Cadence Design Systems Inc (NASDAQ:CDNS) Q3 2020 Earnings Conference Call - Final Transcript

Oct 19, 2020 • 05:00 pm ET


Cadence Design Systems Inc (NASDAQ:CDNS) Q3 2020 Earnings Conference Call - Final Transcript


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Lip-Bu Tan

and IP portfolio. We significantly deepened our partnership with a global marquee customer through a wide-ranging expansion of our EDA software and hardware portfolio. This customer is now accelerating the proliferation of our digital full flow across their design teams. Momentum continued for our digital and sign-off solutions with nine full-flow wins and a market shaping automaker taped out their highly innovative complex 7-nanometer design using our digital full flow.

Our Verification Suite comprised of best-in-class core engines across simulation, formal analysis, emulation and prototyping, is particularly well suited to address our customers mounting verification challenges. Hardware had its highest ever revenue quarter with Palladium Z1 and Protium X1 continuing to get new design wins and significant expansions, particularly at AI and hyperscaler customers.

We introduced Xcelium ML, which uses machine learning to improve the regression throughput of our premier logic simulator by up to 5 times. On the IP front, the top vertical end-markets for our Design IP in this quarter were hyperscale, enterprise and automotive, with a major hyperscaler adopting our PCIe and high bandwidth memory IP for use in 3-nanometer designs. Tensilica had a strong royalty and win for true wireless stereo and functional safety applications and was adopted by an automotive company for ADAS.

In System Innovation, I'm very excited by the strong momentum of our new system products, both organically developed as well as those we obtained through the AWR and Integrand acquisitions earlier this year. Earlier this month, we expanded our System Analysis portfolio with the addition of the Clarity

3D Transient Solver that delivers up to 10 times faster system level EMI simulation. Clarity and Celsius continued to ramp nicely with broadening adoption, particularly in verticals such as AI, mobile and hyperscale segments.

Systems companies like Teradyne and Rockley Photonics are deploying our Clarity EM simulator for production use. In the 5G/millimeter wave area, integration of our AWR and Integrand acquisitions continues smoothly and the business is tracking ahead of our internal expectations. In Q3, we added more than 15 new customers in end markets that included 5G, automotive and aerospace and defense.

Cadence has a strong -- has a long successful history in advanced packaging, which has become a linchpin technology for many systems companies, particularly automotive and hyperscalers, to deliver complex system level chip designs. In Q3, our innovative Allegro technology was used by a market shaping auto maker for their wafer level system packaging needs.

Now, let us turn it over to John to go over the results in more detail and to update our outlook.

John Wall

Thanks, Lip-Bu. And good afternoon, everyone. I'm pleased to report we exceeded all of our key financial metrics for the quarter. We had a strong revenue quarter in China as a result of better-than-expected hardware and IP sales in the region. This was the main driver of the improvement in our profitability for the quarter contributing approximately 2% to our non-GAAP operating margin.

Looking at the key results for the third quarter starting with