EDA Consolidation Continues

The EDA Consortium recently announced a second consecutive quarter of sequential revenue growth for overall electronic design automation (EDA) revenues. For Q4 2009, EDA industry revenues of $1.26 billion grew 8.1% over the quarter while declining 4.2% over the year. The consortium noted that the biggest upticks came in the categories of CAE, IC Physical Design, and semiconductor intellectual property (IP).

No wonder, then, that Synopsys (NASDAQ:SNPS) is continuing with its acquisition spree. The company recently acquired the intellectual property provider Virage Logic Corporation for nearly $315 million. Synopsys believes that high-quality IP will remain key for “enabling designers to reduce integration risk and speed time-to-market.” It is hopeful that the Virage acquisition will broaden its portfolio and help it to address the market in providing a quick way to incorporate standard functions into their systems-on-chips (SOCs). Last fiscal year, Virage reported revenues of $47.4 million. I agree with Daniel Nenni that the acquisition will give Synopsys a near monopoly in the design enablement space and make it a bigger threat to competitors such as Cadence and Mentor, although not so much to ARM.

Synopsys also acquired high-level synthesis technology from Synfora, Inc. Synfora’s technology enables designers to create and synthesize IC building blocks from a description written in the C or C++ programming languages. Synopsys is looking to strengthen its position in system-level design and verification and to enhance its field-programmable gate arrays (FPGA)-based prototyping solutions through this acquisition.

Meanwhile, the company announced mediocre Q2 results. Revenues for the quarter were relatively flat at $338.1 million and EPS dipped to $0.41 from $0.45 a year ago.

Synopsys is also continuing to expand its existing product portfolio with products such as Yield Explorer, which accelerates yield ramp by diagnosing yield issues during design for 90-nanometer and 40-nanometer design. Existing products are getting good reviews, and the company’s Galaxy Design platform won the EDN Magazine Innovation Award.

The company projects revenues of $330 million–$338 million with EPS of $0.36–$0.38 for the current quarter. For the year, it projects revenues of $1.340 billion–$1.355 billion with EPS of $1.52–$1.62.

The stock is trading at $20.87 with a market capitalization of $3.09 billion. It touched a 52-week high of $23.74 in November of last year.

Synopsys’ competitor, Cadence (NASDAQ:CDNS), also recently made a rather expensive acquisition. Cadence acquired Denali, a privately held leading provider of EDA software and intellectual property provider for $315 million. The transaction is expected to expand Cadence’s solution portfolio to “deliver efficient and cost-effective system component modeling and IP integration.” Sanjay Srivastava, Denali’s CEO, I believe owned most, if not all of the company, so he had a nice payday.

Cadence’s Q1 revenues of $222 million were higher than the previous year’s $206 million. During the quarter, the company earned $0.02 a share compared with $0.10 a year ago.

It too is expanding its product portfolio and launched a comprehensive silicon-on-insulator (SoI) Design Hub, a new Web portal that will help lower barriers to adoption of  SoI technology by reducing initial start-up costs, reducing time to market for the SoI intellectual property, and improving design quality. I am hearing that some EDA players are trying to get into the SaaS model of delivering software, but don’t know for sure if that initiative is coming from Cadence. It’s possible.

The company projects revenues of $215 million–$225 million with a loss of $0.03–$0.05 a share in the current quarter. For the full year, it expects revenues of $865 million–$900 million with EPS of $0.05–$0.15.

The stock is trading at $5.79 with a market capitalization of $1.66 billion. In October of last year, it reached a 52-week high of $8.18.

Meanwhile, Mentor’s (NASDAQ:MENT) Q1 revenues of $180.6 million fell short of previous year’s $193.8 million. For the quarter, the company reported a net loss of $0.22 per share compared with a loss of $0.14 per share recorded a year ago.

During the quarter, it extended its customer partnerships with three significant new relationships. Mentor joined the Nano2012 program to develop leading-edge technologies for 32 nanometer and below processes. It tied up with Freescale Semiconductor to become that company’s commercial Linux strategic partner and also tied up with NetLogic Microsystems to provide multi-core multi-threaded Linux for its processors.

Mentor continued to add to its product range with new tools such as the ReqTracer tool, which helps to automate requirements capture, the FloTHERM IC for semiconductor package thermal characterization and design, and 3-D electromagnetic analysis for HyperLynx printed circuit board product line.

The company projects Q2 revenues of $180 million with a loss of $0.05 per share.

Mentor’s stock is trading at $8.85, taking its market capitalization to $945.43 million. It touched a 52-week high of $9.88 in earlier last month.

Magma (NASDAQ:LAVA) reported Q4 revenues of $33.6 million compared with the market’s projected $32.9 million and previous year’s $34.1 million. The company ended the year with revenues of $123.1 million. EPS for the quarter remained flat at $0.07 and managed to exceed the market’s projected $0.04. For the year, Magma reported EPS of $0.17 compared with earnings of $0.15 a year ago.

Magma also continued to launch new products and recently released Titan ALX and Titan AVP to add to its existing Titan platform. The two accelerators enable analog IP reuse and rapid design exploration, and they automate layout creation and process porting. The company also released FineSim Fast Monte Carlo, an improvement over the existing FineSim technology that will help to accelerate with an approach up to 100 times faster than traditional Monte Carlo methods.

The company projects revenues of $31.0 million–$31.5 million for Q1 with a loss of $0.06–$0.07 per share.

The stock is trading at $2.84 with a market cap of $147.19 million. Earlier this quarter, it touched a 52-week high of $3.88.

As I mentioned earlier, the current year will be one of stabilization and consolidation. Both Synopsys and Cadence are aggressively acquiring other players to ensure their dominance in the market.

The big question remains open, however: When is the four-horse race going to become a two-horse race?