Sonki This came out today.
Goldman, Sachs & Co.
Investment Research Web - Documents
Cadence Design Systems, Inc. (CDN) $38.00
Laura Conigliaro (New York) 1-212 902-5926
EPS (FY Dec): 1998E $1.20, 1999E $1.50 - Recommended List
* Cadence's Q1 provided the as-expected 'surprise,' with EPS of $0.25
exceeding our $0.23 est. (FC mean $0.24). The real surprise was in
revenue growth which, at 44%, was considerably higher than our 36.5%
estimate, driven by 51% SW license growth. Overall gross margin was
higher, though services margin was lower reflecting continuing
investment. Our '98 and '99 EPS have drifted up to $1.20 (from our
$1.17 point est) and $1.50 (from $1.45) respectively, with the former
reflecting the $0.02 Q1 upside. Our rating remains Recommended List.
* With the stock having run up in advance of the March quarter reporting,
we would not be surprised to see some pullback, particularly with
estimates unlikely to make meaningful fundamental move upward until
incremental business starts to build again in the second half of the
year. Nonetheless, our fundamental position is the same. In our view,
Cadence has expanded the scope of the current EDA market as a result of
its highly differentiated services business, enabling it to tap into new
markets and replace internally developed EDA tools.
* As evidenced by the 51% Q1 license growth, Cadence's product portfolio
is benefiting from both the underlying strength of its technology and
its services driven model. Deep submicron tools, including Place &
Route, were extremely strong despite Cadence's high and growing market
share.
* With a growing services backlog and a robust pipeline beyond the
backlog, Cadence is continuing to invest in its service capacity through
both organic growth and acquisitions. As a result, service margins,
which were 24% during the quarter versus our 27.5% estimate, are likely
to move up more gradually than we had been anticipating. However, we are
not concerned considering the strong growth potential associated with
this area, with our forecast at 75% services growth in 1998. |
