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Cadence (CDNS) to Report Q2 Earnings: What's in the Offing?

Zacks Equity Research
·4 mins read

Cadence Design Systems Inc. CDNS is scheduled to report second-quarter 2020 results on Jul 20.

For second-quarter 2020, Cadence expects total revenues in the range of $580 million to $600 million. The Zacks Consensus Estimate for revenues is currently pegged at $592.5 million, indicating growth of 2.1% from the prior-year quarter.

Management guided non-GAAP earnings in the range of 50-54 cents per share. The consensus mark for second-quarter earnings has been steady at 52 cents over the past 30 days, suggesting a decline of 8.8% from the prior-year quarter.

Notably, the company beat estimates in each of the trailing four quarters, the average surprise being 6.61%.
 

Cadence Design Systems, Inc. Price and EPS Surprise

Cadence Design Systems, Inc. Price and EPS Surprise
Cadence Design Systems, Inc. Price and EPS Surprise

Cadence Design Systems, Inc. price-eps-surprise | Cadence Design Systems, Inc. Quote
 

Factors to Note

Cadence’s second-quarter top-line performance is likely to reflect solid momentum of its digital & signoff, custom & analog, and IP solutions.

Markedly, during the quarter under review, Cadence announced that its digital full flow solution has been used by Efinix to complete the first wave of its Trion family of field programmable gate arrays (FPGAs), which are utilized in edge compute, AI/ML and vision processing applications.

Further, robust adoption of latest Clarity 3D Solver solution, among notable companies including Ambarella AMBA might have contributed to the second-quarter performance. During the quarter to be reported, Cadence Clarity 3D Solver was selected by Ambarella for the design of next-generation AI vision processors.

Moreover, growing clout of products that include Protium X1, Spectre X, Smart JasperGold and Tensilica Vision Q7, in particular, is expected to have driven the company’s performance in the to-be-reported quarter.

Notably, an expanding customer base is instilling investor optimism in the stock. Notably, shares of Cadence have gained 42.8% year to date, compared with the industry’s rally of 24.8%.



Additionally, increasing system design complexity and high cost of failure may have bolstered demand for Cadence’s system design and verification solutions among semiconductor companies. Moreover, evolution of semiconductor manufacturing processes from 10 nanometer (nm) to 7 nm and even 5 nm technology is expected to have favored adoption and hence may contributed to the company’s second-quarter performance.

Nevertheless, coronavirus-induced economic downturn is likely to have weighed on the company’s business in aerospace domain, and limited growth in the second quarter. Moreover, the coronavirus crisis might have limited spending from semiconductor companies on software simulation solutions, which remains a concern.

Furthermore, increasing expenses on product development and buyouts amid stiff competition from peers like Synopsys SNPS are likely to have impeded margin expansion in the second quarter.

Major Developments in Q2

During the second quarter, Cadence announced collaboration with Taiwan Semiconductor Manufacturing Company Limited (TSMC) and Microsoft MSFT. The aim is to aid customers accelerate the timing signoff by leveraging TSMC technology on the Microsoft Azure cloud with the Cadence CloudBurst Platform.

Moreover, the company expanded its partnership with Arm to support the development of mobile devices based on Arm’s Cortex-A78 and Cortex-X1 CPUs.

The aforementioned tie ups are expected to aid the company, currently carrying a Zacks Rank #3 (Hold), expand business avenues, which in turn will drive the top line in the days ahead. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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