The EDA & Electronics IP Almanac: Q3 2010

Henke Associates had arbitrarily selected eight (8) publicly-traded companies originally (called the "Group-of-8" or "G8"), as representative of the then-current financial state of the Electronics IP industry. At the end of 2004, ARM completed its acquisition of Artisan Components, Inc., thereby reducing the "G8" to "G7". In August 2009 Mentor Graphics completed its acquisition of LogicVision, thereby reducing the “G7” to “G6”. Then on June 10, 2010 Synopsys and Virage Logic announced that Synopsys would acquire Virage Logic. This transaction was completed on September 2, 2010.

Here the remaining "G5" public Electronics IP vendors for the third quarter of 2010 will be considered:

The EDA G5 Results for Nominal Q3 2010
We begin our review of the nominal Q3 2010 EDA G5 performances by looking at the summary revenue list (Table 1) below.

The total Q3 2010 revenue for the G5 of $895 million grabs immediate attention. It's higher than the total for any other quarter in the Table, and it not only beats the revenue total of the just prior quarter by 12%, but also eclipses last year's corresponding quarter by over 14%!

This total G5 performance was achieved by huge revenue totals delivered in Q3 2010 by the Big 3. In the case of Synopsys, the Q3 2010 revenue of $375.5 million was “needed” just to allow its current fiscal year to match the total of its revenue in the just prior fiscal year. Indeed, Synopsys revenue would have dropped year over year were it not for the Company's recent activism in acquisitions.

When it comes to earnings in Table 2 below, however, the fun truly begins. We immediately observe the huge G4 total in the Q3 2010 profit column of nearly $165 million in earnings, $95 million more than Q2 2010's sum and a phenomenal $182 million better than the G4 created for Q3 2009.

We quickly spot the anomaly; Cadence's Q3 2010 profit seems unusually large at $126.75 million, and you'd be right. As is revealed in the in the vendor by vendor details below, Cadence reported a giant $143 million tax benefit in Q3 2010. It booked a similar but more modest boost of $67 million in tax benefit in Q2 2010, as did Synopsys (+$92 million) in Q4 2009. The one-off boosts almost obscure the actual nominal Q3 2010 fall off in Synopsys earnings.

Indeed, without the $302 million of G4 tax benefits over the last year, the trailing four quarters' G4 profitability would fall to only $109 million, or a G4 return on sales (ROS) of only 3.3% for that year-long period.

Once again, one might observe that the G4 may still be operating too close to breakeven to generate much market enthusiasm. Nevertheless, a glance at the Q4 2010 portion of the stock market charts for the G4 contained in the sequel, might suggest plenty of “market enthusiasm.” Nevertheless, it's still difficult for this observer to predict that steady long-term prosperity for EDA will soon arrive. So the answer to the same question raised in the September 13, 2010 edition of the EDA WEEKLY, “Whither EDA?,” is still blowin' in the wind.

Additionally, such a loophole as one-off “tax benefits” able to cause earnings distortions of this magnitude resurrects the long standing debate about whether (even GAAP) 'net income' is a preferred way to measure company performance. This topic is further discussed herein, in both the Cadence and the Synopsys “details sections” in the sequel.

G5 EDA Vendor Details for Nominal Q3 2010

On October 19, 2010 Altium LTD (ALU:ASX) reported certain financial results for the three month period ending September 30, 2010 (nominal Q3 2010). According to the October 2010 report, total Altium revenues expressed in $US were ~$9.5 million, a decline of ~17% from the revenue achieved last year in nominal Q3 2009. Using these whole numbers, the revenue in Q3 2009 would have been $9.5 million/0.83 = $11.44 million, whereas our records show $11.2 million as the actual Q3 2009 revenue. For now, we will attribute this discrepancy to the use of rounded management numbers and/or possible currency exchange differences. (To complete Table 1 above, we will use $9.5 million for Q3 2010 and $11.2 million for Q3 2009, until more accurate numbers are forthcoming).

In any case, total revenue is down in Q3 2010 year-over-year. Europe showed a gain of 10% measured in Euros, but the US declined 3%, China declined 30%, APAC outside China declined 18%, and worldwide consulting declined 23%. The US had a large increase in deferred revenue (reason was not reported).

The company's cash balance was said to have increased to US$ 5 million by the end of Q3 2010.

No earnings data were reported.

In commenting on Q3 2010, CEO Nick Martin said, “A favorable Altium performance in Europe was countered by weaker demand in other regions. Our cash position continues to grow stronger due to our careful cost management, despite a stronger Australian dollar and continued uncertainty in global economic conditions.”

Writer's Note: Altium's reports for the spring and fall quarters are brief and unaudited. The better reports covering six months each are issued in summer and winter, at which time any interim discrepancies in numbers are rectified

Altium self description

Altium Limited (ASX:ALU) creates electronics design software based on the belief that anyone who wants to create electronic products that make a difference should be able to do so. Altium's unified electronics design environment links all aspects of electronics product design in a single application that is priced to be as affordable as possible. This helps electronics designers break down barriers to innovation, harness the latest devices and technologies, manage their projects across broad design 'ecosystems', and create connected, intelligent designs. Founded in 1985, Altium has headquarters in Sydney, and operates worldwide. For more information, visit

Altium, Altium Designer and LiveDesign, and their respective logos, are trademarks or registered trademarks of Altium Limited, or its subsidiaries. All other registered or unregistered trademarks mentioned in this release are the property of their respective owners, and no trademark rights to the same are claimed.

Chart courtesy of Business Week/Bloomberg (Vertical axis is Australian $)

Altium News Item

On November 4, 2010 the Board of electronics design software company Altium (ASX:ALU) was pleased to announce the completion on November 2, 2010 of its acquisition of Australian cloud application development company Morfik Technolog y. Altium acquired Morfik in a scrip transaction with Altium issuing 13.3 million fully paid ordinary shares (representing approximately 14.9% of outstanding shares) for 100% of Morfik's outstanding shares.

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