SAN FRANCISCO Burdened by more than $50 million in charges, including nearly $30 million in acquisition-related charges, Cadence Design Systems Inc. posted a nominal second quarter profit of $500,000 despite a 12 percent surge in year-over-year revenue.
Cadence Wednesday (July 27) reported second quarter revenue of $321 million, up from the $287 million that the company reported for the same period of 2004. On a sequential basis, second quarter revenue was up nearly 10 percent from the $293 million that the company reported for the first quarter.
The net income of $500,000, based on generally accepted accounting principles (GAAP), was down substantially from the $4 million GAAP net income that the company reported for the same period a year ago and the $1 million GAAP net income that it reported for the first quarter.
Much of the acquisition-related expenses pertained to the company's acquisition of Verisity Ltd., which closed in April.
Cadence executives credited broad product and regional strength for the quarterly revenue growth. The quarter was particularly strong in the North America and Japan regions, they said, and across the functional verification, digital IC design and custom IC design product groups.
Mike Fister, Cadence president and CEO, said the company was benefiting from a "waterfall" effect, resulting in proliferation of its Encounter digital IC design platform from customers' most complex to less complex designs. Because the platform is aimed at leading-edge designs, Fister said, companies are adopting it for leading-edge products first and then, ultimately, porting it to less complex designs as well.
Cadence (San Jose, Calif.) is also benefiting from customers' concern about verification challenges, Fister said, which has become a top priority as the time spent performing it and its importance within the overall design flow escalate.
"Customers are acknowledging the completeness of our verification solution with their purchases," said Bill Porter, Cadence senior vice president and chief financial officer.
On a non-GAAP basis, excluding amortization of acquired intangibles, deferred compensation, restructuring and other charges, Cadence reported second quarter net income of $53 million, or 17 cents per diluted share, up more than 26 percent from the $42 million, or 14 cents per diluted share, that the company reported for the same period last year.
Though clearly pleased with the company's performance during the quarter, both Fister and Porter acknowledged pricing pressure created by a very competitive business environment.
"In the areas where we have less [product] differentiation, it's tough," Fister said. "It's aggressive out there. But the breadth of our product line favors us."
Porter said Cadence has been moving away from the standard three-year licensing agreements offered by EDA vendors toward a strategy of "continually selling to customers what they need when they need it," which is expected to reduce cyclicality.
Cadence said it expects third quarter revenue to be in the range $320 million to $330 million. Third quarter GAAP earnings per fully diluted share are expected to be in the range of 5 to 7 cents, the company said.
For the full year, Cadence said it expects total revenue in the range of $1.27 billion to $1.31 billion. On a GAAP basis, net income per fully diluted share for fiscal 2005 is expected in the range of 21 to 27 cents, the company said.