Cadence, (Nasdaq: CDNS) continued to be bothered with the woes of the EDA industry. Q1 results reported last week saw the quarter’s revenue drop by 21% annually and and 37% sequentially to $287 million. However, the revenue still beat market expectations of $285 million. EPS for Q1 met analyst expectation of $0.04, recording a fall of 85% from $0.26 in Q1 of 2007.
Segment wise, Product revenue contributed $156 million, maintenance revenue contributed $99 million and services revenue brought in $32 million in the quarter.
The troubled economic conditions affecting the Americas became evident with
America revenues falling to only 40% of overall revenue. European and Japanese contributions increased to 22% and 26% respectively while the rest of Asia contribution remained at 12%.
During the quarter, they repurchased 19.8 million shares of stock at a total cost of $216 million.
Going forward, Q2 revenue is expected to be in the range of $310-$320 million and EPS in the range of $0.13 to $0.15. For the year 2008 revenue is projected to be $1.49 – $1.54 billion with EPS of $1.14-$1.22.
I have written earlier about the need to provide a seamless “Chip Infrastructure Portfolio”. One such small step taken by Cadence in this direction was its acquisition of Chip Estimate Corporation. Chip Estimate Corporation is a leader in IC planning. With its acquisition, Cadence hopes to improve its customers’ productivity as they would now be able to gauge key factors like product cost, power dissipation and performance at the outset of the development project. A small step in the direction of Virtual Prototyping discussed earlier, but still far, far from the promised land.
However, much to my dismay, the company continued to place bets on longer duration “all-you-can-eat contracts”. Their average contract duration was marginally higher to 3 to 4 years as they revel in the belief that in present economic conditions, customers prefer to use the same technology for longer. Even though, they have their revenue stream more predictable, it does take the punch out of technology breakthroughs, disruptive innovations, and associated upsides. And the practice has basically sent the rest of the EDA industry, especially smaller players, reeling.
Cadence still isn’t taking any bold step in fighting out the EDA worries. One company that they should take a very close look at is BlazeDFM, a company that is making a direct impact on yield, and has partnered with TSMC to actually participate in customers’ gains.
The stock is also not doing too much. The price fell marginally by $0.10 to $11.34.