Cadence Design Systems CEO Discusses Q2 2012 Results - Earnings Call Transcript

Cadence Design Systems (CDNS)

Q2 2012 Earnings Call

July 25, 2012 05:00 PM ET

Executives

Alan Lindstrom - Director of IR

Lip-Bu Tan - President & CEO

Geoff Ribar - SVP & CFO

Analysts

Raj Seth - Cowen

Steven Zaccone - Needham & Company

Jay Vleeschhouwer - Griffin Securities

Gus Richard - Piper Jaffray

Thomas Yeh - Bank of America/Merrill Lynch

Sterling Auty - JPMorgan.

Presentation

Operator

Good afternoon. My name is David and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence Design Systems' Second Quarter 2012 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

Thank you. I will now turn the call over to Alan Lindstrom, Director of Investor Relations for Cadence Design Systems. Please go ahead.

Alan Lindstrom

Thank you David and welcome to our earnings conference call for the second quarter of fiscal 2012. The webcast of this call can be accessed through our website cadence.com and will be archived for two weeks.

With us today are Lip-Bu Tan, President and CEO of Cadence; and Geoff Ribar, Senior Vice President and CFO.

Please note that today's discussion will contain forward-looking statements and that our actual results may differ materially from those expectations. For information on the factors that could cause the difference in our results, please refer to our filings with the Securities and Exchange Commission. These include Cadence's most recent reports on Form 10-K and Form 10-Q, including the Company's future filings and the cautionary comments regarding forward-looking statements in the earnings press release issued today.

In addition to financial results prepared in accordance with Generally Accepted Accounting Principles or GAAP, we will also present certain non-GAAP financial measures today. Cadence management believes that in addition to using GAAP results in evaluating our business, it can also be useful to measure results using certain non-GAAP financial measures. Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures with their most direct comparable GAAP financial results, which can be found in the quarterly earnings section of the Investor Relations portion of our website. A copy of today's press release dated April 25, 2012 for the quarter ended June 30, 2012, and related financial tables can also be found in the Investor Relations portion of our website.

Now, I'll turn the call over to Lip-Bu.

Lip-Bu Tan

Good afternoon, everyone, thank you for joining us. Cadence is delivered strong results in Q2, revenue totaled $326 million. Non-GAAP operating margin was 23% and operating cash flow was $67 million. Our business continued to be driven by design activity which remained robust in Q2, the macro environment is challenging with slow growth in China and the ongoing debt crisis in Europe and slow U.S. recovery.

Key shipments and infrastructure equipment are showing weakness and foundry issues have hurt sales for some customers. However, we believe this high activity will continue at a good pace in second half. We are working closely with customers on the most complex design; our backlog remained strong and continues to strengthen our product portfolio. After reviewing our pipeline for the second half and taking into account the macro-risk we are modestly raising guidance.

Now let us look at few of the highlights for Q2 starting with silicon realization. Our 20 nanometer design technology continues to gain momentum both for digital as well as custom and analog. We have previously announced 20 nanometer test chips with ARM, TSMC and Samsung.

STMicroelectronics fuse our encounter digital and virtual custom analog platforms to complete a 20 nanometer mix signal test chip. Our Encounter and virtual platforms received Phase I certification for TSMC 20 nanometer technology. We collaborated with Samsung on the 20 nanometer methodology that includes double patterning technology. The number of 20 nanometer engagement with key customers is growing in every region, overall we are working with 16 different customers at 20 nanometer with more than 30 designs in progress or complete using encounter. At 40 nanometer process note we had joint projects underway and are working on test chips. The increased complexity of modern SoC is driving demand for our advanced verification solutions.

In Q2, we closed a significant order for our incisive verification platform with a top 10 semi-conductor company. I have some exciting progress to report in the physical verification area. As a result on going collaboration TSMC is now making DRC and LDS Root/x (ph) available for our physical verification system product at a 28 and 20 nanometer nodes. This is yet another proof point that our investment at 20 nanometer node is producing competitive products and creating new opportunities for us.

Our acquisition of Azuro and its unique breakthrough, clock concurrent optimization now integrated into our encounter digital solution. It enables customer to materially improve the power, performance and area of the design especially those containing ARM core.

This creates opportunities for us to expand our digital footprint with some customers. (Inaudible) was one successful customer story during the quarter. We are working with a number of major customers including Renesas, who are achieving outstanding results using encounter with Azuro technology built-in.

Next let us look at SoC realization, our design IP business is growing rapidly. The DDR5 and PCI Express Control, controller product lines both have record bookings for the quarter. We are aggressively expanding our product line as we strive to have products ready for new protocols when customers meet them.

Read the rest of this transcript for free on seekingalpha.com

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