Cadence Design Systems: After the Surge

Cadence Designs Systems Inc. is a company that provides software development and engineering services. The firm was formed in 1988 following a merger between SDA Systems and ECAD Inc. In serving its clientele, Cadence Systems produces printed circuit boards, silicon structures used in the production of Integrated Circuits and Systems on Chips. Its headquarters are situated in San Jose, California. Its founders included Alberto Sangiovanni-Vincentelli, Richard Newton, James Solomon, and Jiri Soukup.  The company was voted one of the top 100 places to work in by Fortune Magazine in 2015.

Cadence Designs Systems went public in 1987 and had had above average returns since then. However, in February this year, the company’s stock soared by 10.5 percent. The firm beat estimates financial analysts had made concerning its earnings in the fourth quarter of its previous fiscal year. Additionally, the company produced reports that cited it expected further growth to continue. By 11 a.m. on Thursday, its stock had risen by over 10 percent on trading floors.

The company released reports that showed it had acquired a revenue of $469 million in its fourth quarter which was a 6.3 percent increment from earnings in 2015. Li-Bu Tan, current Chief Executive Officer, cited a 9 percent growth in the company’s digital production of Integrated Circuits as one of the reasons that had spurred this growth. The increase in digital production was as a result of high rates of customer adoption.

An improvement of $0.03 in non-GAAP earnings pegged the firm’s income per share this year at $0.34, up from $0.31 the previous year. The figures beat financial estimates by $0.01 per share. However, the company’s GAAP EPS dropped by 46 percent to $0.14, primarily as a result of charges for restructuring. Cadence also sought to increase the value of its shares through share buybacks, spending over $240 million in repurchases during the company’s fourth quarter. The buybacks lowered the number of shares in the market and at the same time resulted in an increase in per-share returns.

Additionally, the CEO pointed to its successful emulation system, Palladium Z1, as another factor for the growth. The company is also going to be venturing into new markets this year, inclusive of defense, aerospace and the automotive industry. Could it be that the spike this year is what the company needed to achieve an even greater profit? Could we be in the wake of the next Amazon Inc., that took over 25 years to begin making exceedingly massive profits? The answers to these questions are not precise. However, a considerable amount of evidence shows the company is undergoing significant improvement.

For the first quarter of 2017, the company expects to collect a revenue within the range of $470 million to $480 million. This figure would be up by $32 million from last year’s income in the first quarter of 2016. For the whole year, the company expects to earn between $1.90 billion and $1.95 billion, an increment of $130 million from last year’s revenue of $1.82 billion. It seems the company may be working toward raking in its largest returns over the years since its public release.

As of March 24th, the company was down by $0.05, translating to a 0.16 percent decrease. Over the long term, however, the company’s stock has been on a relatively upward trend following the spike in its shares. The company’s growth patterns have steadily increased. Additionally, President Trump’s increased spending towards defense and infrastructure could propel the value of Cadence’s shares even further. 2017 is likely to be an active year for this company.