Commentary:

EDA Industry Update August 2005 -- What did the Last Quarter Bring?

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by Dr. Russ Henke and Dr. Jack Horgan
Henke Associates

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In May 2003, August 2003, December 2003, February 2004, May 2004, August 2004, December 2004, February 2005 and May 2005 EDA Commentaries by the authors (published on EDACafe.com), 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 selected companies were Altium, Ansoft, Cadence, Magma, Mentor Graphics, Nassda, Synopsys, Synplicity and Verisity.

This August 2005 report covers their performances for the nominal second quarter 2005.

In this issue, EDA News Highlights are followed by the revenue & earnings performances of the selected group of EDA players for Q2 2005, and then EDA vendor by vendor details. A comparison of the quarter's results for the Top 3 EDA companies vs. the Top 3 MCAD entities is provided next. EDA Vendor stock prices are discussed along with economic trends. Finally, individual EDA vendor forecasts for Q3 2005 are provided. Enjoy!

Note: As part of continuing EDA industry consolidation, two previously-selected EDA vendors, namely Verisity and Nassda, have been acquired by others and hence have been dropped from direct coverage in the EDA Industry quarterly update.

Replacement nominations for names of publicly traded EDA entities for future coverage are being accepted. Send an email to Email Contact.



EDA News Highlights

On July 11, 2005 Cadence announced that the company has successfully completed the transition of executive leadership to Mike Fister, president and chief executive officer, which commenced with Fister's appointment in May 2004. Ray Bingham announced his retirement from the company as of July 31, 2005, and is stepping down as executive chairman and as a member of the Cadence Board of Directors.

Douglas Miller, Synplicity senior vice president of finance and chief financial officer, has decided to leave the company after seven years to join a private company outside of the electronic design automation (EDA) industry. In May 2005 Synplicity promoted Andrew Dauman to vice president, worldwide engineering.

During the quarter Ansoft introduced major releases of multiple products: HFSS, Optimetrics and SIwave.

In August 2005, the Semiconductor Industry Association (SIA) reported that the worldwide sales of semiconductors declined slightly (0.5%) in June compared May. The same trend holds for year-over-year and quarter-over-quarter comparisons. Global sales of semiconductors in the second quarter of 2005 amounted to $53.9 billion compared to $55.1 billion in the first quarter of 2005.

SIA President George Scalise said, "The nominal decline in global semiconductor sales in June was caused in part by inventory adjustments in the distribution channel and price attrition in DRAMs." He added, "We are encouraged by the fact that sales for the first half of this year were up by 6.5 percent over the same period of 2004. The strongest growth in 2004 occurred in the first half of the year. In contrast, we expect the strongest growth in 2005 will occur in the second half of the year."

How did the selected EDA Vendors fair during the Second Quarter of 2005?

As shown in Table 2, the combined revenue performance of seven EDA vendors was $805 million, a 1% decline relative to the $811 million a year earlier, and a 3% increase sequentially. On a year-over-year basis, Synopsys had the largest quarterly percentage decline at nearly 11%. Altium and Mentor suffered declines in the high single digits. On the positive side, Ansoft led the group with 17% year-over-year growth followed by Cadence at 12%.

On a sequential basis, Altium was way out front with 47% growth. Cadence and Magma managed high single digit growth. Ansoft revenue dropped 32% from the prior quarter (its fourth quarter of fiscal 2005). Mentor also declined.







Figures 1 and 2 above provide additional revenue comparisons among vendors. Cadence has the largest market share at 40% followed by Synopsys at 31% and Mentor at 19%. The big three combine for 90% market share among the players listed.


Turning to earnings performances in Q2 2005, Table 3 shows that the EDA group of six (Altium did not report earnings) reported a combined net income of $13 million. This represents a 22% improvement compared to the $10.8 million same quarter a year earlier and a considerable turnaround from the loss of $8.7 million in the prior quarter. However, $13 million still represents a meager 1.6% Return On Sales for the Group of Six. Mentor was the only firm to have a net loss in all three quarters considered. Magma was the only other vendor to have a loss in the recent quarter. Synopsys led all firms with net income of $17 million in Q2 2005, but this was a large drop from the $42 million achieved a year earlier.



Company by Company Q2 2005 details:


On July 12, 2005 Altium Limited reported preliminary results for 2004/2005 financial year. Preliminary revenue for the June quarter was AU$12.5 million, bringing the preliminary total for the full 2004 fiscal year to AU$40.1 million. Sales booked for the full year showed an increase of 4% over the previous financial year in local currency terms, but this was down 1% on the previous year in Australian dollars.


Nick Martin, Altium CEO, said, "Despite being profitable in the second half, we are disappointed with the level of our financial performance this year. Looking to the future and following on from the recent launch of Altium Designer, our expectations are for a significant improvement in our results in the coming quarters."


On August 18, 2005 Ansoft Corporation announced results for its first quarter of fiscal 2006, the period ending July 31, 2005. Total revenue for the quarter was $14.8 million, an increase of 17% from the same quarter a year earlier but a drop of 32% from the just prior quarter. The $14.8 million compares to a forecast of between $14.5 million and $15 million given last quarter. License revenue at $6.8 million, accounting for 46% of total revenue, was up 11% year-over-year but down 52% sequentially. Service revenue at $8 million, accounting for 54% of total revenue, was up 22% year-over-year and up 8% sequentially.

North America accounted for 39%, Asia 44% and Europe 17%. Eight out of the top ten accounts were in Asia, seven in Japan. The High Performance segment accounted for 85% of revenue and the EM segment for 15%.

Net income for the quarter was $1.1 million, nearly 40 times the $30K net income a year ago but down 75% from the $4.8 million in the previous quarter.

Ansoft had several product releases during the quarter: HFSS V10, Optimetrics V4, SIWave V3 as well as a new Distributed Analysis option for use with HFSS v10, Q3D Extractor v7 and Maxwell 3D v11. The firm also announced HFSS support for 64 bit version of MS XP.

Nicholas Csendes, Ansoft's President and CEO, said, "We had an excellent first quarter with strong growth in revenues and earnings. For the balance of the fiscal year, we expect continued revenue growth of around 10-15% with earnings increasing around 25% over the last fiscal year."


On July 27, 2005 Cadence Design Systems, Inc. reported financial results for the second quarter, the period ending June 30, 2005. Total revenue for the quarter was $321 million, an increase of 12% over the $287 million reported for the same period last year and an increase of 10% over the $292 million in the prior quarter. The $321 million was above the high end of the projection made last quarter.

Product revenue was $201 million, or 63% of total revenue, a year-over-year increase of 22% from $165 million and a 16% increase over the $173 million in the prior quarter. Maintenance revenue was $90 million, or 28% of total revenue, a 6% year-over-year increase and a 3.5% sequential increase. Service revenue was $29 million or 9% of total revenue, a 21% drop year-over-year and a 9% drop sequentially. Revenue from the rest of Asia was basically flat compared to last year but up 23% sequentially.

North America accounted for 49% of total revenue, Europe 17%, Japan 25% and Asia 9%. North American revenue was down 4% year-over-year but up 17% sequentially. European revenue was flat year-over-year but up 17% sequentially. Revenue from Japan essentially doubled year-over-year while declining 9% sequentially.

Table 5 below presents the breakdown by product segment. The original data provided by Cadence was in terms of percentages of total revenue. The Custom IC segment grew over 40% both year-over-year and sequentially.


Net income in the quarter was only $483,000 versus $3.8 million in the second quarter of 2004 and $1 million in the first quarter of 2005.

Mike Fister, president and CEO of Cadence, said, "We saw good growth in both our global accounts and geographic regions during the second quarter, confirming for us that both our technologies and our strategies are well positioned to help all types of customers meet their market demands. We are looking forward to CDNLive!, our new expanded user group meeting in September, where we will share more about our new technology and products with our customers."


On July 28, 2005 Magma Design Automation, Inc. reported results for its first quarter of fiscal 2006, the period ending July 3, 2005. Total revenue was $39 million, a record and at the high end of guidance. This was also an increase of 8% over the $36 million in the same quarter a year ago, and an increase of 9% from the prior quarter. License revenue of $34 million, or 87% of total revenue, was up nearly 10% from the $31 million last year and up 12% from the $30 million in the prior quarter. Revenue from services of $5 million, or 13% of total revenue, was down 4% year-over-year and down 11% sequentially. One customer accounted for more than 10% of revenue in the quarter.

North America accounted for 72% of total revenue, Europe 11%, Japan 11% and the rest of AP 6%. On a year-over-year basis, North America was up 23%, Europe down 13%, Japan down 24% and rest of AP down 15%.

Revenue from prior period backlog of $24 million was 62% of total revenue, the lowest quarterly percentage in a year. The current period new contract revenue of $15 million was 38% if total revenue.

Net loss for the quarter was $23,000, a considerable improvement from the loss of $2.5 million in the same quarter a year earlier and way better than the loss of $5.6 million in the just prior quarter. The current quarter includes $7.5 million in other income. Litigation expenses in the quarter were $4.5 million, most of which ($3 million) was related to the Synopsys suit.

On July 6 Magma announced it has licensed IBM technology for physical synthesis and routing that was developed through IBM's long-term relationship with the Research Institute of Discrete Mathematics at the University of Bonn in Germany. This agreement begins an ongoing relationship in physical synthesis and routing addressing deep-submicron design, including lithography-aware routing, among Magma, IBM and the University of Bonn. IBM and Magma also announced they have correspondingly extended the scope of their 2004 patent cross-licensing agreement related to EDA patents.

On May 3, 2005 Magma announced it has repurchased, in privately negotiated transactions, $44.5 million face amount (or approximately 30% of the total) of the company's Zero Coupon Convertible Subordinated Notes due May 2008 at an average discount to face value of approximately 22%. Magma spent an aggregate of approximately $35 million on the repurchases. This will result in a net pre-tax gain of approximately $9 million from the repurchase of the convertible subordinated notes reported in Magma's GAAP financial statements.

Rajeev Madhavan, chairman and CEO of Magma, said, "It was a good quarter for Magma - all key financial metrics finished in the high end of our target ranges and we completed the rollout of the new products developed as part of our Cobra initiative. Early feedback from users of our latest products has been very positive. I'm very pleased with our execution in the first quarter in terms of both financial performance and product delivery."


On July 29, 2005 Mentor Graphics Corporation reported results for the second quarter, the period ending June 30, 2005. Total revenue was $155 million, down 8.7% from $170 million in the second quarter of 2004, and down 5.8% from the first quarter of 2005. The $155 million was right on the forecast target given last quarter. System and software revenues were $81 million, or 53% of total revenue, a drop of 17% year-over-year, and an 11% drop sequentially. Service and support revenue was $73 million, or 47% of total revenue, an increase of 3% year-over-year and a 1% increase sequentially.

Net loss for the quarter was $6.8 million, a considerable improvement over the net loss of $33 million a year earlier, and the net loss of $4.3 million in the prior quarter. This included $5 million In-Process R&D charge for acquisition of design for manufacturing technology. However, the current quarter loss also includes a $12 million tax benefit, without which the net loss would have $19 million.

During the quarter, the company launched the Questa verification platform, a single product with built-in support for testbench automation, coverage-driven verification, assertion-based verification, and transaction-level modeling. The company also released a new version of its Catapult C Synthesis product that improved its ability to use high-level, faster verification methods.

Walden C. Rhines, CEO and chairman of Mentor Graphics, said, "Despite weaker bookings, there were many signs of an improved business climate in the quarter. New customer logo additions were up nearly 20% over the second quarter of 2004, up both worldwide, and in every region. Bookings from new customers doubled from the year ago quarter, as well. During the quarter, we saw good bookings growth in most of our new and emerging products. Automotive electrical system design products more than doubled over the second quarter of 2004, and design data management, Catapult C Synthesis, embedded and FPGA tools all did well during the quarter."

Revenue by region was 45% Americas, 30% Europe, 15% Japan and 10% Pacific Rim. Bookings in the Pac Rim were characterized as 'strong' (+35%) while other regions were described as 'uniformly weak' (down 10% to 20%). By product line, revenue was 30% scalable verification, 25% integrated system design, 25% design to silicon, and 20% new and emerging products. Term licensing was 45% of total revenue, subscription 20% and perpetual 35%.

Greg Hinckley, president, said, "Second quarter booking,s though vastly improved from Q1, were 15% down year-over-year and versus expectations. Disappointing, although Mentor lost no business, slipped no significant deals and saw multiple indications of strength particularly in terms of new products and new customers."

It seems that as more and more of our business converts to term and subscription model, more of our customers want to match lease commitments to their fiscal year. As a result our business which has always been quarter end driven is becoming increasingly seasonal and Q4 focused. Fourth quarter bookings of 2004 and those forecasted for Q4 2005 are 40% of total annual bookings. That's up significantly from 30% to 35% we experienced in years prior."


On August 17, 2005 Synopsys announced the results for the third quarter of fiscal 2005, the period ending July 31, 2005. Total revenue for the quarter was $251 million, a 3% increase compared to the second quarter of fiscal 2005, but an 11% decrease from $282 million in the third quarter of fiscal 2004. The $251 million was at the high end of Synopsys' revenue target. For the third straight quarter, more than 90% of revenue came from backlog.

On a year-over-year basis, Time Based License (TBL) revenue, which accounted for 75% of total revenue and 92% of product revenue, grew 15%, while Upfront License revenue which accounted for 6% of total revenue and 8% of product revenue, declined 75%. Service and other revenue declined 15%. On a sequential basis, TBL grew 8%, while upfront licenses declined 6% and services declined 9%.

On a geographic basis, North American revenue at $134 million accounted for 53% of total revenue, a 15% drop year-over-year but a 4% increase sequentially. European revenue at $40 million, accounting for 16% of total revenue, was down 12% year-over-year and flat sequentially. Japanese revenue also at $40 million, accounting for 16% of total revenue, dropped 13% year-over-year and dropped 2.5% sequentially. Revenue from the rest of AP at $37 million, accounting for 15% of total revenue, was up 17% year-over-year and 10% sequentially.


In the quarter Galaxy Design accounted for 55% of total revenue, Discovery Verification for 22%, IP for 7%, DFM for 11% and Services for 5%.

Net income for the quarter was $17.3 million compared to $41.8 million in the same quarter a year earlier and compared to a loss of $5 million in the previous quarter. Third quarter fiscal 2005 results include a $33 million litigation settlement received in connection with the acquisition of Nassda Corporation, which closed in May 2005.

Synopsys has received a report from the IRS claiming that the firm owes an additional $477 million in taxes, plus interest, with respect to fiscal years 2000-2001. This claim relates primarily to the establishment of an Irish subsidiary, which sells products outside North America. Synopsys has filed a protest last month and will go through the appeals process, which could take up to several years to resolve.

Aart de Geus, Chairman and Chief Executive Officer of Synopsys, said, "I am very pleased to report that in our third quarter, we continued in the strong direction set in the first half of the year, making excellent progress on our objectives to increase revenue, improve operating margin and grow earnings under a more predictable and stable business model."


On July 20, 2005 Synplicity Inc. announced results for the second quarter, the period ending June 30, 2005. Total revenue was $15.2 million, a 7% increase from revenue of $14.2 million for the same quarter a year ago and a 4% sequential increase from revenue of $14.6 million for the preceding quarter. The $15.2 million compares to guidance of approximately $15 million given last quarter. License revenue for the quarter was $8.4 million, or 55% of total revenue, up 4% from $8.1 million last year and up 5% from the prior quarter. Maintenance revenue was $6.8 million, or 45% of total revenue, up 10% year-over-year and 3.4% over the prior quarter. During the quarter, approximately 70 new customers were added.

Bookings from time-based licenses represented 26% of product bookings for the second quarter of 2005, decreasing slightly from 27% of product bookings for the same quarter a year ago. From a geographic perspective, product bookings for the quarter were 45% from North America, 19% from Europe, 21% from Japan, and 15% from the rest of Asia. Bookings year over year in the quarter were up in all regions except Japan, where bookings were flat. Net income for the quarter was $921,000, nearly double the $452,000 in the same quarter a year earlier and up 80% sequentially.

Douglas Miller, Synplicity senior vice president of finance and chief financial officer, has decided to leave the company after seven years to join a private company outside of the electronic design automation (EDA) industry. In May Synplicity promoted Andrew Dauman to vice president, worldwide engineering.

Gary Meyers, President and CEO, said, "In the second quarter, we continued to grow revenues and profits. In the FPGA line of business we had strong sequential and year over year bookings growth of the Synplify Pro and Identify product lines. We also had more than 100 percent year over year bookings growth for the structured ASIC product line and sold a record number of structured ASIC licenses. As we look to the remainder of 2005, we are focused on continuing to drive growth and profitability".



EDA versus MCAD

The detailed quarterly performances of a selected group of public MCAD Vendors has been provided in the authors' August 2005 MCAD Commentary recently published on MCADCafe.

The three top mechanical CAD companies (Autodesk, Dassault Systemes and UGS) sported revenues of $875 million in Q2 2005, 20% more than the top three EDA companies (Cadence, Synopsys and Mentor Graphics). The MCAD vendors also generated 9 times the amount of earnings. MCAD earnings were 11.5% of revenues compared to 1.5% for the EDA vendors. See Table 7 below.


Keep in mind that Autodesk sells its products predominantly through valued added resellers and distributors. Dassault Systemes sells predominantly through IBM and its Business Partners and in some instances, notably SolidWorks, through VARs. Thus, if one were to count actual end user purchases of the latter MCAD products, the combined MCAD revenue total would raise the Big 3 MCAD dollar total substantially. On the other hand, Autodesk has not-insignificant revenue outside MCAD in AEC, GIS and Media/Entertainment.

The comparison of earnings across the two industries is also difficult general due to a plethora of one-time charges associated with acquisitions. The earnings comparison for UGS is further complicated by purchase accounting adjustments related to its Venture Capital buyout from EDS.



EDA Vendor Stock Performance

As shown in Tables 8 and 9 and Figure 3 below, the combined stock prices for the EDA vendors were down 21% in absolute dollars and down 14.5% average percentage change from the same quarter last year. Ansoft was the only EDA vendor to improve (58%) relative to last year. Cadence and Synopsys kept their drop below 10% while the others dropped between 34% and 56%. On as sequential basis the combined stock was down 14% in absolute dollars and down 9.5% average percentage change. Altium remained flat. Magma and Mentor Graphics had losses approaching 30%. Ansoft loss was barely into double digits, while the others had single digit percentage losses. During the same periods the major stock indexes averaged slight growth.




The recent combined poor stock performance of the selected EDA vendors, parallels the difficulty being encountered with recent worldwide economic & geopolitical conditions.

For example, Wall Street retrenched August 12 as the US trade deficit again widened. Investors were displeased when the Commerce Department reported that the trade deficit, the imbalance between what America sells abroad and what it imports, is running higher than last year's all-time record. The US trade deficit rose to $58.8 billion in June, an increase of 6.1% from the May deficit of $55.4 billion.

Meanwhile, China's trade surplus with the rest of the world widened to $10.4 billion in July.

Oil and gasoline prices have risen steadily and ruthlessly. Crude oil futures hit new records on Friday August 12, 2005. A barrel of light crude closed at $66.86, up $1.06 on that day alone, on the New York Mercantile Exchange.

More than half the deterioration of the US trade deficit in June 2005 reflected America's surging foreign oil bill, which hit a record high of $19.9 billion, an increase of almost 10% percent from May. Analysts say climbing oil prices will send that figure higher in coming months.

The stock market has been watching oil prices obsessively, sorely afraid that still higher energy costs will significantly lower consumer spending and increase business expenses. "The Fed raising interest rates at the same time oil is going up is like pumping the brakes twice," said Stephen Wood, portfolio strategist at Russell Investment Group. Almost two-thirds of those surveyed for an AP-AOL poll expect fuel costs will cause them financial hardship in coming months, while in April, only half felt that way. On August 12, gas futures were trading up 4 cents at $1.99 on the New York Mercantile Exchange; the average price of a gallon of regular gasoline was more than $2.40 per gallon at week's end, compared with $1.86 a year ago, according to the auto club AAA. In California, gas prices are far higher than the national average. US citizens who are not investors are even more burdened, as fuel bills become a larger and larger part of their weekly budgets.

The recently-signed US Energy Bill missed a critical opportunity to direct auto companies to improve fuel mileage ratings. Many car companies have used most of the technological advances of the last 20 years to make cars heavier and more powerful, rather than more fuel-efficient. Congress even rejected the idea of rating tires for fuel efficiency. For its part, the White House blocked an amendment that would have required the president to find ways to cut oil use by one million barrels a day by 2015 - on the grounds that it might have actually required imposing better fuel economy on carmakers. Except for the temporary summer program of offering selected cars at employee discount prices with rebates to all consumers, we have seen the domestic car companies lose market share steadily for many consecutive quarters.

The US administration and Congress seem to learn nothing from other countries. "During the 1973 Arab oil embargo, Brazil was importing almost 80% of its fuel supply," notes Gal Luft, director of the Institute for the Analysis of Global Security. "Within three decades it cut its dependence by more than half. During that period the Brazilians invested massively in a sugar-based ethanol industry to the degree that about a third of the fuel they use in their vehicles is domestically grown. They also created a fleet that can accommodate this fuel." Half the new cars sold this year in Brazil will run on any combination of gasoline and ethanol. "Bringing hydrocarbons and carbohydrates to live happily together in the same fuel tank," Luft added, "has not only made Brazil close to energy independence, but has also insulated the Brazilian economy from the harming impact of the current spike in oil prices."

As Tom Friedman pointed out in the New York Times on August 5, "The new energy bill includes [some meager] support for corn-based ethanol, but, bowing to the dictates of the US corn and sugar lobbies (which oppose sugar imports), it ignores Brazilian-style sugar-based ethanol, even though it takes much less energy to make and produces more energy than corn-based ethanol. We are ready to import oil from Saudi Arabia but not sugar from Brazil."

After deliberately blocking efforts in Congress for higher fuel economy standards to be included in the recently signed Energy Bill, the Bush administration waited until weeks later to then "propose" new standards for SUVs and minivans on August 23, 2005. Of course, the new proposal will take another year to get implemented, if it ever does. The so-called new proposal would set different mileage goals for six sizes of vehicles, replacing the current single standard for all light trucks.

Administration officials say the regulations would result in more fuel savings than any previous increase in efficiency standards for larger vehicles. Transportation Secretary Norman Y. Mineta said the rules would save 10 billion gallons of gasoline and "result in less pain at the pump for motorists, without sacrificing safety." But environmentalists say the complex proposal adds up to little real change and continues to reward Detroit for building bigger vehicles.

"The proposal is almost embarrassing in terms of its [miniscule] effect on fuel consumption," said Eric Haxthausen, an economist with Environmental Defense of Washington. He called the 10 billion gallons of fuel savings a "weak yardstick" because it would be spread over as long as 15 years. Last year alone, for instance, US drivers consumed nearly 140 billion gallons of gas, according to federal Energy Information Administration. "We can and should do better," Haxthausen said.

Critics say the new rule would actually encourage companies to make bigger vehicles that are less fuel efficient! For example, the Subaru Outback, which is in the smallest class of vehicles, could be made less than an inch wider and longer and move up into the next size grouping, thereby lowering its fuel economy requirement, said David J. Friedman, research director for the clean vehicles program of the Union of Concerned Scientists. "One of the fundamental problems with the system is automakers can add size, in some cases only a tiny amount, and meet a dramatically lower standard," he said.

The new Bush measure comes at a time when US drivers are coping with skyrocketing gas prices and correctly blaming Bush himself for their plight. Combined with IRAQ and Bush's other problems, complaints about fuel prices are ruining Bush's approval ratings even further. A nationwide poll released Monday August 22, 2005 by the American Research Group showed Bush's approval rating at 36% -- a new low that puts him in the unhappy company of his father just before his 1992 loss to Bill Clinton and Jimmy Carter before his loss to Ronald Reagan. Antiwar demonstrators dog Bush at his ranch and at every stop on the road during his extended vacation. As of August 24, 2005, at least 1,874 members of the US military had died in IRAQ since the beginning of the war in March 2003, according to an Associated Press count.



EDA Vendor Forecasts for the nominal Q3 2005


Altium did not provide a forecast. The 6-vendor combined forecast calls for 8.3% year-over-year revenue growth but only 1% relative to last quarter. All the firms are projecting year-over-year growth. On a sequential basis Ansoft is particularly bullish projecting nearly 20% growth while the next highest is Synplicity at 4%.



Detailed EDA Vendor Financial Forecasts for nominal Q3 2005

Altium did not provide guidance for the next quarter.

As guidance Ansoft is expecting revenue in the range $17.5 million and $18 million, compared to $14.8 in the quarter just completed and $15.9 in the same quarter a year ago.

For the third quarter of 2005, Cadence expects total revenue in the range of $320 million to $330 million, compared to $321 million in the quarter just completed and compared to $301 in the third quarter of 2004. For the full year 2005, the company expects total revenue in the range of $1.275 billion to $1.315 billion, versus $1.2 billion in 2004.

For Magma's fiscal 2006 second quarter, ending Oct. 2, 2005, the company expects total revenue in the range of $37 million to $41 million. This compares to $39.8 million in the quarter just completed. Litigation expenses for the year are expected to be $8.5 and $10 million related to Synopsys.

As guidance Synopsys expects revenue in the fourth quarter of fiscal 2005 to be in the range of $248 million to $258 million. This compares to revenue of $252 million in the quarter just completed. For fiscal 2005 Synopsys expects revenue between $985 and $995 million compared to revenue of $1092 million in fiscal 2004.

For guidance Synplicity expects revenue in the third quarter to be approximately $15.8 million, compared to $15.2 million in the quarter just completed and $14.1 million in the third quarter of 2004. Revenue for 2005 is expected to be approximately $62 to $63 million, an increase from prior guidance and up from $57 million for 2004.

EDACafe.com tracks the financial performance of some seventeen (17) public companies across the broader electronics tools market, from which we had arbitrarily selected nine (9) to represent EDA vendors in the software & programming industry.

Taken together, three of these EDA companies (Cadence, Mentor Graphics, and Synopsys) represent a dominant 85 to 90 percent of the total revenue in this grouping, and each of these three companies offers a wide array of software products and services.

The remaining six (6) EDA public companies selected - Altium, Ansoft, Magma, Nassda, Synplicity, and Verisity - offered specialized software/services products in specific EDA niches. Combined, they generate the remaining 10 to 15 percent of the revenue of the nine companies originally considered here. Not infrequently, some of these six smaller companies partner with one or more of the Big Three (Cadence, Mentor, Synopsys) to provide end-customers with broader solution suites. (Of course, the possibility always remained (and remains) that one or more of the smaller companies could become acquisition candidates for the Big Three as well - see reference to Nassda and Verisity above).

The collective annual revenue of the originally-selected nine EDA companies worldwide was just north of $3 billion, a total which compares favorably to the combined ~$4 billion in annual revenue created by the eight MCAD companies covered in May 2003 and the nine MCAD companies covered quarterly since August 2003. However, even the pooled ~$7 billion in revenues of both of the selected MCAD and EDA company groupings pales in comparison to the $190 billion or so spent globally on an annual basis across all categories of software.

As with MCAD software, however, the importance of the EDA software niche lies in the leverage it provides to users applying the tools. EDA helps to create the electronic integrated circuits, microprocessors, memories, boards, MCMs, computers, PDAs, cell phones, automotive electronics and avionics, smart appliances, and other such electronic systems now clearly omnipresent in our everyday lives. Indeed, most of products mentioned above are electromechanical - demanding a smooth merger of EDA and MCAD software tools (still an objective yet to be fully realized).

Both MCAD and its slightly more youthful companion industry of EDA are arguably responsible for enabling virtually all contemporary design - analysis - manufacturing industries - industries which are key to creating real productivity and national wealth in every modern economy.

Note: Lawsuits; acquisitions of outside public & private companies; acquisitions of intellectual property; purchases of other assets; strategic changes in pricing and software license/lease practices; and/or other similar events frequently affect both the reported revenues and GAAP net income of all companies. Both EDA and MCAD companies are no strangers to these many and varied actions. Many of these "non-operating" company activities lead to entries "below the Operating Income line". Often these entries -- such as integration costs, in-process R&D, amortization of intangible assets & deferred comp, interest income, pro or con income tax effects, etc - can make large differences between pro-forma net income and GAAP net income.

Nevertheless, these impacts, positive or negative, are almost always the results of explicit employee actions and/or management decisions designed to supplement organic revenue growth in revenues, in earnings, or both. Accordingly, both the gain and the pain must be borne, in one accounting period or another. Accordingly, total revenues, GAAP net income and GAAP Earnings Per Share (EPS) are universally accepted measures to analyze fairly the relative and absolute performances of most private and public companies.



EDA Consortium's Market Statistics
On June 13, 2005 the EDA Consortium released its latest Market Statistics Service report for the overall EDA Industry for Q1 2005 (Tables 11 & 12).

During 1Q 2005 CAE accounted for 47% of industry revenue, IC Physical Design & Verification for 29%, PCB/MCM 9%, Semiconductor IP 8% and Services 8%


Walden C. Rhines, chairman of the EDA Consortium and chairman and CEO of Mentor Graphics Corporation., said "The industry continued to tread water in the first quarter. Continued weakness in North America offset the mild improvements in Japan and the Pacific Rim."

During Q1 2005 North America accounted for 45% of industry revenue, Europe 18%, Japan 24% and ROW 12%.


In June the EDA Consortium appointed John Bourgoin, CEO and President of MIPS Technologies, Inc. to its board of directors to serve the organization through April 2006.

The EDA Consortium is the international association of companies that provide tools and services that enable engineers to create the world's electronic products. EDA is the critical technology used to design electronics for the communications, computer, space technology, medical and industrial equipment and consumer electronics markets among others.

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About the Authors:

Since 1996, Dr. Russ Henke has been president of HENKE ASSOCIATES, a San Francisco Bay Area high-tech business & management consulting firm. During his corporate career, Henke operated sequentially on "both sides" of 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 Fellow of ASME International. An affiliate of the HENKE ASSOCIATES team since 2001, LA-based Dr. Jack Horgan co-authored this article. Jack's career has included executive positions at Applicon, Aries Technology, CADAM and MICROCADAM, as well as a stint at IBM. Since May 2003 the authors have now published a total of thirty-three (33) articles on MCAD, PLM, EDA and Electronics IP on IBSystems' MCADCafe and EDACafe Further information on HENKE ASSOCIATES, and URL's for past Commentaries, are available at http://www.henkeassociates.net.