Cadence Design Systems' Management To Present At The JPMorgan Technology, Media And Telecom Conference Call (Transcript)

Cadence Design Systems, Inc. (CDNS)

JPMorgan Technology, Media and Telecom Conference

May 16, 2012 10:40 am ET

Executives

Geoff Ribar - SVP & CFO

Analysts

Sterling Auty - JPMorgan

Presentation

Sterling Auty - JPMorgan

Thanks everyone for joining us. My name is Sterling Auty Software Technology Analyst here at JPMorgan; very happy to have with us for another session Geoff Ribar who is the Chief Financial Officer of Cadence.

I am going to go ahead and turn the microphone over to Geoff just to give a brief introduction. I am going to start off with some questions to get us started and bringing the audience questions in very quickly.

With that Geoff?

Geoff Ribar

Hi everybody. So just to brief on Cadence; Cadence is one of the leading EDA companies. EDA companies for those of you don’t know, are unaware. The companies that help chip vendors to build their products; probably the most important part of their chain after their design conception is -- actually the software that we build, our competitors build to allow our customers to build their products.

Cadence has been around for quite a number of years; I think we have had a couple of major management change about three years ago where Lip-Bu Tan came in as CEO. Lip-Bu is vastly experienced in the semiconductors business and in the EDA business and I think over the past three years you’ve seen pretty material changes in the company’s performance, strategy, execution which I think is showing up in our financial results.

Sterling Auty - JPMorgan

Let’s start-off from the high level in terms of the environment. We hear a lot of mix signals of the semi industry and everything from supply constraints to doubled digit growth in R&D spending or for some of the vendors. If we take a step back, what are the metrics that you take a look at in terms of gauging to help the underlying demand and also maybe talk a little bit about what you are hearing from your customers and their interest level on spending?

Geoff Ribar

Sure. I spent 28 of my 30 years working in the semiconductor business; I was NVIDIA, CFO, SiRF CFO, AMD’s Corporate Controller and a couple of private companies you guys probably unaware of. So I know the semiconductor business extremely well.

Semiconductor business, despite what the CFOs and CEOs were gauging as really a quarter-to-quarter business. They have a pretty good visibility in the current quarter when you get out of ways the backlog is somewhat at risk; I guess is the best way of putting it. I think generally right now they are somewhat optimistic; they have seen a major reduction in inventory over the past couple of quarters, but they read the same newspapers that everybody here in this room reads and worry about some of the macro trends playing in.

So I think generally, we’re much more correlated with the number of engineers that our customers have and the number of projects that they are working on and we have only seen positive trends in that environment. We have seen more and more engineers being added and projects still stayed very strong.

And again, if you have a revenue challenge and you are a semiconductor company, you are largely going to try to get new products out the door that’s one of the ways you deal with the challenge. So net, net we’ve seen very little impact from the macro economic concerns as far as our business is concerned, but we pay a lot of attention and we worry about it probably just like everybody in this room.

Sterling Auty - JPMorgan

So when you look at that, when talk about the number of engineers as one driver, how much of the increase in spending or increase in run rate and renewals is also existing engineers needing more additional products to do their job as well as how much of the growth is coming from an existing engineer that maybe uses multiple license of the single product to get his job done?

Geoff Ribar

So historically, I think EDA did deals where we did our [equity] deals where to a large extent where you would give your customers as many licenses as you needed for as much technology as you possibly had. I think over the past five years or so, clearly Cadence has got much more disciplined along those lines.

So what we see driving our business is improved deal quality and improved deal quality means we do less deals which means if you want 100 licenses, we will sell you 100 licenses; we won’t sell you 1000 license; what that allows us to do is our customers and incremental resources, incremental engineers we can sell more licenses.

Also, we are more specific on the technologies that we license as part of the deals; if you want one particular technology from us let’s say analog or custom that’s what we’ll sell you. If you later want digital, we will sell you digital, but at an additional cost.

So I think the deal quality is something that's obviously a work-in-progress. It’s a journey. We are going to have to continue working on over a long period of time. We trained our customers really well and the other side of equation we have to un-train them and train them the other way. We have the head of sales and I have reached out to a couple of very large software companies who've gone through similar transitions and understand that this is a journey and requires management discipline more than anything else. So we are really working on that.

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