Mentor, Ikos cite third-quarter improvements

Mentor, Ikos cite third-quarter improvements
By Michael Santarini and Richard Goering, EE Times
October 31, 2001 (1:27 p.m. EST)
URL: http://www.eetimes.com/story/OEG20011031S0034

SAN JOSE, Calif. — Reflecting the semiconductor industry downturn, Mentor Graphics Corp. and Ikos Systems Inc. on Tuesday (Oct. 30) reported year-to-year revenue declines for the third quarter. But both companies exceeded earlier expectations, and both said they see signs of improvement in EDA spending.

Mentor reported third-quarter 2001 earnings-per-diluted-share before goodwill of 12 cents on revenue of $131 million, compared with 23 cents on revenue of $141 million for the previous year's quarter.

Greg Hinckley, Mentor's president, said that FPGA tools showed the strongest sales in the quarter and that design for test (DFT) as well as emulation revenues grew quarter over quarter, while system pc-board design tool sales were soft.

"We saw the effects of competitive enhancements in our FPGA product offerings, saw some recovery for the first time in our emulation and services business and activity in North America clearly beginning to build," said Hinckley. "FPGA, emulation and DFT were all up sequentially from 10 to 15 percent."

Hinckley said that during the third quarter, sales evaluations, negotiations and approvals were taking longer than in previous quarters and that deals continued to be delayed or deferred. "Our Q3 saw over $20 million of deals that in more normal times would have closed in that quarter, pushed to the next couple of quarters. Encouragingly, we see this as business not lost but merely deferred. For example, over half the business that started in the second quarter closed in the third [quarter] and less than one-half of one percent of that was lost."

Hinckley said that the company expects the EDA industry to see recovery in the second half of next year. Mentor expects fourth-quarter 2001 revenues in the range of $165 million. For 2002, the company expects revenues in the $650 million range.

The company believes it will get a boost in upcoming quarters from its TestKompress — a new test tool Mentor i ntroduced this week at the International Test Conference.

Ikos, hard hit by the slowdown in spending for capital equipment, posted revenues of $14.9 million for the quarter, compared with $22.1 million for the same quarter in 2000. The company eked out net income of $741,000, compared with $3.2 million for the third calendar quarter of 2000.

But Ikos exceeded its previously announced expectation of $12 million to $12.5 million in revenue for the third calendar quarter of 2001, which is Ikos' fourth fiscal quarter. Further, Ikos' third calendar quarter was much better than its second calendar quarter, which included $11.1 million in revenue and a $5.2 million loss.

"We're pleased with the sequential improvement in our revenue. Despite the difficult economic climate, we've exceeded our previous expectations for revenues and bookings," said Ramon Nunez, Ikos president and CEO. In the company's analyst conference call, Nunez noted that Ikos did some cost cutting during the quarter, including 22 layo ffs and cuts in management salaries.

Nunez said the company believes bookings will be sequentially "flat to slightly up" during the next two quarters. "Many of our customers say their plans for 2002 include additional investments in hardware-assisted verification," he said. "We are encouraged by signs that the health of our pipeline is increasing."

Nunez said that he believes that Ikos, which currently derives most of its revenues from emulation, gained market share during the last quarter. But in response to an analyst's question, he acknowledged that the data behind that claim is "purely anecdotal."

Mentor and Ikos were among the last of the public EDA companies to report third-quarter results. Cadence, Avanti, Verisity, Simplex and Synplicity all reported year-to-year revenue gains, while Innoveda lost ground. Synopsys Inc. is on a different quarterly schedule and has yet to report.