EDA Industry Update December 2009 -- What did the Last Quarter Bring?
by Dr. Russ Henke
In each of the 26 quarterly EDA Industry Commentaries published in EDAcafe.com since May 2003 by Henke Associates, the then-current yearly and quarterly financial performances of a selected group of publicly traded Electronic Design Automation (EDA) companies were analyzed and compared. Expectations regarding the future financial performances of these same EDA entities were documented as well. The originally selected companies were Altium, Ansoft, Cadence, Magma, Mentor Graphics, Nassda, Synopsys, Synplicity and Verisity.
As part of continuing EDA industry consolidation, two previously-selected EDA vendors, namely Verisity and Nassda, had been acquired by others and hence were dropped from the quarterly EDA Commentaries. More recently, EDA vendor Synplicity was acquired by EDA vendor Synopsys, and EDA vendor Ansoft was acquired by MCAE vendor ANSYS. Consequently, both Synplicity and Ansoft no longer independently appear in these EDA Industry reports.
This December 2009 EDA Industry Commentary covers (for the nominal Third Quarter of 2009) the performances of the remaining group of five (G5) EDA vendors: Altium, Cadence, Magma, Mentor Graphics, and Synopsys. The timing of the publication of these quarterly commentaries is usually governed by the official financial news release of the last G5 vendor reporting; this time the delay in publication was due to other circumstances.
EDA News Highlights are followed by the revenue & earnings performances of the selected group of EDA players for nominal Q3 2009, and then EDA vendor by vendor details. These details include individual EDA vendor forecasts for nominal Q4 2009. EDA Vendor stock prices are discussed. Finally, some EDA Consortium stats are included for Q2 2009. Enjoy, and best wishes for a healthful and prosperous 2010.
Recent EDA Industry News Highlights:
On November 30, 2009 the Semiconductor Industry Association (SIA) reported that worldwide sales of semiconductors rose to $21.7 billion in October, a 5.1% increase from September when sales were $20.6 billion. Sales were 3.5% below October 2008 when sales were $22.5 billion. Sales for the first 10 months of 2009 were $180.0 billion, a decline of 16.6% from the like period of 2008 when sales were $215.8 billion. All monthly sales numbers represent a three-month moving average of global semiconductor sales. “October is historically a strong month for the semiconductor industry as electronic equipment manufacturers ramp production for the holiday season. Inventory management throughout the supply chain has been very tight, and this may extend the fourth-quarter build season by a few weeks,” Scalise continued. “As Semiconductor sales are increasingly driven by the performance of the overall global economy our sales are reflecting the improved economic conditions in our world markets. Sales increased sequentially in all geographic regions,” Scalise concluded.
On December 10, 2009 Altium Limited (ASX:ALU) announced that it is one of 11 sponsors of the 2010 National Computer Science School (NCSS) Summer School, a 10-day summer program that brings together Australia’s brightest high school students to learn programming skills at the University of Sydney. Students from grades 10-12 from all around Australia descend on the University to learn the basics in computer science and apply those skills to embed intelligence into a complete embedded control system for an iRobot Create® platform. The resulting robots, essentially iRobot’s Roomba® robot vacuum cleaners with the innards removed, compete in a battle of embedded programming over physical obstacles.
On December 14, 2009, Cadence Design Systems, Inc. (NASDAQ: CDNS) announced that Fairchild Semiconductor, a global provider of energy-efficient semiconductor technology, named Cadence as its primary EDA partner following the signing of a multi-year agreement for Cadence® mixed-signal technology. A key technology for Fairchild is the Virtuoso Accelerated Parallel Simulator combined with Virtuoso AMS Designer, both part of the Cadence® Virtuoso Multi-Mode Simulation suite. These technologies are said to accelerate full-chip verification, leading to higher quality products and faster time to market.
On December 14, 2009 Magma(R) Design Automation (Nasdaq:LAVA) announced SiliconSmart(R) ACE, a next-generation intellectual property characterization and modeling tool and the latest addition to its SiliconSmart product line. The SiliconSmart ACE flow is said to deliver more accurate models and faster turnaround time than other tools for designs targeted at 28-nanometer (nm) and smaller process nodes.
On December 14, 2009 Mentor Graphics Corporation (NASDAQ: MENT) announced that Kontron AG (Eching, Germany), had expanded its Expedition™ Enterprise PCB installation from Mentor Graphics, with worldwide usage of the HyperLynx® solution for signal and power integrity. Kontron is said to have selected the HyperLynx signal and power integrity product for its accurate analysis and simulation capabilities, ease-of-use, and quick setup time. Combined with the Expedition Enterprise platform and the DMS (Data Management System), the HyperLynx product is aimed at formulating a solution for high-performance electronic product design that reduces design cycle times, prototypes, manufacturing re-spins and development costs, while increasing product performance.
On December 07, 2009 Synopsys, Inc. (NASDAQ: SNPS) announced that Hisilicon Technologies Co., Ltd., a provider of ASICs and solutions for communication network and digital media, and a subsidiary of Huawei Technologies, had established Synopsys as its primary EDA partner across its implementation and verification design flows. Hisilicon signed a business agreement to extend its use of Synopsys' IC Compiler place-and-route technology and DesignWare® IP as well as other tools from Synopsys' Galaxy™ Implementation and Discovery™ Verification Platforms. "Since its founding, Hisilicon has carefully selected the key strategic partnerships that help us deliver high quality ICs and services to our customers," said Teresa He, vice president of Hisilicon Technologies Co., Ltd. "We chose to partner with Synopsys because of their technology and proven ability to help make us successful."
How did the G5 EDA Vendors fair during the Third Quarter of 2009?
As shown in Table 1, the combined total revenue performance of the five covered EDA firms for the nominal third quarter of 2009 was $784.64 million, a negligible increase of less than 1% from the $781.69 million just a quarter earlier. However, the $784.64 million in Q3 2009 was in fact a drop of -4.2% from the $819.25 million total achieved a year ago in Q3 2008.
Sequentially, both Altium and Synopsys endured revenue decreases in Q3 2009. But Cadence, Magma and Mentor delivered small sequential revenue increases over Q2 2009.
Year-over-year, both Altium and Magma suffered double-digit percentage losses in revenue. Cadence and even behemoth Synopsys lost year-over-year revenue in single-digits percentage-wise, whereas Mentor Graphics squeezed out a tiny year-over-year percentage revenue increase of 2.4%.
Turning to earnings performances in Q3 2009, the picture is mixed. Table 2 shows that the EDA group of 4 (that reported quarterly income) still totaled a combined net loss of over $17 million in Q3 2009, but that particular G4 loss was actually a very impressive positive swing of some $212 million compared to Q3 2008’s miserable negative total.
All the vendors covered contributed in Q3 2009 to the year-over-year earnings improvement over the Q3 2008 debacle, except Synopsys, whose $19.53 million in Q3 2009 earnings was nevertheless still in the black. Magma crept back to black ink in Q3 2009, but while showing improvement in year-over-year earnings, both Cadence and Mentor Graphics were still in the red in Q3 2009, just less so.
On a sequential basis, Synopsys again was the only firm to experience a worse earnings picture in Q3 2009 than in Q2 2009, but again Synopsys’ sequential swing still left it in the black in Q3 2009, thanks to its steady record of profitability in general.
Company by Company Q3 2009 details:
On October 12, 2009 Altium Limited reported limited financial results for the quarter ending September 30, 2009. Sales were US$9.42 million, a decrease of 23% over the previous corresponding period. Revenue was US$11.38 million, a decrease of 10% over the previous corresponding period.
However, the number of new product licenses and upgrades sold in the (third calendar) quarter of 2009 increased by more than 90% over the previous corresponding period. Q3 2009 was the second consecutive quarter of significant growth in the number of licenses sold.
Sales in the Americas in Q3 2009 were US$3.245 million (down -21% from Q308), in Europe 2.439 million euros (-13%), in China US$ 1.571 million (-30%), and the rest of Asia Pacific US$1.024 million (-34%). Worldwide, consulting services sales were 49,000 euros (-17%).
As is current practice, earnings are not reported for calendar Q3.
"Given the current global economic environment, our (calendar Q3 2009) sales performance was close to our expectations," said Nick Martin, Altium CEO. “We expected a difficult quarter and that's exactly what we experienced. Going forward, we are working on the basis that things will remain tough (until the middle of calendar 2010), and with the tightening of our cost model over the last few months we are expecting to successfully weather the storm. The whole Altium team is working hard to stay focused on our fundamental objectives and it was great to see the growth in new license sales that began in Q2 2009 continue into Q4 2009.”
In other recent Altium news, on November 19, 2009 Altium appointed Gerry Gaffney, senior vice president and general manager of the company’s Americas operations, to regional CEO. Previously a sales and support organization, Altium’s Americas operation will grow along with the Australian-headquartered company as a whole in order to further assist electronic designers everywhere to build the next generation of electronic products. “While we’ve witnessed the forces of globalization firsthand, much of the world’s technology innovation still comes from the West Coast of the United States. Our Carlsbad office has proved to be an integral part of Altium’s efforts to help enable that innovation to happen, and we want to give them additional opportunities to continue to develop this momentum and influence,” said Nick Martin, CEO of Altium. “Since joining Altium in 2007, Gerry Gaffney has been instrumental in strengthening Altium's worldwide leadership and accelerating business growth. In his new role, Gaffney will report directly to Nick Martin, and will become a member of the executive team, thereby expanding his role in organizational partnerships and other strategic relationships to a global level.”
On October 28, 2009, Cadence reported third quarter 2009 revenue of $216 million, compared to revenue of $232 million reported for the same period in 2008. The $216 million was right in the middle of the guidance range given last quarter. On a GAAP basis, Cadence recognized a net loss of $14 million, or $(0.05) per share on a diluted basis, in the third quarter of 2009, compared to a net loss of $171 million, or $(0.67) per share on a diluted basis in the same period in 2008.
In addition to using GAAP results in evaluating Cadence's business, Cadence management believes it is useful to measure results using a non-GAAP measure of net income or net loss. Using this non-GAAP measure, net income in the third quarter of 2009 was $7 million, or $0.03 per share on a diluted basis, as compared to a net loss of $23 million, or $(0.09) per share on a diluted basis, in the same period in 2008.
"Our (recently) increased level of R&D engagement with customers is (being) well received, and we are winning with technologies that address our customers' need for better design productivity, increased predictability of schedule and results, and faster time-to-market," said Lip-Bu Tan, president and chief executive officer.
Added Kevin S. Palatnik, senior vice president and chief financial officer, "Third quarter results represent strong operational execution by the Cadence team. Sequential revenue growth met expectations, operating profitability improved significantly and we ended the quarter with more than $570 million in cash."
For the fourth quarter of 2009, the company expects total revenue in the range of $215 million to $225 million. Fourth quarter GAAP net loss per diluted share is expected to be in the range of $(0.08) to $(0.06). Net income per diluted share using the non-GAAP measure defined below is expected to be in the range of $0.02 to $0.04.
For the full year 2009, the company expects total revenue in the range of $845 million to $855 million. On a GAAP basis, net loss per diluted share for fiscal 2009 is expected to be in the range of $(0.66) to $(0.64). Using a non-GAAP measure, net loss per diluted share for 2009 is expected to be in the range of $(0.10) to $(0.08).
On December 03, 3009 Magma reported revenue of $29.7 million for its fiscal 2010 second quarter (nominal calendar Q3 2009), ended November 01, 2009. The $29.7 million in revenue was above the top of the range of revenue guidance given last quarter.
"Traction continues to grow for our core Talus(R) platform as well as for our newer products -- just last week Hynix announced it is standardizing on FineSim(TM) for circuit simulation, Toshiba is adopting Quartz(TM) for physical verification of advanced flash memory designs, and today we announced Exar selected Titan(TM) ADX to accelerate analog design," said Rajeev Madhavan, chairman and CEO of Magma. "Second-quarter results once again included strong positive cash flow as we exceeded our guidance ranges for revenue and all other financial metrics."
In accordance with generally accepted accounting principles (GAAP), Magma reported net income of $4.3 million, or $0.09 per share (basic and diluted), for the quarter, compared to a net loss of $(26.3) million, or $(0.60) per share (basic and diluted), for the corresponding year-ago quarter. Note: The current quarter was favorably impacted by a non-recurring net tax benefit of $7.7 million, or $0.16 per share (basic), $0.13 per share (diluted), which was primarily due to a discrete adjustment reducing the reserves for foreign taxes.
Magma's non-GAAP net income was $1.7 million for the quarter, or $0.03 per share (basic and diluted), which compares to a non-GAAP net loss of $(6.3) million, or $(0.14) per share (basic and diluted), for the corresponding year-ago quarter.
In the second quarter Magma generated cash flow from operations of approximately $3.9 million.
For Magma's next quarter (ending January 31, 2010), the company expects total revenue in the range of $29.5 million to $30.0 million. GAAP net loss per share is expected to be in the range of $(0.14) to $(0.13) and non-GAAP earnings per share (EPS) are expected to be in the range of $0.02 to $0.03.
On December 03, 2009 Mentor Graphics announced results for the fiscal third quarter 2010, ending October 31, 2009. For the quarter, the company reported revenues of $189.2 million, non-GAAP earnings per share of $.05, and a GAAP loss per share of $.28. The $189.2 million in revenue was above the revenue forecast given last quarter.
“During the quarter, we saw positive signs of recovery in the semiconductor market with semiconductor unit shipments and revenue, as well as foundry revenue and utilization, up sharply,” said Walden C. Rhines, CEO and chairman of Mentor Graphics. “The diversity of our product line continues to help us weather the difficult economic environment. Embedded software and cabling solutions are both up for the quarter. Strong results from our design-to-silicon platform, including Calibre, Olympus-SoC place and route, and Tessent silicon test products, and a recovery in our emulation business also helped drive results.”
During the quarter, the company announced that its low power RTL-to-GDSII tool flow has been included in Taiwan Semiconductor Manufacturing Company, Ltd. (TSMC) Reference Flow 10.0. TSMC also selected the Calibre® physical verification platform for its Integrated Sign-Off Flow.
In October, the company signed a definitive merger agreement with Valor Computerized Systems Ltd., a world leader in printed circuit board design manufacturing software solutions.
In August, the company closed its acquisition of LogicVision Inc., a market leader in built-in-self-test silicon test solutions. In November, the company unveiled its strategy for silicon test and yield analysis solutions incorporating both the company’s existing product line and LogicVision’s technologies under the Tessent™ brand.
“Despite the continuing challenges of the market, we saw annualized contract values of renewals in our top ten contracts increase 5% in the quarter,” said Gregory K. Hinckley, president of Mentor Graphics. “In addition, our cost control efforts are ahead of plan, with operating expenses down about 3% over the year ago third quarter.” Special charges were primarily related to headcount, acquisitions and ongoing investment banking fees.
For the fiscal fourth quarter ending January 31, 2010, the company expects revenue of about $230 million, non-GAAP earnings per share of about $.28 and GAAP earnings per share of about $.33. GAAP earnings in the fiscal fourth quarter will be relatively stronger as a portion of the tax provision recorded earlier in the fiscal year is recaptured. For fiscal 2010, the company expects full year revenues to increase one percent from fiscal 2009 to approximately $795 million, non-GAAP earnings per share of about $0.44 and a GAAP loss per share of approximately $.28. In Fiscal 2009, the company had revenues of $789 million. Cash flow is expected to be approximately $15 million for the fiscal fourth quarter and consistent with the same quarter last year. Fiscal 2010 year cash flow from operations is expected to be approximately $45 to $50 million up from $23 million in fiscal 2009.
On December 02, 2009 Synopsys reported results for its fourth quarter and fiscal year ended October 31, 2009 (aka our nominal calendar Q3 2009).
For the quarter, Synopsys reported revenue of $338.3 million compared to $352.8 million for the corresponding quarter in 2008. The $338.3 million was within the guidance range for revenue given last quarter.
Revenue for the entire fiscal year 2009 ending October 31, 2009 was $1.36 billion, an increase of two percent from $1.34 billion in fiscal 2008.
"Synopsys met or exceeded almost every goal we set at the beginning of the year, a notable accomplishment given the turbulence that characterized the economic environment," said Aart de Geus, chairman and CEO of Synopsys. "Looking forward into 2010, we intend to continue to control expenses, invest to accelerate our strong technology momentum, and focus on growing our customer relationships."
On a generally accepted accounting principles (GAAP) basis, net income for the quarter was $19.5 million, or $0.13 per share, compared to $46.4 million, or $0.32 per share, for the same quarter in 2008.
GAAP net income for fiscal year 2009 was $167.7 million, or $1.15 per share, compared to $190.0 million, or $1.29 per share, for fiscal 2008, which included a $17.3 million tax benefit associated with the settlement of an IRS tax issue for fiscal years 2000 and 2001.
On a non-GAAP basis, net income for the quarter was $49.5 million, or $0.33 per share, compared to non-GAAP net income of $62.7 million, or $0.43 per share, for the same quarter in 2008. Non-GAAP net income for fiscal year 2009 was $255.3 million, or $1.75 per share, compared to non-GAAP net income of $252.9 million, or $1.71 per share, for fiscal 2008.
Synopsys also provided its financial targets for the next quarter and its full fiscal year 2010. These targets constitute forward-looking information and are based on current expectations.
Recall that during 2009, Synopsys reached a tentative settlement with the IRS that would resolve a dispute regarding its 2002-2004 returns, primarily associated with Synopsys' acquisition of Avant!. If approved, it is expected to result in a decrease in forecasted GAAP income tax expense in fiscal 2010.
First Quarter of Fiscal Year 2010 Targets:(Quarter ending January 31, 2010):
- Revenue: $325 million - $333 million
- GAAP expenses: $269 million - $286 million
- Non-GAAP expenses: $245 million - $255 million
- Other income and expense: $0 - $3 million
- Tax rate applied in non-GAAP net income calculations: approximately 27 percent
- Fully diluted outstanding shares: 148 million - 153 million
- GAAP earnings per share: $0.23 - $0.28
- Non-GAAP earnings per share: $0.38 - $0.40
- Revenue from backlog: greater than 90%
Full-Year Fiscal Year 2010 Targets (Year ending October 31, 2010):
- Revenue: approximately $1.33 billion - $1.35 billion
- Other income and expense: $4 million - $8 million
- Tax rate applied in non-GAAP net income calculations: approximately 27 percent
- Fully diluted outstanding shares: 150 million - 155 million
- GAAP earnings per share: $1.01 - $1.20
- Non-GAAP earnings per share: $1.52 - $1.62
- Cash flow from operations: $200 million - $220 million
EDA Vendor Stock Performances
Table 3 below reveals that the combined G4 stock price easily outpaced the NASDAQ index on a percentage growth basis between July 01, 2009 and October 01, 2009, but the combined G4 fell behind the ongoing rise of the NASDAQ index since October 01.
Cadence, Magma, and Mentor stock each sported impressive percentage growth in stock price between July 01 and October 01, but on single-digit stock price bases. In the same period, Synopsys’ stock merely kept up with the percentage rise of the NASDAQ index, but SNPS started with a much larger per sharebase price of $19.66 on July 01, 2009.
Only Magma exceeded the percentage growth of the NASDAQ index since October 01, 2009. The three others fell behind the growth percentage pace of the NASDAQ index after October 01, and Cadence shares actually lost more 15% of their value by December 29 compared to October 01.
Table 4 reveals the strong Stock Market Capitalization enjoyed by Synopsys vs. the other three members of the G4, as the end of 2009 looms. Synopsys’ nearest Market Cap rival Cadence has a current Market Cap less than half that of Synopsys, and Mentor Graphics Market Cap is half that of Cadence.
Courtesy of Yahoo! Finance, the charts that follow show how each of the G4 stocks faired vs. NASDAQ over the last 12 months. Only the SNPS wavy curve of the four ends the year below the NASDAQ (^IXIC), mostly because SNPS per share price was so robust as the year began.
EDA Consortium's Market Statistics
On September 30, 2009 The EDA Consortium Market Statistics Service (MSS) announced that the EDA industry revenue for Q2 2009 was $1,125 million, a 5.6% sequential decline from Q1. On a yearly Q2/Q2 basis, EDA industry revenue declined 15.8% to $1,126 million, compared to $1,336 million in Q2 2008. The four-quarter moving average declined 13.9%.
In the second quarter of 2009 the CAE segment accounted for 40% of the total EDA revenue, IC Design & Verification for 24%, Semiconductor IP for 20%, PCB/MCM for 9.4% and Services for 7%. All product sectors suffered declines. PCB/MCM and Services each declined over 20%, the rest dropped by percentage points in the teens. See Table 8.
For the second quarter of 2009 North America accounted for 45% of total EDA revenue, EMEA and Japan for around 19% each and APAC for the remaining 16%. EMEA and Japan EDA revenue fell by over 20%, while North American and PAAC revenue fell in the area of 12%. See Table 9.
Dr. Wally Rhines, EDAC chair and chairman and CEO of Mentor Graphics, said, “This recession started with the most precipitous drop in electronics industry history. Nevertheless, the normal pattern of preserving most R&D spending has been maintained by most electronics companies. As the electronics industry recovers, and its R&D spending increases to come in line with its groilkhwing revenue, the EDA industry would be expected to recover as well.”
About the Author of this EDA Industry Commentary:
Since 1996, Dr. Russ Henke has been president of HENKE ASSOCIATES, a San Francisco Bay Area high-tech business & management consulting firm. The number of client companies for HENKE ASSOCIATES now numbers more than forty. During his corporate career, Henke operated sequentially on "both sides" of MCAE/MCAD and EDA, as a user and as a vendor. He's a veteran corporate executive from Cincinnati Milacron, SDRC, Schlumberger Applicon, Gould Electronics, ATP, and Mentor Graphics. Henke is a Fellow of the Society of Manufacturing Engineers (SME) and served on the SME International Board of Directors. He is also a member of the IEEE and a Life Fellow of ASME International. In April 2006, Dr. Henke received the 2006 Lifetime Achievement Award from The CAD Society, presented by CAD Society president Jeff Rowe at COFES2006 in Scottsdale, AZ. In February 2007, Henke became affiliated with Cyon Research's select group of experts on business and technology issues as a Senior Analyst. This Cyon Research connection aids and supplements Henke's ongoing, independent consulting practice (HENKE ASSOCIATES). Taking on an additional assignment, Dr. Henke replaced Ms. Peggy Aycinena as a contributing editor of EDAcafé Weekly in late October 2009.
Since May 2003HENKE ASSOCIATES has now published a total of eighty-five (85) independent articles on MCAD, PLM, EDA and Electronics IP on IBSystems' MCADCafé and EDACafé. Further information on HENKE ASSOCIATES, and URL's for past Commentaries, are available at http://www.henkeassociates.net. March 31, 2009 marked the 13th Anniversary of the founding of HENKE ASSOCIATES.
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