Cadence Design Systems Management At Bank Of America Merrill Lynch Global Technology Conference (Transcript)

Cadence Design Systems, Inc. (CDNS)

Bank of America Merrill Lynch Global Technology Conference

May 08, 2012 05:45 pm ET


Geoff Ribar - SVP & CFO



[Abrupt Start]

Unidentified Analyst

Cadence Design Systems, one of the leading EDA providers to the semiconductor industry. We are going to make a short presentation and then we will open it up for Q&A. Geoff?

Geoff Ribar

Thank you. And I promise it will be relatively short. I am going to briefly talk about EDA, a lot of you, some of you may know, some of you may not know EDA very well, so I’ll give a little bit of background. Then a little bit about major drivers that are driving both our customers’ for our business and then lastly kind of conclude on talking about Cadence specifically.

So first of course this is covered by Safe Harbor, I do advice you to read our financial statements, both in SEC and our last earnings statement. And again we are going to talk about non-GAAP, not just GAAP numbers, again you can check that out in our most recent financial statements to see the differences and I advice you to take a look at them.

So EDA, Cadence is one of the leading providers of EDA tools. Our customers are largely the system and chip companies that you are probably very familiar with. We build the software that allows them to build the chips or the boards that go into their products. We've grown very rapidly and a little bit outside the EDA norm. We grew 23% last year and have made steady progress over the past couple of years.

We support the industry that you all are very aware of. I have been in the semiconductor business or the EDA business for 30 years, coming up. Since maybe the early 80s when the PC business first really started taking out, I find that this is the most exciting time as people use of electronics is dramatically changing.

The rise of mobility I think has been the major trend. You see people using mobility and using things that they never used before. My kids never carry a watch anymore, they carry a cell phone. They don’t watch TV anymore, they watch their computer. I think that growth and that drive in the industry trend is actually very interesting.

Again, I think there is a lot of (inaudible). I think we are actually moving through the fifth wave of computing where first wave was mainframes, then micros, then minis, then PCs and now I think mobility is really driving that.

We’re the industry leader in our particular space and I’ll talk more about that later. We have a ratable business model which means we recognize revenue overtime, not upfront, largely; high and sustainable possibilities with software business with a very nice model and we have very strong cash flow.

So a little bit about the overall trends; I think the key trend that’s really driving our customers is mobility. People are now taking essentially their PCs with them, their PCs, their organizers, their communication devices with them. That’s driving all the rest of these. Apps, obviously has been a key driver and so for the complex software apps allow you to do simple functions in a way you want to do them.

The other side of mobility is of course the cloud. Obviously, you are well aware of the rise of the data centers and the people buy data center services. That’s also what’s clearly driving our business.

And video has become one of the key applications that people are using. That’s obviously driving the clouds and network infrastructure. And then lastly power has become very key; I have IT in my organization and frankly the utility bills for one in our data centers is one of major plus for us. Imagine multiplying that by thousands and you come up with them actually so what they are trying to do, so green tech is clearly driving. So all these trends, but they are all really based in mobility, I think are really driving changes in the business.

And semiconductors is the heart of all this. There is settlement device or settlement industry these days that’s rapidly growing that isn’t dependent on the semiconductors. From Facebook to PC, to tablets to Apple they are all dependent very much on semiconductors and it’s the key to what their business is and that’s clearly driving our business.

And the difference between system companies and chips companies are largely changing pretty dramatically overtime. It used to be that system companies largely brought standard chips of the shelf and then integrated them together to create a device. Now the system companies are really driving back those designs back into the chip companies and saying here is what I want in the chip. Practically examples are Apple or Google or those types of things where they are actually driving requirements back in. What this mean to us is both types of these customers become customer for ours.

And the cost of developing chips have gone up materially. This is rough trend for where we expect the cost of developing companies to be, again I spend my whole life on the chip side, I was NVIDIA’s first CFO; I was CFO at SiRF, Corporate Controller at AMD. I can tell you these costs are pretty real and they are going up pretty dramatically overall in long periods of time. So the key thing is, what does this means for the industry and how is Cadence addressing them.

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