IP sale helps Cadence meet Q2 revenues

Mike Santarini
(07/21/2004 9:00 PM EDT)

  SAN JOSE, Calif. — Thanks in part to a one-off sale of serial intellectual property (IP) to Rambus, Cadence Design Systems met Wall Street quarterly projections and swung to profitability in the second quarter of 2004. The company posted revenues of $287 million, compared to revenues of $277 million in the same period last year.

In the second quarter of 2003, on a GAAP basis, Cadence posted a net loss of $5 million or $0.02 per share. But in the second quarter of 2004, the company managed to reverse fortunes, posting income of $4 million or $0.01 per share. Using a non-GAAP measure, Cadence's earnings for the quarter were $42 million or $0.15 per share, compared to last year's $29 million or $0.10 per share.

But Wall Street analysts were a bit alarmed because Cadence made its projections for the quarter due partially to the sale of serial IP to memory IP vendor Rambus. This transaction allowed Cadence to add $11 million of a $16 million sale to its books very late in the quarter, and thus meet projections. Bill Porter, Cadence's CFO, told EE Times there isn't anything out of the ordinary with deal or the timing of the deal, noting that "in the software business there is a lot of business that occurs in the last month of a quarter."

"Its like just like any contract," said Porter. "We have revenues of $280 million, and every one of those is important to us. How can you say one contract will make or break a quarter because each of those contracts is important?"

Analysts were also wary of the timing of the transaction, as it came at the end of Cadence's quarter. Earlier in the month Rambus said it will book the transaction in its third quarter earnings, while Cadence accounted for it in this second quarter report. But Porter noted that Cadence and Rambus are on different reporting calendars.

Still, analysts said the deal doesn't sit easy with them because Cadence's traditional business is derived from software product licensing, not selling IP. The Rambus transaction was a sale of IP, not just a licensing of it.

"We've been in the market for some time and you always look at where you can get the most value," said Porter. In this case, he said, the greatest value came from selling the IP.

Mike Fister, Cadence's new president and CEO, said that selling or licensing IP "is something we have done and will continue to do. It doesn't stop us from developing and collaborating in the development of IP with others."

That issue aside, Fister said that he is "very satisfied" with Cadence's results for the quarter, especially its bookings for the first half of the year.

In an otherwise choppy market, bookings for the first half of the year were up 9 percent compared to the first half of 2003, and the company held to a bookings projection of 7 to 10 percent growth for the year.

"I think the bookings numbers shows our strength," said Fister. "Nine percent year over year is in the face of what some people might not have expected. The second half of the year looks to be strong too."

Cadence is expected to start a licensing renewal cycle in the third quarter that will run well into 2005. For the third quarter of 2004, the company expects total revenue in the range of $300 million to $310 million with earnings of $0.18 to $0.20 per share. For the full year 2004, the company expects total revenue in the range of $1.175 billion to $1.225 billion with earnings per share in the range of $0.70 to $0.77.