Overview: Eminence Capital's 1Q14 positions (Part 4 of 9)
Eminence Capital and Cadence Design Systems
Ricky Sandler’s Eminence Capital initiated new positions in Cadence Design Systems (CDNS), McDonald’s Corp. (MCD), Restoration Hardware Holding (RH), and Ralph Lauren Corp. (RL). It sold shares in Advance Auto Parts Inc. (AAP) and Monster Beverage Corp. (MNST).
Eminence Capital disclosed a new position in Cadence Design Systems (CDNS) that accounts for 2.15% of the fund’s portfolio.
San Jose, California-based Cadence Design Systems develops solutions for its customers to design increasingly small and complex integrated circuits (or ICs) and electronic devices. Its product offerings include electronic design automation (or EDA), software, emulation hardware, and two categories of intellectual property (or IP), commonly referred to as verification IP (or VIP), and design IP. The company’s customers include semiconductor and electronics systems companies that operate in a number of market segments such as mobile devices, communications, cloud and data center infrastructure, personal computers, and other devices.
Cadence enhances IP offerings via acquisitions
Cadence expanded its design IP offerings last year via acquisitions of Tensilica Inc., a privately held provider of configurable dataplane processing units, and Cosmic Circuits Private Limited, a privately held provider of intellectual property used in system-on-chip design. This year, Cadence bought the high speed interface IP assets of TranSwitch Corporation in January to enhance its IP portfolio in the mobile and consumer markets. In February, the company bought out Forte Design Systems, a provider of SystemC-based high-level synthesis (or HLS) and arithmetic IP. It recently completed the acquisition of Jasper Design Automation Inc., a leading provider and pioneer of formal analysis and verification tools for IP and system-on-chip (SoC) development, for $170 million in cash.
First quarter sees “strong” customer adoption of products
Fiscal 1Q14 results beat estimates. Cadence reported 1Q14 revenue of $379 million—up 7.1% from $354 million reported for the same period in 2013. On a generally accepted accounting principles (or GAAP) basis, it recognized net income of $33 million, or $0.11 per share on a diluted basis, in the 1Q14, compared to net income of $79 million, or $0.27 per share on a diluted basis, in the same period in 2013. The company said, “In Q1, Cadence continued to strengthen its product portfolio through internally developed products and key acquisitions,” and that, “We also continued to see strong customer interest and growing adoption of our digital and new sign-off products with multiple design wins.” The management added on the earnings call that, “The environment remains mixed, with pockets of both strengths and weaknesses in semiconductors, combined with uncertain global macroeconomic conditions. Despite the challenges and uncertainty, design activity is good, and customers continue to deploy new technology.”
Cadence’s revenue for 2013 totaled $1.460 billion—up from $1.326 billion for 2012. For 2014, the company expects total revenue in the range of $1.550 billion–$1.590 billion. On a GAAP basis, net income per diluted share for 2014 is expected to be in the range of $0.56–$0.66. For the 2Q14, the company expects total revenue in the range of $370 million–$380 million, and this guidance was below analyst consensus. The management added on the earnings call that it “now expects a certain amount of lumpiness in the business related to the fact that hardware and IP, both have revenue recognition that’s upfront.”
Board authorizes $100 million buyback in January
Cadence announced in January that its board approved the repurchase of up to $100 million of its common stock under its stock repurchase program. The company expects to repurchase up to $50 million of its common stock during each of fiscal years 2014 and 2015.
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