Factors Setting the Tone for Cadence's (CDNS) Q1 Earnings

Cadence Design Systems, Inc. CDNS is set to report first-quarter 2020 results on Apr 20.

For first-quarter 2020, Cadence expects total revenues in the range of $610 million to $620 million. The Zacks Consensus Estimate for revenues is currently pegged at $613 million, indicating growth of 6.3% from the prior-year quarter.

Management guided non-GAAP earnings in the range of 53-55 cents per share. The consensus mark for first-quarter earnings has been steady at 54 cents over the past 30 days. The estimate is flat compared with the year-ago reported figure.

Notably, the company beat estimates in the trailing four quarters. It has a trailing four-quarter positive earnings surprise of 5.83%, on average.

Factors at Play

Solid momentum of its digital & signoff, custom & analog, and IP solutions are likely to have benefited Cadence’s first-quarter performance.

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

Robust adoption 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 quarter under review.

Moreover, growing clout of latest Clarity 3D Solver and Celsius Thermal Solver solutions, among notable companies including Micron MU, Arm Holdings and Ambarella AMBA, is likely to have aided the first-quarter performance.

Increasing popularity of the company's products instill confidence in the stock. Notably, shares of Cadence have returned 9.1% year to date, outperforming the industry's rise of 4.5%.

Further, increasing system design complexity and high cost of failure is likely to have bolstered demand for Cadence’s system design and verification solutions among semiconductor companies. This is expected to have contributed to the company’s growth in the first quarter.

In fact, during the quarter to be reported, Cadence expanded its partnership with Broadcom AVGO for developing advanced semiconductor solutions. The collaboration is focused on the creation of 5nm designs. Additionally, the company announced collaboration with STMicroelectronics to work on a 56G very short-reach (VSR) SerDes in 7nm for a system on chip (SoC) targeted at the networking, cloud and data center markets.

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

Key Developments in Q1

During the first quarter, Cadence announced acquisition of Integrand Software to strengthen foothold in the 5G RF communications domain. Integrand specializes in EMX technology, which is integrated with Method of Moments (MoM) solver capabilities. The terms of the deal have been kept under wraps.

Moreover, the company completed the acquisition of AWR Corporation from National Instruments Corporation. The buyout is anticipated to bolster the company’s footing in 5G RF communications and support system innovation.

Although the acquisitions augur well in the long term, increasing expenses on product development and buyouts, amid stiff competition from peers like Synopsys, is likely to have impeded margin expansion in the first quarter.

Zacks Rank

Cadence currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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