Cadence Reports Second Quarter Results

7/24/2002 - Cadence Design Systems, Inc. (NYSE: CDN), the world's leading supplier of electronic design products and services, today announced second quarter pro forma diluted earnings per share of $0.24, up 30 percent over the second quarter of 2001, on revenue of $345 million. For the quarter, product revenue increased 19 percent to $226 million over the comparable quarter in 2001. Cadence booked 40 percent of its software products as subscription licenses (48 percent including subscription licenses and maintenance) during the quarter. For comparative purposes, except where noted, the results discussed throughout this release reflect earnings before special charges, unusual items, amortization of acquired intangibles and deferred stock compensation. Click here for the Consolidated Statements of Operations and Consolidated Balance Sheet.

"We are pleased with our strong results," said Ray Bingham, president and CEO of Cadence Design Systems. "Given the very challenging economic environment we're in, customers continue to prioritize investing in areas where they need new solutions in order to continue to innovate. Our nanometer design products--digital and analog/mixed- signal--continue to be the solutions of choice as customers move to nanometer design."

The weakness in the systems and semiconductor markets continue to affect the Cadence services business. For the quarter, total services revenue declined 15 percent sequentially to $37 million.

In accordance with generally accepted accounting principles (GAAP), the company reported a net loss of $46 million and a diluted net loss per share of $0.18 for the second quarter.

Business Highlights
As the semiconductor industry moves to advanced design processes of 130 nanometers and below, it drives the demand for new and different solutions to address increasingly difficult problems. Here, Cadence continued to see strong momentum for its digital integrated circuit (IC) business, which grew more than 50 in the second quarter. The demand for the Cadence Encounter family-the company's digital solution for nanometer design-increased 30 percent sequentially over a strong first quarter. Additionally, Cadence received its first orders for NanoRoute, the world's fastest digital IC router. Also, the leading technology from Simplex showed good momentum even though it's been part of Cadence for just a short time.

The rapid growth of chips with voice, data and multi-media computing and communications capabilities triggered the demand for Cadence digital and custom IC design solutions. In the second quarter, 17 of the top 20 customers purchased the Cadence custom IC design flow, while 14 of those bought both Cadence custom and digital design flows.

Cadence also had large contract renewals with Philips Semiconductors, National Semiconductor and Teradyne at contract values averaging more than 50 percent higher than previous contracts. In addition, Cadence added 33 new customers in the second quarter.

"We're winning because we're the only company that can provide customers with solutions that solve the whole problem-from system onto chip into package onto board," added Bingham. "Moreover, we've implemented a highly focused strategy over the past 18 months that has added chip-design expertise, leadership, and technologies for the world's most advanced processes. As a result, we have leapfrogged the competition for next-generation nanometer design-both digital and analog."

Business Outlook
The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. These statements do not include the potential impact of any mergers, acquisitions or other business combinations that may be completed after June 30, 2002.

The company expects to see strength in software--90 percent of its business--and continued weakness in services. Product bookings expectations for the year remain the same, with growth in the mid-teens.

Cadence expects its subscription bookings, which going forward include subscription licenses and maintenance combined, to grow from 48 percent of the mix of software bookings in Q2 to 65-70 percent for Q3 of 2002. For Q4, the company anticipates approximately 70-80 percent of software bookings to be under subscriptions.

The company expects this increased mix of subscriptions will not affect bookings but will reduce revenue in the short-term. Cadence does not expect any meaningful recovery in the economy during the second half of the year. The company will continue to aggressively manage its cost structure.

In Q3, Cadence expects earnings per share to be approximately 15 cents. For the year, earnings per share are expected to be approximately 80 cents. In 2003, Cadence expects earnings per share to be approximately $1.00.

The company expects that the change in mix of software licenses should enhance revenue visibility and, beginning in the second half of 2003, accelerate revenue and earnings growth.

All such expected earnings per share reflect earnings before unusual items, amortization of acquired intangibles and deferred stock compensation.

The statements by Ray Bingham and the above statements contained in this Outlook are forward-looking statements based on current expectations or beliefs, as well as a number of assumptions about future events that are subject to factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Readers are cautioned not to put undue reliance on these forward-looking statements, which are not a guarantee of future performance and are subject to a number of uncertainties and other factors, many of which are outside the control of Cadence, including among others:

Cadence's ability to compete successfully in the design automation product and the commercial electronic design and methodology services industries; the mix of products and services sold and the timing of significant orders for its products; recent economic uncertainty; fluctuations in rates of exchange between the U.S. dollar and the currencies of other countries; and the acquisition of other companies or the failure to successfully integrate them. For a detailed discussion of these and other cautionary statements, please refer to the Company's filings with the Securities and Exchange Commission. These include the Company's Annual Report on Form 10-K for the year ended December 29, 2001, and Quarterly Report on Form 10-Q for the period ended March 30, 2002.

In the calculation of the company's Earnings Before Goodwill (EBG) or pro forma earnings, Cadence excludes certain non-cash items such as amortization of goodwill and other acquired intangibles, amortization of deferred stock compensation and write-off of in-process R&D from acquisitions. Also excluded are non-operating and non-recurring items such as special charges, unusual items and restructure expenses. A reconciliation of EBG net income to GAAP net income is included in this press release and posted on the Cadence web site (

Cadence expects that its corporate representatives will meet privately during the quarter with investors, the media, investment analysts and others. At these meetings Cadence may reiterate the Outlook published in this press release. At the same time, Cadence will keep this press release, including the outlook, publicly available on its Web site (

Prior to the start of the Quiet Period (described below), the public can continue to rely on the Outlook on the Web site as still being Cadence's current expectations on matters covered, unless Cadence publishes a notice stating otherwise.

Beginning September 13, 2002, Cadence will observe a "Quiet Period" during which the Outlook as provided in this press release and the company's quarterly report on Form 10-Q no longer constitute the company's current expectations. During the Quiet Period, the Outlook in these documents should be considered to be historical, speaking as of prior to the Quiet Period only and not subject to update by the company. During the Quiet Period, Cadence representatives will not comment concerning Outlook or Cadence's financial results or expectations. The Quiet Period will extend until the day when Cadence's next quarterly Earnings Release is published, presently scheduled for October 15, 2002.

About Cadence
Cadence is the largest supplier of electronic design technologies, methodology services, and design services. Cadence solutions are used to accelerate and manage the design of semiconductors, computer systems, networking and telecommunications equipment, consumer electronics, and a variety of other electronics-based products. IEEE, the world's largest technical professional society, honored Cadence with its 2002 Corporate Innovation Recognition Award. With approximately 5,600 employees and 2001 revenues of approximately $1.4 billion, Cadence has sales offices, design centers, and research facilities around the world. The company is headquartered in San Jose, Calif., and traded on the New York Stock Exchange under the symbol CDN. More information about the company, its products and services are available at

For more information, please contact:

Investors and Shareholders:
Lisa Ewbank
Cadence Design Systems, Inc.

Media and Industry Analysts:
Kevin Kimball
Cadence Design Systems, Inc.

Cadence and the Cadence logo are registered trademarks of Cadence Design Systems, Inc.

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