The $4.5B all-cash deal between Mentor Graphics and Siemens is supporting electronic design automation competitors Synopsys and Cadence Design Systems to respective 2.4% and 2.9% gains in early trading.
Synopsys (NASDAQ:SNPS) consequently moves higher by 3.3% on the week and 2.5% on the month, while Cadence Design System (NASDAQ:CDNS) notches respective 2% and 0.35% increases over the same bases on the news impacting these major components of the highly correlated sector.
Results – revenue $446M (in-line, +2.9% Y/Y), EPS $0.30 ($0.02 above estimates), net income $85M (vs. $89M Y/Y)
Projections – For Q4, total revenue of $463M-$473M and net income per diluted share of $0.32-$0.34 (consensus $472M, $0.35). For FY 2016, total revenue of $1.81B-$1.82B and net income per diluted share of $1.19-$1.21.
President and CEO Lip-Bu Tan: "We continued to make progress on our System Design Enablement strategy in the third quarter, which resulted in solid financial results. Our digital and signoff solutions maintained their momentum with market-shaping customers; five new systems customers, including a major aerospace company, adopted our Palladium® Z1 emulation platform; and we increased our expansion into automotive functional safety verification."
Cadence Design Systems (NASDAQ:CDNS) shares lower by 0.93% in extended trading.
Initiates with $25 price target (current price $26.15).
Analyst Farhan Ahmad considers Cadence Design Systems to have "the broadest product portfolio that is required for designing products all the way from chip design to complete systems," and notes the company maintains a robust presence in a majority of EDA markets. Projects expectations to be met in 2016/2017 on emulation market share expansion.
Cadence Design Systems (CDNS -0.3%) shares are currently unmoved over the last three months and higher by 23% on the year.
After plummeting in November following its FQ3 report (weak results/guidance) and declining in March after its FQ4 report (results beat, but guidance was mixed), Mentor Graphics (MENT +7.3%) is faring much better today after beating FQ1 estimates and issuing solid guidance.
The chip design hardware/software firm expects FQ2 revenue of $245M and EPS of $0.09 vs. a consensus of $236.4M and $0.09. It's affirming FY17 (ends Jan. '17) guidance for revenue of $1..215B, EPS of $1.68, and op. cash flow of $200M.
Revenue was still down 16% Y/Y in FQ1, and Mentor notes "weakness in semiconductor-related activity" (caused in part by R&D spending cuts that have followed industry M&A) remained. On the flip side, bookings for automotive customers (have benefited from growing chip/electronics content within cars) hit a new record.
System/software revenue fell 32% Y/Y to $106.7M, while service/support revenue (fueled by part system/software sales) rose 4% to $120.9M. Non-GAAP operating expenses rose by a modest $500K to $182.5M. Mentor ended FQ1 with $216M in cash and $273M in debt.
EDA hardware/software peers Cadence (CDNS +2.7%) and Synopsys (SNPS +2.4%) are also outperforming - Synopsys posted an FQ2 beat on Wednesday afternoon. The Nasdaq is up 1.2%.
In addition to missing FQ3 estimates, Mentor Graphics (NASDAQ:MENT) has guided for FQ4 revenue of $336M and EPS of $0.47, well below a consensus of $439.3M and $0.97.
Notably, the EDA hardware/software vendor states the chip industry's massive M&A wave is "having an adverse impact on our ability to close business," as are delays in buying decisions for Mentor's Veloce emulation systems.
System/software revenue fell 5% Y/Y in FQ3 to $168.7M, while service/support revenue (more stable) rose 6% to $121.8M. Non-GAAP operating expenses rose 3% Y/Y to $201.4M.
Mentor has plunged to $21.49 after hours. EDA peers are also lower: Cadence (NASDAQ:CDNS) is down 7.7% to $21.35, and Synopsys (NASDAQ:SNPS) is down 2.6% to $51.17.