Cadence Design Systems, Inc. (CDNS) is widely impacted by the declining Electronic Data Automation (EDA) industry. The EDA industry appears to be slowing, and declined 10.7% year-over-year in the first quarter of 2009, according to the latest data by the EDA Consortium (EDAC). This follows the single digit growth in 2008 and a double digit growth in 2007. This decline is widely due to improper accounting issues at CDNS related to contract revenues signed during the first quarter, said EDAC.
EDAC reported that revenues declined in all regions except Asia-Pacific (APAC). By product, Computer-Aided Engineering (CAE), EDA’s largest product category, fell 18.8% year-over-year in the first quarter, while IC Physical Design & Verification revenue, the second largest EDA category, fell 5.4% year-over-year.
We don’t expect any improvement in EDA until the semiconductor market improves. More challenging economic conditions are likely to affect the semiconductor industry and flow through to the EDA market as well, although at this point, Cadence appears to be the hardest hit.
In a recent press release, Cadence announced that National Semiconductor (NSM), a developer of energy-efficient analog and mixed-signal semiconductors, has selected its Virtuoso Accelerated Parallel Simulator for their global offices. Cadence’s Accelerated Parallel Simulator Virtuoso platform will reduce design time, help performance improvement and verify large and complex analog designs.
Cadence has also unveiled its first unified TLM-driven design and verification solution and methodology to help SoC designers benefit from its transaction-level modeling (TLM). C-to-Silicon Compiler is at the center of the Cadence next-generation TLM-based system-level design and verification solution.
New product offerings and a number of new customers wins are expected to increase Cadence expects to increase customer base and market shares. But the company is losing share to Synopsys (SNPS) and is struggling in a downturn in the semiconductor cycle.
We also do not believe Cadence to outgrow its competitors, such as Mentor Graphics Corporation (MENT) and Magma Design Automation (LAVA). Additionally, the release of new products and their enhanced versions are expected to take time to generate additional revenue.
Cadence is set to announce its second quarter results on, July 29, 2009. The company’s second quarter outlook is weak, but we expect mixed results. We expect the company to exceed its revenue guidance of $205.0 million to $215.0 million but post in-line non-GAAP loss of $0.07 to $0.09 per share.
Dismal cash flows do not inspire our confident in the company’s ability to grow and show healthy fundamentals. We therefore maintain our Sell rating on the stock.
Read the full analyst report on “CDNS”
Read the full analyst report on “NSM”
Read the full analyst report on “SNPS”
Read the full analyst report on “MENT”
Read the full analyst report on “LAVA”
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