Summary of Cadence Design Systems (CDNS) Conference Call Company Overview - **Company**: Cadence Design Systems (CDNS) - **Event**: 2025 Conference Call - **Date**: August 27, 2025 Key Industry Insights - **EDA Landscape**: The current Electronic Design Automation (EDA) landscape is characterized by significant opportunities driven by advancements in AI and chip design technologies [2][4] - **AI Super Cycle**: The AI super cycle is a major focus, with customers pushing the boundaries in chip design, including 3D IC and advanced packaging [4][5] - **Customer Base**: Cadence has strong partnerships with leading companies such as NVIDIA, Intel, Samsung, and TSMC, which enhances its market position [5][6] Financial Performance - **Backlog**: Cadence finished the previous year with a record backlog of $6.8 billion, which decreased to $6.4 billion by mid-year. However, strong booking activity is expected to lead to a new record backlog by year-end [26][28] - **Revenue Model**: Approximately 80% of Cadence's revenue is ratable, primarily from subscription-based models, which allows for gradual revenue recognition as customer adoption increases [8][10] Product Development and Innovation - **cadence.ai Portfolio**: The cadence.ai portfolio is expanding, with significant adoption beyond the top five customers. The introduction of products like Cerberus AI Studio is expected to enhance productivity and reduce time to market by 5x to 10x [14][6] - **Integration of AI**: The integration of AI tools is leading to increased productivity and faster time to market for customers, which in turn is expected to result in earlier revenue recognition for Cadence [10][12] Competitive Landscape - **ANSYS Merger Impact**: The recent merger of ANSYS is viewed as neutral to positive for Cadence, as it may lead to increased competition but also provides opportunities for customers to explore alternatives [20][22] - **Market Position**: Cadence maintains a strong competitive position against Synopsys, with both companies benefiting from healthy competition that drives innovation [21][22] Customer Dynamics - **Intel Relationship**: There is potential for increased business with Intel, especially under new leadership. Cadence is well-positioned to support Intel's needs with silicon-ready IP and tools for advanced nodes [40][42] - **China Market**: The Chinese market is expected to remain volatile, but Cadence's revenue is based on consumption rather than geographical location, which mitigates risks associated with regional fluctuations [44][46] M&A Strategy - **Acquisition Philosophy**: Cadence prefers to develop internally rather than pursue large acquisitions. The company focuses on small, strategic tuck-in acquisitions that align with its long-term growth strategy [56][66] - **Talent Retention**: Cadence emphasizes retaining AI talent by providing opportunities to work on innovative projects, which is crucial given the competitive landscape for skilled professionals [59][60] Conclusion - Cadence Design Systems is well-positioned in the EDA market, leveraging its strong customer relationships and innovative product offerings to capitalize on the AI super cycle. The company is focused on sustainable growth through strategic partnerships, a diversified product portfolio, and a commitment to internal development over opportunistic acquisitions.

Financial Performance & Guidance - Q2 2025 revenue reached $1205 million, a 19% year-over-year decrease [43] - Q2 2025 Non-GAAP operating loss was $57 million [43] - The company maintains FY25 revenue guidance between $64 million and $70 million, representing a 7% to 17% year-over-year increase [10, 12] - FY25 gross bookings are projected to be between $67 million and $74 million, a 2% to 13% year-over-year increase [12] - Q3 2025 revenue is guided to be between $14 million and $18 million, a 28% to 64% increase from Q3 2024 [12, 62] Strategic Initiatives & Market Expansion - Silvaco expanded its serviceable addressable market (SAM) by $110 million through the acquisition of Mixel IP [10, 22] - The company achieved Annual Contract Value (ACV) growth of 26% for the trailing twelve months (TTM) ending in Q2 2025 [22, 39] - 14% of revenue came from 10 new customers, representing $39 million in bookings [16] Product & Customer Highlights - 40% of revenue was generated from expansion within existing customers, resulting in $43 million in bookings [16] - TCAD bookings decreased by $78 million, a 55% decrease year-over-year, due to a high-value FTCO booking in Q2 2024 [48] - SIP bookings increased by $15 million, an 87% increase year-over-year, driven by foundry enablement [48]

Core Insights - Cadence Design Systems Inc reported strong second-quarter earnings, leading to a rally in its stock price [1] - Revenue grew by 20.2% year-on-year to $1.275 billion, exceeding expectations by 2% [2] - Non-GAAP earnings per share reached $1.65, beating the consensus estimate of $1.56 [2] Revenue and Earnings Outlook - Management raised the revenue outlook for 2025 by $50 million, citing stronger than expected bookings and a robust pipeline [3] - Operating margin guidance was increased by 20 basis points to 44% at the midpoint [3] - Earnings projection was raised by 12 cents per share [3] Market Reaction and Analyst Ratings - Cadence shares rose by 8.83% to $363.23 following the earnings report [5] - Piper Sandler downgraded the rating from Overweight to Neutral but raised the price target from $328 to $355 [6] - Goldman Sachs maintained a Buy rating with a price target of $400 [6] Demand and Competitive Position - Core EDA revenue was reported at $906 million, surpassing the consensus of $884 million [4] - The company is experiencing stronger broad-based demand for its EDA products [4] - There is potential for significant pricing accretion from AI features in core EDA products over time [5]

Financial Data and Key Metrics Changes - Cadence reported total revenue of $1.275 billion for Q2 2025, with a GAAP operating margin of 19% and a non-GAAP operating margin of 42.8% [19] - Non-GAAP EPS grew by 29% year-over-year to $1.65, while GAAP EPS was $0.59 [19] - The company raised its financial outlook for 2025 to 13% revenue growth and 16% EPS growth [7][18] Business Line Data and Key Metrics Changes - Core EDA revenue grew by 16% year-over-year in Q2, with significant adoption of Cadence Cerebras solutions [12] - The IP business saw over 25% year-over-year growth in Q2, driven by demand in AI and HPC use cases [11] - The system design and analysis business delivered 35% year-over-year revenue growth [15] Market Data and Key Metrics Changes - China accounted for 9% of revenue in Q2, down from 11% in Q1, but strength in other regions offset this decline [34] - The company noted robust design activity and customer demand globally, particularly in AI, HPC, and system design workloads [18][35] Company Strategy and Development Direction - Cadence continues to execute its intelligent system design strategy initiated in 2018, focusing on unified EDA, IP, and system analysis [8] - The company is leveraging its AI-driven product portfolio to capitalize on the AI super cycle, enhancing its competitive position [9][17] - Cadence is committed to compliance and has enhanced its processes in response to evolving trade restrictions [16] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the demand for AI technologies and the overall customer environment, indicating a positive outlook for the next few years [30] - The company anticipates a strong second half of 2025, with expectations for revenue growth and a record backlog [87][100] Other Important Information - Cadence reached a settlement with the DOJ and BIS regarding investigations into transactions with customers in China, which will involve a payment of approximately $141 million [19][20] - The enactment of the One Big Beautiful Bill Act is expected to decrease Cadence's U.S. federal tax payments by approximately $140 million for the remainder of fiscal 2025 [20] Q&A Session Summary Question: Impact of physical AI on bookings - Management noted that the optimism surrounding AI is driving increased investment in innovation, which is reflected in strong bookings [25][26] Question: Increase in growth outlook despite China revenue restrictions - Management confirmed that strong demand across all geographies and a robust backlog contributed to the increased growth outlook [34][35] Question: Near and long-term impact of China - Management expressed a cautious but optimistic view on China, expecting slight growth despite previous restrictions [44][46] Question: Contribution of advanced packaging to revenue - Management highlighted that the industry is moving towards chiplet-based architectures, which is positively impacting bookings and revenue [52][56] Question: Recurring revenue percentage and customer behavior - Management indicated that the recurring revenue percentage dipped to 78% due to paused revenue in China, but typically expects it to stabilize around 80% [104][108] Question: Long-term perspective on IP growth - Management expressed increased optimism for IP growth, driven by strong demand in AI and HPC markets [111]

Financial Data and Key Metrics Changes - Cadence reported total revenue of $1.275 billion for Q2 2025, representing a 20% year-over-year growth, with non-GAAP EPS increasing by 29% to $1.65 [18][19] - The company raised its 2025 revenue growth outlook to 13% and EPS growth to 16% [6][17] - GAAP operating margin was reported at 19%, while non-GAAP operating margin was 42.8% [19] Business Line Data and Key Metrics Changes - Core EDA revenue grew by 16% year-over-year in Q2, with significant adoption of Cadence Cerebras solutions [12] - The IP business saw over 25% year-over-year growth in Q2, driven by demand in AI and HPC use cases [11] - System design and analysis business delivered 35% year-over-year revenue growth, with strong uptake of 3D IC technology [15] Market Data and Key Metrics Changes - China accounted for 9% of total revenue in Q2, down from 11% in Q1, but strength in other regions offset this decline [36] - The company noted robust design activity and customer demand globally, particularly in AI, HPC, and system design workloads [36][40] Company Strategy and Development Direction - Cadence continues to execute its intelligent system design strategy initiated in 2018, focusing on unified EDA, IP, and system analysis [7] - The company is leveraging its AI-driven product portfolio to capitalize on the AI super cycle, enhancing its competitive position [6][17] - Cadence is committed to compliance and has enhanced its processes in response to evolving trade restrictions [16][17] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the demand for AI technologies and the overall customer environment, indicating a positive outlook for the next few years [30] - The company is focused on innovation and productivity, with expectations for continued growth in the second half of the year [21][40] Other Important Information - Cadence reached a settlement with the US Department of Justice and the Bureau of Industry and Security regarding investigations into transactions with customers in China, totaling approximately $45 million [19][16] - The One Big Beautiful Bill Act is expected to decrease Cadence's US federal tax payments by approximately $140 million for the remainder of fiscal 2025 [20] Q&A Session Summary Question: Impact of physical AI on bookings - Management noted that the optimism surrounding AI is driving increased customer investment in innovation, which is positively impacting bookings [24][25] Question: Increase in growth outlook despite China revenue restrictions - Management confirmed that strong demand across all geographies and a robust backlog contributed to the increased growth outlook, despite a decline in China revenue [34][36] Question: Near and long-term impact of China - Management expressed a cautious but optimistic view on China, indicating that while growth is expected to be slightly up, the rest of the world is performing even better [46][49] Question: Contribution of advanced packaging to revenue - Management highlighted that the industry is moving towards chiplet-based architectures, which is driving demand for Cadence's advanced packaging solutions [52][56] Question: Recurring revenue percentage and customer behavior - Management indicated that the recurring revenue percentage dipped to 78% due to paused revenue in China, but typically expects it to trend towards 80% [103][106] Question: Long-term perspective on IP growth - Management expressed optimism about IP growth, citing increased investment and opportunities from emerging chiplet architectures and advanced node foundries [110][112]

Core Insights - Cadence Design Systems (CDNS) has launched the first LPDDR6/5X memory IP system solution, achieving speeds of 14.4Gbps, which is a 50% increase compared to previous LPDDR generations [1][9] - The new memory IP system is designed for AI infrastructure, high-performance computing (HPC), data centers, and mobile applications, facilitating faster data movement and lower latency [1][4] Product Features - The LPDDR6/5X memory IP features a sophisticated PHY architecture and a high-performance controller, optimized for power, performance, and area (PPA) efficiency, supporting both LPDDR6 and LPDDR5X DRAM protocols [2][3] - This solution integrates seamlessly into both conventional monolithic SoCs and advanced multi-die systems, leveraging Cadence's chiplet framework [2][3] - The integrated PHY and controller architecture is scalable and adaptable, building on existing product lines such as DDR5, LPDDR5X, and GDDR7 [3] Market Applications - The LPDDR6/5X memory IP solution targets diverse markets, including AI, mobile, consumer electronics, enterprise HPC, and cloud data centers, providing flexibility to meet varying performance, capacity, and cost requirements [4][8] - The solution is designed to support extended product lifecycles and can be tailored to different package and system configurations [4] Competitive Landscape - Cadence is experiencing growth due to strong demand driven by trends such as 5G expansion, hyperscale computing, and advancements in autonomous driving [8] - The company has entered a multi-year IP agreement with Samsung Foundry to enhance its memory and interface IP solutions, focusing on advanced process technologies [9][10] - However, Cadence faces competition from other EDA firms, which may impact pricing and margins, prompting increased R&D investments [11] Financial Performance - Cadence's stock has seen a 21.3% increase over the past three months, although this is below the Zacks Computer-Software industry's growth of 29.8% during the same period [12]

Core Insights - Cadence Design Systems (CDNS) stock has increased by 23.8% over the past three months, closing at $322.66, nearing its 52-week high of $330.09 [1][8] - The company is positioned to benefit from the growing demand for AI-driven automation and next-generation designs, with a raised revenue guidance for 2025 to $5.15B-$5.23B and non-GAAP EPS forecasted between $6.73 and $6.83 [8][14] AI and Market Trends - The semiconductor and system design industry is experiencing a pivotal shift due to AI, with trends like 5G, hyperscale computing, and autonomous driving influencing design activities [3] - Cadence is collaborating with major tech companies such as Qualcomm and NVIDIA to develop next-generation AI designs, and is exploring new markets like Life Sciences through its OpenEye drug discovery software [4] Business Performance - Cadence's verification business is thriving, driven by the increasing complexity of system verification, with the launch of advanced emulation and prototyping systems [6][9] - The Core EDA business saw a 16% year-over-year revenue growth in the first quarter, attributed to demand for new hardware systems among AI and hyperscale clients [10] IP Business Growth - The IP business segment experienced a 40% year-over-year revenue increase in the first quarter, fueled by demand for AI, HPC, and chiplet use cases [11] - Cadence is expanding its IP portfolio through acquisitions, including Secure-IC and a definitive agreement with Arm Holdings for its Artisan foundation IP business [12] Financial Outlook - Management has upgraded its 2025 revenue outlook to $5.15-$5.23 billion, with non-GAAP operating margin expected to be between 43.25% and 44.25% [13][14] - For Q2 2025, revenues are estimated to be in the range of $1.25-$1.27 billion, with anticipated non-GAAP EPS between $1.55 and $1.61 [15] Cash Flow and Share Repurchases - Cadence generated an operating cash flow of $487 million in the reported quarter, with free cash flow at $464 million, and plans to utilize at least 50% of its free cash flow for share repurchases in 2025 [16] Valuation Considerations - The stock is trading at a premium with a forward Price/Earnings ratio of 44.49X compared to the industry average of 34.37X, justified by strong secular tailwinds from AI and a high mix of recurring revenues [17] Conclusion - Cadence's strong fundamentals, robust demand driven by AI, and a resilient recurring revenue model position it as a compelling investment opportunity despite macroeconomic uncertainties [18]

Core Viewpoint - Keysight's ML Optimizer offers a revolutionary solution for semiconductor parameter extraction, addressing the complexities and inefficiencies of traditional optimization methods [2][29]. Group 1: Challenges in Parameter Extraction - The complexity of semiconductor device models has increased, making parameter extraction a significant challenge due to the large number of interrelated parameters [6][11]. - Traditional optimization algorithms, such as Newton-Raphson and Levenberg-Marquardt, often get trapped in local optima, leading to suboptimal extraction results [7][9]. Group 2: Introduction of ML Optimizer - Keysight introduced the ML Optimizer, which utilizes machine learning techniques to dynamically learn the optimization space, allowing for simultaneous optimization of over 40 parameters and multiple target plots [12][13]. - The ML Optimizer is designed to be robust against noise and does not rely on gradient information, making it more effective in non-convex spaces [12][13]. Group 3: Practical Applications and Benefits - In practical applications, the ML Optimizer demonstrated its efficiency by achieving good fitting for a diode model in approximately 300 trials, regardless of initial conditions [16]. - For the GaN HEMT model, the ML Optimizer completed parameter extraction in under 6000 trials within minutes, showcasing its speed and effectiveness [17]. - The optimizer enhances convergence and robustness through an integrated cost function, allowing it to handle complex models like BSIM4 and ASM-HEMT [18][19]. Group 4: Summary and Future Outlook - The ML Optimizer significantly simplifies the parameter extraction process, reducing modeling time from several days to just hours while improving fitting quality and consistency [29]. - The tool was showcased at IC-CAP 2025, with a recorded webinar available for further insights and demonstrations [23].

Financial Performance & Guidance - FY 2024 Bookings were $65.8 million, a 13% increase, and Revenue was $59.7 million, a 10% increase[11] - Q1 2025 Revenue was $14.1 million, an 11% decrease year-over-year[34] - Q1 2025 Bookings were $13.7 million, a 15% decrease year-over-year[34] - The company is providing Q2 2025 Revenue guidance in the range of $12 million to $16 million, and full year 2025 Revenue guidance in the range of $64 million to $70 million, representing a 7% to 17% increase year-over-year[12] - The company is providing Q2 2025 Gross Bookings guidance in the range of $14 million to $18 million, and full year 2025 Gross Bookings guidance in the range of $67 million to $74 million, representing a 2% to 13% increase year-over-year[12] Strategic Initiatives & Market Expansion - The company expanded its Serviceable Addressable Market (SAM) by $600 million through acquisitions, including PPC and Tech-X, targeting AI, Photonics, and IoT markets[11] - The company's Total Addressable Market (TAM) is $4.4 billion, including $3.3 billion for Electronic Design Automation (EDA) and $0.5 billion for Fab Technology Co-Optimization (FTCO)[17] - Annual Contract Value (ACV) for the trailing twelve months ending Q1 2025 was $52.3 million, a 21% increase year-over-year[49] Product & Customer Highlights - TCAD accounted for 52% of Q1 2025 bookings at $7 million, while EDA contributed 41% at $5.6 million, and SIP made up 7% at $1 million[39] - The company landed 9 new customers for AI and Photonics in Q1 2025, representing 23% of bookings[15] - Expansion within existing customers accounted for 38% of Q1 2025 bookings[15]

Financial Data and Key Metrics Changes - The company reported Q1 revenue of $1.46 billion, down 4% year-over-year, and non-GAAP EPS of $3.03, down 10% due to one less work week compared to Q1 '24 [6][32] - Non-GAAP operating margin was 36.5%, with total GAAP costs and expenses at $1.2 billion [32] - For fiscal year 2025, the revenue guidance is set between $6.745 billion and $6.05 billion, with non-GAAP EPS guidance of $14.88 to $14.96 per share [33][36] Business Line Data and Key Metrics Changes - Design Automation revenue increased by 4% year-over-year, despite one less week of revenue [11] - The company launched new HAPS 200 prototyping systems and ZeBu 200 emulation systems, enhancing performance significantly [12] - Design IP revenue decreased by 17% year-over-year, but opportunities are expanding due to AI customer needs [23] Market Data and Key Metrics Changes - AI and HPC markets remained robust, while industrial, automotive, and consumer electronics faced challenges [7] - China sales showed a deceleration trend, with expectations of continued decline below corporate average due to restrictions and economic slowdown [50][76] Company Strategy and Development Direction - The company is focused on AI-driven design solutions and is progressing with the acquisition of ANSYS to enhance its offerings [9] - The strategy emphasizes addressing design complexity and energy demands through innovative solutions [8] - The company aims to leverage AI capabilities to transform engineering workflows and improve productivity [18][108] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's resilient business model and strong momentum driven by AI growth [29] - The outlook for semiconductor R&D investment is positive, expected to grow from 6% to 9% of sales per year [41] - Management acknowledged challenges in the consumer electronics and automotive sectors but noted a recent acceleration in design activity [44][58] Other Important Information - The backlog exiting Q1 was reported at $7.7 billion [67] - Cash flow from operations was approximately $1.8 billion, with free cash flow around $1.6 billion [34] Q&A Session Summary Question: Growth trends in AI and non-AI segments - Management noted a bifurcation in the semiconductor market, with strong demand in AI and HPC, while consumer electronics and automotive are slower [39][41] Question: Sales performance in China - Management indicated that sales in China are expected to continue decelerating due to restrictions and economic factors [50][76] Question: Design activity for non-AI customers - Management observed a stabilization in design activity for non-AI customers, particularly in mobile and PC sectors [58] Question: Cost control and guidance for next quarter - Management highlighted that Q1 costs were lower than anticipated due to timing, but Q2 typically sees a step-up due to merit increases [112][115] Question: Backlog composition and customer engagement - Management confirmed no significant change in customer behavior regarding backlog duration, maintaining consistent contract durations [81][82]