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EDA Players At Annual Highs

Posted on Tuesday, Dec 14th 2010

Gartner forecasts worldwide semiconductor revenue for 2010 to increase 31.5% over the year to $300 billion. In 2011, growth is expected to slow significantly to 4.6% to $314 billion. During the year, the memory segment is expected to post the strongest growth, with revenues increasing 49.8%. According to the report, smartphones, mobile PCs, and media tablets will help fuel semiconductor growth. Semiconductor revenue from media tablets will increase from $2.4bn in 2010 to $17.8 billion in 2014, and revenues from the mobile phones will grow 23% over the year in 2010 to $48.7 billion and another 13.6% in 2011 to $55.4 billion. IDC also projected single-digit growth for the industry in 2011 with semiconductor revenues projected to grow 9% over the year to $302 billion in 2011. According to IDC, tablets, e-readers, and other such consumer electronics will help drive consumer semiconductor revenues increase 10% over the year in 2011. Amid such positive numbers, the leading EDA players have shown encouraging results.

Synopsys’s Financials
In Q4 Synopsys’s (NASDAQ:SNPS) revenues increased 11% over the year to $375.5 million with EPS of $0.39. The market was expecting revenues of $355.6 million with EPS of $0.39. For the year, revenues remained flat at $1.38 billion with EPS growing from $1.15 a year ago to $1.56.

For the current quarter, the company projects revenues of $360 million–$368 million with EPS of $0.38–$0.41. The market was expecting revenues of $362.5 million with EPS of $0.41 for the quarter. For fiscal 2011, Synopsys projected revenues of $1.50 billion–$1.53 billion and EPS of $1.67-$1.77 compared with the market’s projections of $1.47 billion in revenues and EPS of $1.75.

Synopsys’s Acquisitions
Synopsys continued to acquire smaller players in the market and recently added Optical Research Associates to their portfolio to enter the solid-state lighting market. Optical Research Associates was a privately held provider of optical design software and optical engineering services with annual revenues estimated at over $9 million. Synopsys is hoping to expand their reach into semiconductor lithography equipment and camera market through the acquisition.

The stock is trading at 52-week highs of $26.72 with a market capitalization of $4 billion.

Mentor’s Financials
Mentor (NASDAQ:MENT) reported Q3 revenues of $238.9 million compared with $189.2 million a year ago. EPS of $0.14 was also significantly higher than the loss of $0.28 a year ago. The Street was expecting revenues of $220 million with EPS of $0.16.

For the current quarter, Mentor projects revenues of $293 million with EPS of $0.46 compared with the market’s expectations of $290.5 million with EPS of $0.52. Mentor expects full-year revenues of $900 million with EPS of $0.67. The Street was targeting revenues of $879.1 million with EPS of $0.66 for the year.

Mentor’s Acquired CodeSourcery
Mentor is another player that has been consolidating smaller players. It recently acquired some assets of CodeSourcery Inc., a provider of open-source tools for embedded software development. The acquisition is part of Mentor’s focus on the future of open source for embedded development. A year ago, they acquired Embedded Alley to expand their Linux and Android offerings. The growth of these platforms is helping drive the demand for open source tools, and Mentor is looking to use their current acquisition to be able to offer tools that will integrate tools with Linux and Android environments.

As part of their focus on the embedded solutions, Mentor recently launched Mentor Embedded ReadyStart Platform for faster development of embedded systems and released an Android version of the Inflexion Platform graphical user interface.

Mentor’s stock is trading at $11.98 with a market capitalization of $1.3 billion. It touched a 52-week high of $12.14 earlier last week.

Cadence’s Financials
Cadence (NASDAQ:CDNS) reported Q3 revenues of $238 million with EPS of $0.04. The Street was expecting revenues of $231.5 million with EPS of $0.03. A year ago, the company earned revenues of $216 million with EPS of $0.03.

For the current quarter, Cadence projects revenues of $230 million–$240 million with EPS of $0.03–$0.05 compared with the Street’s projections of $238.3 million with EPS of $0.04.

Cadence’s Product Enhancement
Cadence continued to expand their product offerings and recently introduced a a new approach to Silicon Realization that moves chip development beyond a patchwork technique to a streamlined end-to-end path to offer unified design intent, design abstraction, and design convergence to improve productivity, predictability, and profitability.

Cadence too is trading at 52-week highs of $8.32 with a market capitalization of $2.3 billion.

Magma’s Financials
Magma’s (NASDAQ:LAVA) Q2 revenues increased 14% over the year to $33.9 million and exceeded the market projections of $33.3 million. EPS of $0.07 was also higher than the Street’s projected $0.06.

For the current quarter, the company is projecting revenues of $34 million–$34.5 million with EPS of $0.06–$0.07.

Magma’s Product Enhancement
Magma continued to expand their product portfolio, and the company recently launched version 1.2 of Talus. Talus 1.2 accelerates the design cycle of systems on chip (SoCs) and with its advanced on-chip variation (AOCV) driven optimization can significantly improve silicon correlation, minimize power consumption and enable design at 20-nm process node. The earlier release of Talus is being used to design at 28nm.

Their stock is also trading at 52-week highs of $4.71 with a market cap of $280 million.

The current semiconductor industry revenue projections may have helped drive the stocks of these players to their annual highs. But I maintain that there are too many players in the market. The industry needs to make bigger acquisitions instead of the smaller ones that the players have been reporting.

And it needs to figure out non-obvious models for innovation.

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2010 EDA growth is inorganic (acquisitions) versus organic and you will see even more consolidation in 2011. So yes the top EDA companies will grow in 2011 but will the EDA industry grow?

I predict a major EDA merger/acquisition in 2011:
http://wp.me/psH60-2c2

EDA must further consolidate before you will see significant growth, my opinion.

D.A.N.

Dan Nenni Thursday, December 16, 2010 at 8:22 AM PT
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