China down 43%, and consulting services down 15%.
Altium self description:
Altium Limited (ASX:ALU) creates electronics design software based on the belief that anyone who wants to create electronic products that make a difference should be able to do so. Altium's unified electronics design environment links all aspects of electronics product design in a single application that is priced to be as affordable as possible. This helps electronics designers break down barriers to innovation, harness the latest devices and technologies, manage their projects across broad design 'ecosystems', and create connected, intelligent designs. Founded in 1985, Altium has headquarters in Sydney, and operates worldwide. For more information, visit www.altium.com. Altium, Altium Designer and LiveDesign, and their respective logos, are trademarks or registered trademarks of Altium Limited, or its subsidiaries. All other registered or unregistered trademarks mentioned herein are the property of their respective owners, and no trademark rights to the same are claimed.
On July 28, 2010 Cadence Design Systems, Inc. (NASDAQ: CDNS) first announced results for the second quarter of its fiscal year 2010 ending July 3, 2010. Then, on August 4, 2010, Cadence updated its report to correct GAAP net income and GAAP net income per share for the second quarter of 2010, and to correct Cadence's guidance for expected GAAP net loss and GAAP net loss per share for the third quarter of 2010 and for fiscal 2010.
Only the corrected data are reported in this EDA WEEKLY. Cadence's second fiscal quarter ending July 3, 2010 is treated herein as “nominal Q2 2010.”
Cadence reported nominal Q2 2010 revenue of $227.06 million, up 8.59% compared to revenue of $209.93 million reported for the same period in 2009, and up 2.31% compared to $221.94 in nominal Q1 2010. The $227.06 million in revenue reported for nominal Q2 2010 was above the top of the $215 million to $225 million guidance range provided three months ago.
Cadence also issued supplementary reports to support or clarify data in its main financial press release [2], [3].
Turning to earnings, on a GAAP basis, Cadence recognized net income of $49 million, or $0.18 per share on a diluted basis, including $67 million in acquisition-related income tax benefit, in the nominal second quarter of 2010, an “improvement” of $123 million compared to a net loss of $74 million, or $(0.29) per share on a diluted basis, in the same period in 2009. The net income of $49 million in nominal Q2 2010 was also an improvement of over $60 million compared to a loss of $11.8 million in sequential Q1 2010.
The $0.18 per share earnings was understandably well-above the guidance range of $(0.05) to $(0.03) provided three months ago, mostly because the $67 million in acquisition-related tax benefit was not anticipated in the original guidance.
“The Cadence team executed and delivered solid results in the second quarter,” said Lip-Bu Tan, president and chief executive officer. “The combination of our strong technology portfolio with the closer collaboration of our sales and R&D teams is yielding results.”
“Business improved for us in all geographies, and the combination of stronger business performance and a lower expense base helped improve our top and bottom lines,” said Kevin S. Palatnik, senior vice president and chief financial officer.
Business Outlook
For the third quarter of 2010, the company expects total revenue in the range of $225 million to $235 million. Third quarter GAAP net loss per diluted share is expected to be in the range of $(0.10) to $(0.08).
For the full year 2010, the company expects total revenue in the range of $900 million to $925 million. On a GAAP basis, net loss per diluted share for fiscal 2010 is expected to be in the range of $(0.04) to $(0.00).
The outlook above is based on current Cadence expectations. Since these statements are forward-looking, actual results may differ materially, the company cautioned.
Cadence self description:
Cadence enables global electronic-design innovation and plays an essential role in the creation of today's integrated circuits and electronics. Customers use Cadence® software and hardware, methodologies, and services to design and verify advanced semiconductors, consumer electronics, networking and telecommunications equipment, and computer systems. Cadence is headquartered in San Jose, Calif., with sales offices, design centers, and research facilities around the world to serve the global electronics industry. More information about Cadence and its products and services is available at www.cadence.com.
Cadence (CDNS) started Q2 2010 with its stock at $6.77 on April 1, 2010. CDNS rose to a value of $7.64 per share on May 3, but it has not returned to $7.64 since. Indeed, on June 30, CDNS had dropped to $5.79, but it has come back to $ 7.09 at press time September 02, 2010 for a Market Cap of $1.89 billion. Also note from the Yahoo Finance chart above, that CDNS has underperformed relative to the NASDAQ for most of the last 12 months, and only in very recent days has CDNS crossed into “outperform” territory.
On August 26, 2010 Magma® Design Automation Inc. (NASDAQ:LAVA) reported revenue of $32.6 million for its fiscal 2011 first quarter ended August 1, 2010, up 13% from the $28.8 million reported in the year-ago quarter, but down 3% from the just-previous nominal Q1 2010 sequential revenue of $33.6 million. (As mentioned previously, stated fiscal quarters here are referred to as “nominal QX 2010” for purposes of this EDA WEEKLY article).
"We're pleased that we again met or exceeded all our financial guidance and are off to a good start for the year," said Rajeev Madhavan, Magma chairman and chief executive officer. "The increasing traction of our products and the positive reaction we experienced at June's Design Automation Conference indicate we are on the right track to increasing revenue, while continuing to improve our profitability."
GAAP Results
In accordance with generally accepted accounting principles (GAAP), Magma reported a net loss of $(3.3) million for the nominal second quarter, an improvement compared to a net loss of $(4.3) million for the year-ago quarter, but a larger net loss compared to the reported net loss of $(0.73) million for the sequential nominal Q1 2010.
In the nominal second quarter, Magma generated cash flow from operations of approximately $1.4 million. Also during the nominal second quarter, Magma repaid the $23.2 million remaining balance of its convertible notes which were due on May 15, 2010. Also during the nominal second quarter, Magma repurchased $2.75 million aggregate principal amount of its convertible notes due in May 2014. Additionally, in the third nominal quarter to date, convertible notes due in May 2014 totaling $10.7 million in face value were converted into shares of the company's common stock. In the conversion of notes due in May 2014, Magma prepaid the note holders a portion of their future interest. The company also said that, from time to time, it may enter into additional transactions in the future with respect to the repurchase or conversion of the $13.2 million remaining balance of convertible notes due May 2014 whenever conditions are sufficiently attractive.
Business Outlook
For Magma's nominal Q3 2010 ending October 31, 2010, the company expects total revenue in the range of $33.0 million to $33.5 million. GAAP net loss per share is expected to be in the range of $(0.07) to $(0.06).
Magma is also adjusting its outlook for its fiscal 2011, ending May 1, 2011. For fiscal 2011 the company now expects increased total revenue in the range of $132.0 million to $135.0 million, a slight bump up from the previous guidance range of $130.0 million to $133.0 million.
Also, the company now expects its fiscal 2011's GAAP net loss per share to be in the range of $(0.18) to $(0.17), a larger loss compared to a previous expectation of a net loss per share in the range of $(0.16) to $(0.14).
Magma self description:
Magma's electronic design automation (EDA) software provides the "Fastest Path to Silicon"™ and enables the world's top chip companies to create high-performance integrated circuits (ICs) for cellular telephones, electronic games, WiFi, MP3 players, digital video, networking and other electronic applications. Magma products are used in IC implementation, analog/mixed-signal design, analysis, physical verification, circuit simulation and characterization. The company maintains headquarters in San Jose, Calif., and offices throughout North America, Europe, Japan, Asia and India. Magma's stock trades on NASDAQ under the ticker symbol LAVA. Visit Magma Design Automation on the Web at www.magma-da.com.
Magma and Talus are registered trademarks and "Fastest Path to Silicon" and Hydra are trademarks of Magma Design Automation Inc. All other product, company and institution names are trademarks or registered trademarks of their respective owners.
The full year-to-date performance of LAVA shown above indicates that LAVA has easily outperformed the NASDAQ for the entire period. LAVA started Q2 on April 1, 2010 at $2.61 per share, reached a peak of $3.69 on April 29, and then declined to $2.84 by June 30, 2010. LAVA then staged a rally of sorts, but couldn't get up to the high achieved in Q2 before visiting the territory of June 30 again around mid-August. As the chart above shows, LAVA has subsequently staged a mini-rally and closed to $3.19 on September 2, which yields a Market Cap value of $168.58 million.
On August 19, 2010 Mentor Graphics Corporation (NASDAQ: MENT) announced results for its fiscal second quarter ending July 31, 2010, referred to herein as nominal Q2 2010.
For nominal Q2 2010, the company reported revenues of $187.9 million, up only 4.04% compared to $180.6 million in sequential nominal Q1 2010, and up very slightly at plus 2.90% compared to $182.6 million year over year in nominal Q2 2009. (The $187.9 million exceeded guidance provided three months ago of “about $180 million” for nominal Q2 2010 revenue).
Mentor also issued supplementary reports to support or clarify data in its main financial press release [2], [4].
Mentor GAAP earnings in nominal Q2 2009 were a loss of $21.3 million, a loss of $23.0 million in sequential nominal Q1 2010, and a loss of $14.2 million in the most current nominal Q2 2010. This means a GAAP loss per share of $0.13 in nominal Q2 2010 compared to a $0.22 loss per share a year ago. (Thus the GAAP loss per share of $0.13 actually achieved in nominal Q2 2010 was “better” than the guidance given three months ago; namely, a GAAP loss range of $0.22 to $0.17 per share for the nominal Q2 2010 quarter).
“Semiconductor markets continue to improve, with revenues at an all-time high, and industry analysts forecasting continued growth,” said Dr. Walden C. Rhines, CEO and chairman of Mentor Graphics. “Our solid results across all core EDA product lines reflected that. Annualized revenue from renewal contracts in our top ten accounts this quarter grew 45% compared to prior contract values. Leading indicators of the business, like consulting and training, were strong, with revenues up 30% and 70% respectively, year over year. Our strategy of investing in markets adjacent to semiconductor EDA, such as transportation, continues to pay off, with revenue from transportation products nearly doubling year on year, and bookings nearly tripling.”
The company also announced that the Mentor Graphics track in the TSMC Reference Flow has expanded to a complete front-to-back solution with new support for the Vista™ platform and the Catapult® C synthesis tool, expanded low power and 28nm routing features in the Olympus-SoC™ place and route system, and the Calibre® InRoute solution. Also released during the quarter were new versions of Mentor's 0-In® Formal and 0-In Clock Domain Crossing products, both enabling greater speed and ease of use in verifying complex IC designs. The company's recently acquired Valor division released version 9.0 of its vSure™ product, with enhancements enabling designers to more easily perform extensive design-for-manufacturing analysis during the printed circuit board design process.
“This was our sixth consecutive quarter of meeting or exceeding guidance,” said Gregory K. Hinckley, president of Mentor Graphics. “Our Flomerics and LogicVision acquisitions are performing well, and our new Valor division is on track to contribute to a strong second half. As a result, we are increasing guidance for the full year.”
Outlook
For the fiscal third quarter (a.k.a. nominal Q3 2010) ending October 31, 2010, the company expects revenues of about $220 million and GAAP earnings per share of approximately $0.08. For the full fiscal year 2011 (nominal year 2010) the company now expects revenues of approximately $880 million and GAAP earnings per share of approximately +$.20. (Last quarter the guidance for the year was $870 million and +$0.10 to +$0.15, respectively).
Mentor Graphics' self description:
Mentor Graphics Corporation (NASDAQ: MENT) is a world leader in electronic hardware and software design solutions, providing products, consulting services and award-winning support for the world's most successful electronics and semiconductor companies. Established in 1981, the company reported revenues over the last 12 months of about $800 million. Corporate headquarters are located at 8005 S.W. Boeckman Road, Wilsonville, Oregon 97070-7777. World Wide Web site: http://www.mentor.com/.
(Mentor Graphics, Calibre, Catapult, and 0-In are registered trademarks and Vista, vSure and Olympus-SoC are trademarks of Mentor Graphics Corporation. All other company or product names are the registered trademarks or trademarks of their respective owners).
Year to date, the chart above shows that MENT under-performed the NASDAQ for large portions of the year. Indeed, the blue MENT line was below zero for many many days during the first half of the chart above, and MENT didn't catch up to NASDAQ performance until late July 2010. As far a Q2 2010 is concerned, MENT stood at $8.19 on April 1, 2010, peaked at $9.68 on June 15, and then fell back to $8.71 by June 30. The oscillations continued, but MENT managed to close about where it locally peaked in September 2009 and again in June 2010, reaching $9.58 on September 2, yielding a Market Cap of just north of a billion dollars ($1.03 billion).
We come finally to the details of the fifth and last member of the G5 EDA vendors, Synopsys, Inc. (NASDAQ: SNPS), in recent years the largest revenue generator of the G5 and consistently the most profitable. On August 18, 2010 Synopsys reported financial results for its third quarter of fiscal year 2010 ending July 31, 2010, which for purposes of this EDA WEEKLY issue is labeled “nominal Q2 2010.”
For nominal Q2 2010, Synopsys reported revenue of $336.9 million, down 2.40% year over year compared to $345.2 million in revenue posted in nominal Q2 2009, and down a barely perceptible 0.35% compared to the sequential Q1 2010 revenue of $338.1 million. (The $336.9 million reported for nominal Q2 2010 revenue was within but near the top of the revenue guidance range given 3 months ago of $330 million to $338 million).
SYNOPSYS also issued supplementary reports to support or clarify data in its main financial press release [2], [6].
"Synopsys delivered strong results in Q3, and we are well on-track to meeting or beating the targets we set at the beginning of the year," said Aart de Geus, chairman and CEO of Synopsys. "During the downturn over the past two years, we invested to strengthen our technology portfolio, gained customer momentum, and expanded our total addressable market through several acquisitions.
Looking forward, our objective is to sustainably grow earnings per share primarily by growing revenue, controlling expenses and focusing efforts on value-added projects."
GAAP Results
On a generally accepted accounting principles (GAAP) basis, net income for nominal Q2 2010 was $39.327 million, or $0.26 per share, down 17.1% year over year compared to $47.436 million, or $0.32 per share, for nominal Q2 2009; and down an insignificant 0.56% from $39.549 million in sequential nominal Q1 2010, also yielding $0.26 per share. (Not surprisingly, the guidance range given 3 months ago for earnings per share in nominal Q2 2010 was met [+$0.21 to +$0.27]).
Financial Targets for Nominal Q3 2010
Synopsys also provided its financial targets for its next quarter. These targets do not include future acquisition-related expenses that may be incurred. These targets constitute forward-looking information and are based on current expectations.
Targets for Nominal Q3 2010:
- Revenue: $349 million - $357 million
- GAAP expenses: $291 million - $310 million
- Other income and expense: $0 - $3 million
- Fully diluted outstanding shares: 149 million - 153 million
- GAAP earnings per share: $0.21 - $0.27
- Revenue from backlog: greater than 90%
Synopsys' self description:
Synopsys, Inc. (NASDQ: SNPS) is a world leader in electronic design automation (EDA), supplying the global electronics market with the software, intellectual property (IP) and services used in semiconductor design, verification and manufacturing. Synopsys' comprehensive, integrated portfolio of implementation, verification, IP, manufacturing and field-programmable gate array (FPGA) solutions helps address the key challenges designers and manufacturers face today, such as power and yield management, system-to-silicon verification and time-to-results. These technology-leading solutions help give Synopsys customers a competitive edge in bringing the best products to market quickly while reducing costs and schedule risk. Synopsys is headquartered in Mountain View, California, and has more than 65 offices located throughout North America, Europe, Japan, Asia and India. Visit Synopsys online at http://www.synopsys.com
Despite the company's large revenue and earnings advantage over all other EDA G5 members, SNPS stock spent most of the last 9 months gyrating below the relative performance of the NASDAQ Composite line, although it finally crossed over about a week ago. SNPS stood at $22.55 on April 1, 2010, peaked at $23.38 on about April 14, and dropped to $20.87 on June 30, 2010. After descending to $20.46 on July 6, it has since crawled back to $23.86 as of September 2, 2010.
But here's the gorilla in the room: At $23.86 per share, SNPS' Market Cap is $3.45 billion, larger than the combined sum of the current Market Caps of Cadence, Magma and Mentor by a healthy margin.
The NASDAQ Composite:
The NASDAQ index itself started Q2 2010 at 2403, peaked at 2530 on April 23 (the day of the Deepwater Horizon oil platform explosion), and then generally declined to 2109 on June 30, 2010. Shortly thereafter, it fell to 2091 on July 6, its low for Q3. As the chart shows, the NASDAQ index then scored a modest rise, but the fell back to near its Q3 low on August 31 and finally rebounded slightly to close at 2200 on Sept 2, 2010.
EDA Big 3 vs. MCAD Top 3 Vendors Q1 2010 and Q2 2010:
In past articles the writer has compared the most recently reported quarter's revenues and net incomes of the Big 3 EDA vendors (Cadence, Mentor, Synopsys) to those of the Top 3 MCAD vendors (Autodesk, Dassault, PTC). (NOTE: These are the three vendors from each group that reported the most revenues in their respective groups, not necessarily the most earnings).
For the nominal first & second quarters of 2010, the following two charts apply:
The Top 3 MCAD vendors clearly maintain their dominant position from a revenue perspective, and lead the profitability parade as well. But as the Cadence tax credit showed in Q2, it doesn't take much for the EDA folks to quickly improve their record of iffy ROS.
Recent News Highlights
Corresponding with the recent success in stemming the flow of gushing oil into the Gulf of Mexico from the Deepwater Horizon disaster in April, the general pall from that debacle seems to be lifting from the US psyche, offering new hope that the economic recovery underway prior to April 2010 can now be resumed.
In the NASDAQ Composite chart in the foregoing, we already have seen the lift in the NASDAQ in recent days. And by the end of the day September 3, the Standard & Poor's 500-stock index was also up 1.32%, continuing a market rally that began in the middle of the week of August 29, 2010.
Moreover, the US jobs data have turned somewhat more optimistic. The Bureau of Labor Statistics reported on September 3, that private US employers hired more workers over the past three months than first estimated, including 67,000 new jobs in August. In addition, the Labor Department revised upward its private sector number for July, raising the number of jobs added to 107,000, from the 71,000 originally reported. And private sector hiring in June, originally reported at 83,000 and lowered to 31,000, was raised again to 61,000.
The graph above clearly shows the progress once President Obama took office on January 20, 2009, in reversing the monthly string of crushing US private sector job losses resulting from the deregulated Wall Street meltdown during 43's second recession. The momentum of improvement was slowed in Q2 2010, but it's now beginning to recover here during calendar Q3 2010.
Of course, the minority party these days wants us to blame the current president for not creating 250,000 new jobs every month now; further, the minority party would have us think that the fundamental seeds of the recent recession and job losses were sown since the Obama Administration took over, when in fact every single one of today’s economic problems was caused by the reckless policies of the Executive Branch between 2001 and the end of 2008…every single one!
Meanwhile, President Obama soldiers on. Rather than hand-wringing, his administration is proactively moving forward with new proposals to create more jobs and simultaneously begin to address a chronic problem in the United States – fixing our deteriorating infrastructure. Claudia Assis of MarketWatch reported late Monday September 6, 2010 on the President’s Labor Day speech in Milwaukee, in which he unveiled a $50 billion plan to upgrade the nation's roads, airports and railways. The public-works plan is part of a larger effort to provide more jobs and help the US economic recovery. That larger plan announced September 8 in Cleveland, will build upon projects and investments already underway through the Recovery Act. The plan calls for rebuilding 150,000 miles of roads, building or maintaining 4,000 miles of railways, and constructing or refurbishing some 150 miles of airport runways along with a new air navigation system to cut travel times and airport delays.
Of course, this writer has commented frequently in this space and elsewhere, about the colossal decades-long neglect of the nation's infrastructure, but exacerbated by deep federal budget cuts during 2001 - 2008. We the people receive periodic reminders of this neglect when deadly catastrophes occur, such as the Interstate Highway I-35 Bridge Collapse in Minneapolis in 2008.
We received another urgent call just last week here in the San Francisco Bay Area, when 38 homes and at least five lives were destroyed in a massive natural gas line explosion and fire in San Bruno, CA on September 9, 2010:
This country needs another WPA program to restore the country's infrastructure and simultaneously put millions of US people back to work. But can you imagine the outcry from the minority party today, if President Obama were to float the idea of such an effective, massive program first implemented by Franklin D. Roosevelt?
Commenting on the September 3 jobs report, Obama said the fresh data shows the economy is moving in the right direction. But he said further action is needed to help bring back the 8.4 million jobs lost since the recession began in December 2007.
"It reflects the steps we've already taken to break the back of this recession. But it's not nearly good enough," Obama said. He called on the Congress, which has been stymied by minority party "do nothing” opposition and Tea Party antics, to keep taxes low for the middle class, repeal the Bush administration's tax cuts for the richest 2% of Americans, and to pass a bill that would increase lending and reduce taxes for small businesses.
Scott Brown, an economist at Raymond James, said he sees no sign of the country slipping back into recession. "You're still seeing broad-based job gains. It's not strong, but it's positive," Brown said.
On August 30, 2010 the Semiconductor Industry Association (SIA) reported that global sales of semiconductors grew to $25.2 billion in July 2010, an increase of 1.2% from June when sales were $24.9 billion and an increase of 37.0% from July 2009 when sales were only $18.4 billion. Year to date sales total $169.2 billion, an increase of 46.7% from the $115.3 billion reported for the first seven months of 2009. All monthly sales numbers represent a three-month moving average.
“Worldwide sales of semiconductors were strong in July despite growing indications of slower growth in the overall economy,” said SIA President Brian Toohey. “The continued proliferation of semiconductors into a broad range of products provides opportunities for industry expansion even in a period of slower overall economic growth. Although recent public statements from a number of major manufacturers have emphasized limited visibility for the near-term, we continue to expect that industry growth for 2010 will be in line with our mid-year forecast of 28.4%,” Toohey concluded.
SIA self description:
The SIA is the voice of the US semiconductor industry, America's number-one export industry over the past five years. SIA seeks to continue US leadership in this critical sector that employs 185,000 people in the US and provides the enabling technology for America's $1.1 trillion high-tech industries with a US workforce of nearly 6 million people. More information about the SIA can be found at www.sia-online.org.
EDA WEEKLY writer's comment:
The optimism of G5 executives as well as Mr. Toohey's comments above would suggest that the near term future of EDA financial performances should avoid a downturn through at least the end of calendar 2010, which helps in part to answer the title question in the near term, “Whither EDA?”
On September 1, 2010 Gartner, Inc. released its latest outlook on the semiconductor industry. Worldwide semiconductor revenue in 2010 is forecast to reach $300 billion, a 31.5% increase from 2009 revenue of $228 billion, according to the latest outlook by Gartner, Inc. Analysts project worldwide semiconductor revenue to total $314 billion in 2011, a 4.6% increase from 2010.
The projected 2010 revenue for the semiconductor industry has increased from Gartner's forecast in the second quarter of 2010, when it expected worldwide semiconductor sales to grow 27.1% in 2010. However, analysts warned that while semiconductor revenue is still poised to hit record levels this year, second half growth is expected to be below seasonal norms as semiconductor sales align with electronic system sales.
"Semiconductor growth in the first half of 2010 was very strong, but it is becoming increasingly clear that the industry cannot maintain the momentum in the second half of 2010 and into 2011," said Bryan Lewis, research vice president at Gartner. "While the impact of the European credit crisis has subsided, the global economic recovery is slowing, and there is concern that electronic equipment vendors are adopting a cautious stance, ready to cut production at the first signs of slowing customer orders."
The PC supply chain is showing the most evidence of a correction, as can be seen by recent company announcements, including Intel's lowering its third quarter guidance. The forecast of second half 2010 PC production unit growth has been reduced in the 3Q10 update. Gartner analysts said consumer PC purchases in mature markets were slightly weaker than expected in the second quarter and the outlook for the third quarter is below seasonal growth. However, surging sales of media tablets are partially offsetting the weakness in consumer PCs, as they've begun to prove themselves a popular substitute for netbooks.
The outlook for the mobile phone market has been steadily improving throughout 2010. The forecast of total market growth has been increased slightly from the 2Q10 update. Gartner analysts stated that application-specific semiconductors for the phone market are experiencing intense competitive pressure, with revenue growing only about 13% in 2010. Smartphones continue to drive the mobile phone semiconductor market, representing 18% of units and 36% of overall 2010 mobile phone semiconductor revenue. These percentages increase to 41% of units and 64% of mobile phone semiconductor revenue by 2014 as entry-level smartphones trigger a second wave of growth in the market.
The dramatic rise in DRAM revenue growth is set to peak in 2010. "Due to early strength in the PC market and supply constraints, the DRAM industry has been very profitable, with revenue set to increase by 82.5% to nearly $42 billion in 2010," Mr. Lewis said. "However, during the second half of 2011, this is set to change, and we expect a DRAM downturn in 2012 as sales decline 29%."
In contrast, NAND revenue is set to sustain a growth trajectory through 2013, with the NAND flash market driven by strong sales of smartphones and media tablets.
Gartner will provide more detailed analysis on the outlook for the semiconductor industry during the Gartner Semiconductor Briefing taking place on November 4, 2010. The complimentary briefing will be held at the Doubletree Hotel San Jose, CA.
On September 01, 2010 Jon Peddie Research (JPR) reported that the workstation market posted another round of solid numbers in the second quarter of 2010, but that growth is expected to slow in Q3 2010. The technology and market research firm JPR said that the industry shipped 795,000 workstations worldwide in Q2, resulting in sequential growth of 9.6% and a year-over-year increase of 32%. The 32% year-over-year growth matched the largest JPR has seen since Q1'06, though that shouldn't be surprising when considering how dramatically the market had fallen by Q2'09.
Dell and HP once again in a deadlock for market leadership:
In the second quarter, HP and Dell were once again in a virtual tie for leadership in the workstation market. Dell just nudged HP in units, but by JPR's estimates, HP nosed out Dell in revenue. For yet another quarter, JPR calls this race a tie.
Expect future growth to moderate:
The industry has had some hints that the workstation numbers for the second quarter were going to be strong. The industry has a consistent leading indicator for workstation market performance coming from the related market for professional graphics hardware. That market for professional GPUs (graphics processing units, either add-in cards or mobile modules) had been on a hot run, exceeding growth expectations for the preceding four quarters, especially Q1'10, which posted an all-time high of 1.3 million units. All those professional GPUs have to go somewhere, and the vast majority eventually ship in workstations. As professional GPU shipments rise, then so will workstation volume.
By contrast, the professional graphics hardware market moderated in the second quarter, essentially flat from Q1. Accordingly, while Jon Peddie Research expects workstation growth to continue into the third quarter, the firm anticipates a more moderate pace. And given concerns that the previous quarters' exceptionally hot numbers were hinting at a market getting too far ahead of itself, that moderation is probably a healthy thing.
Final Comment on, “Wither EDA?”
To wrap up this question for purposes of this article, we ask ourselves if there was anything revealed herein to suggest that the answer to the title question, “Whither EDA?” ought to be anything other than “more of the same”.
Through the end of Q2 2010, G5 revenue is up over the previous year only a couple percent, and profit YTD is improved but mostly due to a one-time tax break. Moving forward, the upper end of the revenue ranges given in Q2 as guidance for Q3's performance would yield a Q3 2010 of something in the $860 million neighborhood, but since when does every one of the G5 produce simultaneously at the top of its guidance range? Still, even if all five vendors produce revenue at the bottom if their Q3 2010 guidance, some $837 million is expected, which would be significantly higher than the $785 million of Q3 2009. And if the seasonally positive Q4 2010 beats Q4 2009's $838 million by a similarly healthy revenue margin, then nominal 2010 the year might have created sufficient incremental revenue over 2009 to declare that the answer to, “Whither EDA?” could be something more sanguine than “same old, same old.”
Likewise, earnings of G5 in last year's Q3 were in red ink to the tune of minus $17 million and should be beaten this year, and while Q4 2010 guidance is still to come, Q4 seasonally produces black ink at 3 or more of the G5 at least. So it's possible that earnings in the 2H of 2010 may not detract from a hoped-for positive vibe of decent year over year revenue improvement. So as long as the semiconductor sales stay healthy and jobs get added in reasonable quantities across the US (as was the case for August 2010; see above), and as long as US national politics don't get more insane and world events remain non-catastrophic, then there's a fighting chance that EDA fortunes in 2010 just might turn slightly positive by year's end. Not a blockbuster, mind you; but “feelin' pretty, pretty good.”
Nevertheless, this slight hint of optimism creeping in to this writer's prose, should be tempered with the various points of view set forth in some of the News Highlights included in the previous section of this EDA WEEKLY.
Latest EDA CONSORTIUM REPORT {Q1 2010}
In its most recent report, on July 13, 2010 The EDA Consortium (EDAC) Market Statistics Service (MSS) announced that the Electronic Design Automation (EDA) industry revenue for Q1 2010 was $1247 million, a 4.6% increase compared to $1192.1 million in Q1 2009. Sequential EDA revenue declined 1.2% from Q4 2009, while over the last four quarters it declined 5.9%.
“Led by increases in the CAE and Semiconductor IP categories, the EDAC revenue numbers show an increase over Q1 2009,” said Dr. Walden Rhines, EDAC chair and chairman and CEO of Mentor Graphics. “Geographically, the Asia/Pacific region showed growth both year to year and quarter over quarter.”
Companies that were tracked employed 26,099 professionals in Q1 2010, up 0.4% compared to Q4 2009, but down 1.7% from Q1 2009.
Revenue by Product Category
Computer Aided Engineering (CAE), EDA's largest category, generated revenue of $458.5 million in Q1 2010. This represents a 7.2% increase over the same period in 2009. Over the last four quarters, CAE declined 3.5%.
IC Physical Design & Verification revenue decreased to $274.4 million in Q1 2010, a 9.2% decrease compared to Q1 2009. Over the last four quarters, IC Physical Design & Verification declined 8.3%.
Printed Circuit Board and Multi-Chip Module (PCB & MCM) revenue decreased 8.8% compared to Q1 2009, to $109.4 million. Over the last four quarters, PCB & MCM decreased 8.9%.
Semiconductor Intellectual Property (SIP) revenue totaled $320.9 million in Q1 2010, a 35.8% increase compared to Q1 2009. Over the last four quarters, SIP decreased 0.1%.
Services revenue was $83.7 million in Q1 2010, a decrease of 20.7% compared to Q1 2009. Over the last four quarters, services decreased 21.7%.
Revenue by Consuming Region:
The Americas, EDA's largest region, purchased $492.9 million of EDA products and services in Q1 2010, representing a decrease of 0.2% compared to Q1 2009. Over the last four quarters, the Americas were down 5.5%.
Revenue in Europe, the Middle East, and Africa (EMEA) was up 0.5% in Q1 2010 compared to Q1 2009 on revenues of $224.2 million. Over the last four quarters, EMEA was down 13.1%.
First quarter 2010 revenue from Japan decreased 1.9% to $250.8 million compared to Q1 2009. Over the last four quarters, Japan decreased 9.1%.
The Asia/Pacific (APAC) region increased to $279.0 million in Q1 2010, a 33.2% increase compared to the same quarter in 2009. Over the last four quarters, APAC increased 7.0%.
The EDAC MSS Report:
The EDA Consortium Market Statistics Service reports EDA industry revenue data quarterly and is available by annual subscription. Both public and private companies contribute data to the report. Each quarterly report is published approximately three months after quarter close. MSS report data is segmented as follows: revenue type (product licenses and maintenance, services, and SIP), application (CAE, PCB/MCM Layout, and IC Physical Design and Verification), and region (the Americas, Europe Middle East and Africa, Japan, and Asia Pacific), with many subcategories of detail provided. The report also tracks total employment of the reporting company.
The next EDAC report, covering EDA Revenue for Q2 2010, will be released on or closely after October 1, 2010.
The EDA Consortium self description:
The EDA Consortium is the international association of companies that provide design tools and services that enable engineers to create the world's electronic products used for communications, computer, space technology, medical, automotive, industrial equipment, and consumer electronics markets among others. For more information about the EDA Consortium, visit www.edac.org, or to subscribe to the Market Statistics Service, call (408) 287-3322 or email mss10@edac.org.
[1] Footnote: In the interests of uniformity as well as space and time available, the writer usually limits reportage herein solely to financial data generated with adherence to generally accepted accounting principles (GAAP). This approach has been consistently followed since the writer began posting articles in IBSystems' EDACafe.com and MCADCafe.com in 2003. In extremely rare cases where non-GAAP information is used, explicit notations are provided.
By the way, why is a “nominal” quarter used in the vendor by vendor comparisons in this EDA COMMENTARY? A nominal quarter system was adopted by Henke Associates for its COMMENTARIES years ago, to ensure consistency in reporting quarterly financial results from year to year, regardless of the decisions (within reason) of individual members of the chosen group in defining (and occasionally changing) when its fiscal years and fiscal quarters begin, compared to the universal constant of the yearly and monthly Gregorian calendar in common use today.
As one example, consider the differences among the EDA G5 vendors for reporting of quarterly results for “nominal” Q1 2010, in the Footnote Table F1 below:
[2] Footnote: Each EDA entity mentioned in this article has the opportunity to publish a supplement to its main quarterly financial news release. The latter is the source of most of the vendor-specific financial information in this article and similar articles by the writer. When other sources are used by the writer, including but not limited to the vendor-supplied supplements, explicit references are provided.
[3] Footnote: Pursuant to Footnote [2], the supplement published by Cadence yielded the following comments by this EDA WEEKLY writer.
In a supplementary report, Cadence produced a plethora of percentage data. Among the reports therein, we extracted a couple of data points presented in the Footnote [3] tables below.
We start with the first table presented below. Provided the reader can intuit the actual content of the revenue in each of the six Cadence “Product Groups” listed, one can see for example that the mix is changing very little over the periods in question. Aside from being absent of information as to what's considered as actual content of each listed Product Group, any vendor speculation as to why these trends are or are not occurring, or what the relative or absolute profitability of each group might be, are likewise missing.
Instead, the supplement devoted many pages in gruesome detail explaining the reconciliation of non-GAAP reports to GAAP reports, which all could be avoided by sticking to GAAP data only.
Note: Product Group total revenue includes Product + Maintenance
The supplement from Cadence also contained data from which this second table was generated. The following “Revenue by Geography” table is more straightforward, but it too yields little information.
[4] Footnote: Pursuant to Footnote [2], the supplement published by Mentor Graphics yields the following comments by this EDA WEEKLY writer.
In the Mentor supplementary report similar to that produced by Cadence (see above), Mentor also produced a bevy of percentage data. Among the reports therein, we extracted a couple of data points presented in the table below. Provided the reader can intuit the actual content of the revenue in each of the five “Product Groups” listed, one can see for example that YTD in nominal 2010, the relative percentages of revenue due to “Integrated Systems Design” and “Services and Other” are growing in 2010 YTD vs. 2009, whereas “IC Design to Silicon” and “Scalable Verification” are decreasing as a % of total MGC revenue. Aside from being bereft of information as to what's considered as actual content of each listed Product Group, vendor speculation as to why these trends are occurring, or what the relative or absolute profitability of each group might be, are likewise missing. “What 'Product Group' did LogicVision end up in,” one wonders.
Happily, the “Revenue by Geography” portion of the table, is less ambiguous.
[5] Footnote: As a valuable counter-example, ARM reported Artisan revenues separately for years after Artisan was acquired by ARM in 1994.
[6] Footnote: Pursuant to Footnote [2], the supplement published by Synopsys yielded the following comments by this EDA WEEKLY writer.
The author of this and previous issues of EDA WEEKLY was pleased to receive an email from one Yvette Huygen Deshpande, Director, Worldwide PR & Corporate Communications, Synopsys, Inc. on August 18, 2010. Yvette kindly pointed out that in a supplement to its standard quarterly financial reports, Synopsys did indeed publish the revenue results of several categories of its Product Groups, of which "IP & Systems" is one.
Synopsys defines this product category as "Intellectual Property and System-Level Solutions." Synopsys' IP portfolio provides customers with silicon-proven digital, PHY, analog and verification IP for SoC designs to reduce their design risk and time-to-market. Its IP solutions include the DesignWare® Library of infrastructure IP, VCS Verification Library of popular chip function models, and DesignWare Cores, which are pre-designed and pre-verified digital logic and mixed-signal blocks that implement important industry standards, including USB, PCI Express, DDR, SATA, HDMI, Ethernet and MIPI. Its analog IP solutions include analog-to-digital converters, digital-to-analog converters, audio codecs, video analog front ends and touch screen controllers. Our System-Level solutions enable customers to, among other things, accelerate verification and embedded software development. These solutions include Synopsys virtual prototyping portfolio and Confirma™ Rapid Prototyping System, the portion of the Certify®, Identify Pro, and Synplify Premier software tools used for system verification, and Synphony High Level Synthesis.
Analysis & Comments by the EDA WEEKLY writer:
This quarterly Synopsys supplement is made available only for one quarter, and then it's replaced by the next quarter's supplement. Upon request, however, Yvette was able to supply the writer of this EDA WEEKLY with some additional data starting in 2006. These data are summarized here (keeping in mind that Synopsys' fiscal years terminate at the end of October each year):
Comment #1: Note from Table 6A that "IP & Systems" revenue recognized by Synopsys has increased steadily as a percent of total Synopsys revenue through each the full years reported, from 7.84% of total revenue in FY 2006 to 10.65% in Fiscal 2009, and it is averaging 13.30% of Synopsys actual revenue through three quarters of Synopsys FY 2010.
Comment #2: Among the four segments into which Synopsys has chosen to split its total revenue for supplementary reporting purposes, the revenue from the "IP & Systems" segment has reached and eclipsed the "Manufacturing" segment in total revenue for the first three quarters of FY 2010, to become the second highest revenue producer next to the traditional leader -- the Synopsys "Core EDA" segment:
Comment #3: Revenue recognition in FY 2010 Q4 from recent IP acquisitions, such as Virage Logic, is likely to increase the full 2010 fiscal year revenue number percentage for "IP & Systems" faster than it increases total Synopsys revenue, which may mean an even higher YE percentage of "IP & Systems" revenue as a percent of total Synopsys revenue than 13.30% for the full FY 2010.
Comment #4: While the supplemental Product Segments revenue reports are both welcome and extremely useful, one immediately craves the corresponding earnings data, which remain unreported in Synopsys' supplements just as they are unreported in EDAC quarterly new releases and other EDA vendors' financials.
One may also desire further segmentation into the individual product by product contents of each of the four Product Segments chosen by Synopsys for both revenue and profitability. It would also be useful to see these data for Synopsys' fiscal years earlier than 2006 as well.
Comment #5: The writer would welcome similar reported data in similar detail from Cadence & Mentor Graphics, and if the data already exist, the writer would appreciate directions on where to them.
Again, great thanks to Synopsys' Yvette Huygen Deshpande for her readership, interest and action in supplying the available Synopsys data used in the foregoing.
Acknowledgments:
The writer would like to acknowledge the sources of data and information for this EDA WEEKLY issue: Vendor News Releases; Hoover's; Yahoo! Finance; Google Finance; and The SIA. Ongoing support by the team at IBSystems, Inc., including but not limited to Sanjay Gangal, Adam Heller, David Heller, Jon Heller, Nitai Fraenkel, and Sumit Singhal, is also appreciated.
About the Author:
Since 1996, Dr. Russ Henke has been and remains active as 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. Henke was also a board member of SDRC, PDA, ATP, and the MacNeal Schwendler Corporation, and he currently serves on the board of Stottler Henke Associates, Inc. Henke 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). Dr. Henke is also a contributing editor of the EDACafé EDA WEEKLY, and he has published EDA WEEKLY articles every four weeks since November 2009; URL's available.
"2010 Business Planning Tool Kit Promotion"
from HENKE ASSOCIATES,
Since May 2003 HENKE ASSOCIATES has also published a total of ninety-two (92) independent COMMENTARY 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, 2010 marked the 14th Anniversary of the founding of HENKE ASSOCIATES.