EDA Industry Update JUNE 2009 -- What did the Last Quarter Bring?

As shown in Table 3, the combined revenue performance of the five covered EDA firms for the quarter was $780 million, a decline of 7.2% from the first quarter of 2008, and a drop of 8.7% from the fourth quarter of 2008. Magma suffered the largest decline year-over-year at -38% on a lower base, followed by Cadence and Altium with declines in the neighborhood of -20%. Mentor Graphics and Synopsys delivered single digit percentage year-over-year revenue growths.

On a sequential quarterly basis, Altium was the largest percentage revenue decliner at -35% with Mentor a distant second at -20%. Magma was the only EDA vendor with a percentage increase (+11%) from the traditionally-strong fourth quarter.

Figures 1 and 2 below provide additional revenue comparisons among vendors. In Q1 2009 Synopsys exhibited the largest relative market share by far at 44%, Cadence was in second place at 26%, and Mentor was a very close third at 25%.

Turning to earnings performances in Q1 2009, Table 4 shows that the EDA group of 4 that reported quarterly income, endured a combined net loss of $38.5 million, compared to a combined net gain of $41 million in the comparable year ago quarter, and compared to a whopping combined net loss of $1,633 million in the just previous quarter.

Hello? Yes, you read the italics correctly. Read on…

For the first quarter of 2009, Cadence reported the largest Q1 2009 loss of the G4 in absolute terms (-$63.2 million), but the Q1 whopper pales in comparison to the reported net loss by Cadence of (gasp!) $1,638 million in the prior quarter! Note that the Q4 2008 loss included $1,316 million in impairment of good will. (The sad saga of Cadence in 2008 was reported in gory detail here in these EDA Industry Commentaries during 2008).

While still reporting a loss in Q1 2009, Magma showed significant earnings improvement from the just prior quarter, which itself contained a $60.8 million goodwill impairment charge.

The only vendor delivering black numbers, Synopsys enjoyed an 82% increase in Q1 2009 earnings over the same quarter last year. The slight earnings drop of almost 8% sequentially is not uncommon, as Q4 is traditionally the strongest of the EDA year.

Company by Company Q1 2009 details:

On April 16, 2009 Altium Limited reported sales and revenue results for its third fiscal quarter ending March 31, 2009. For the quarter, Altium reported sales of AU$14.58 million, an increase of 6% over the equivalent period a year ago; or sales of US$9.7 million, a decrease of 22% from the same period a year ago. For the same period, Altium reported revenue of AU$14.99 million, an increase of 13% over the equivalent period a year ago; or revenue of US$8.87 million, a decrease of 19% from the same period a year ago. Guess which currency Altium likes to use for its reports!

On a geographic basis the Americas accounted for 46% of total revenue, Europe for 28%, Asia Pacific for 11%, China for 12% and Consulting for just over 2%.

Nick Martin, CEO of Altium, commented, “The economic downturn is creating very difficult conditions for all companies, including Altium. However, we believe this also provides an opportunity to help our prospective users as they in turn assess how to stay competitive. We have already switched investment into regions showing stronger growth, particularly in China and Eastern Europe, whilst changing our direct presence and investment in the Japanese, Swiss and French regions to indirect sales channels.”

On April 29, 2009 Cadence Design Systems, Inc reported financial results for its first quarter ended March 31, 2009. Total revenue for the quarter was $206 million, a decrease of almost 24% from the first quarter of 2008 and a decrease of 9.3% from the fourth quarter of 2008. The $206 million for Q1 revenue was, however, in the middle of the range of management guidance given last quarter.

All revenue segments suffered declines in Q1 2009 compared to a year ago and compared to the just prior quarter. Product revenue in Q1 2009 was $87.5 million or 42% of total revenue. This was a drop of 37% year-over-year and a drop of 7% from the prior quarter. Maintenance revenue was $89.6 million, accounting for 43% of the total. This too was a decline of over 9% from the year ago quarter and a drop of almost 9% from the previous quarter. Service revenue was $29 million or 14% of the total. Service revenue dropped over 9% from the same quarter a year earlier and dropped almost 16% from the previous quarter.

On a geographic basis the Americas accounted for 42% of total revenue, Europe 24%, Japan 19% and the rest of Asia 15%. See more detail in Table 6.

In terms of product segments, Functional Verification accounted for 20% of total revenue, Digital IC Design for 19%, Customer IC for 26%, DFM for 9%, Systems Integration for 12% and Services for 14%. Table 7 shows only DFM exhibited gains.

Net loss for the quarter was $63 million compared to a net gain of $33 million a year earlier and a net loss of $1.6 billion in the last quarter. As stated earlier in this Commentary, that huge loss in Q4 2008 included $1.316 billion in impairment of good will.

Lip-Bu Tan, president and chief executive officer, said, “2009 is a year for Cadence to focus on execution, improve our productivity and invest in our core business. We will continue to bring to market the innovative, advanced solutions our customers have come to rely on in their design production. For example, customers using the new Virtuoso 6.1 platform report seeing a 25% to 40% improvement in productivity, and as a result, proliferation of the new platform at our top customers has nearly doubled compared to the first quarter a year ago.”

Kevin S. Palatnik, senior vice president and chief financial officer, added, “We continued to progress toward our goal of a 90/10 model, with a ratable mix above 85% in the first quarter. Revenue for the first quarter of 2009 met expectations, while non-GAAP net loss per share came in better than forecast.”

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