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Factors You Must Note Ahead of Cadence's (CDNS) Q3 Earnings

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Cadence Design Systems Inc. (CDNS - Free Report) is slated to release third-quarter 2020 results on Oct 19.

For third-quarter 2020, Cadence expects total revenues in the range of $630 million to $650 million. The Zacks Consensus Estimate for revenues is currently pegged at $640.68 million, indicating growth of 10.5% from the prior-year quarter.

Management guided non-GAAP earnings to be 59-61 cents per share. The consensus mark for second-quarter earnings has been steady at 61 cents over the past 30 days, suggesting an improvement of almost 13% from the prior-year quarter.

Notably, the company beat estimates in each of the trailing four quarters, the average surprise being 11.45%.

Factors Likely to Have Influenced Q3 Performance

Cadence’s third-quarter top line is likely to reflect solid momentum of its digital & signoff, custom & analog, and IP solutions. Rising popularity of Palladium Z1, Clarity 3D Solver and CloudBurst Platform offerings, remains noteworthy.

Markedly, during the quarter under review, Cadence announced that Nuvoton selected its enterprise emulation verification platform, Palladium Z1, to ramp up designing and development of its microcontroller units.

Moreover, growing clout of products that include Protium X1, Spectre X, Smart JasperGold and Tensilica Vision Q7, in particular, is expected to have contributed to the company’s performance in the to-be-reported quarter.

Further, incremental adoption of latest Clarity 3D Solver solution by companies including Ambarella (AMBA - Free Report) , might have contributed to the third-quarter performance. Notably, Cadence Clarity 3D Solver was selected by Ambarella for the design of next-generation AI vision processors in the second quarter.

An expanding customer base is instilling investor optimism in the stock. Shares of Cadence have gained 68.6% year to date, compared with the industry’s rally of 37.3%.



Additionally, solid uptick in chip design activity, increasing system design complexity and high cost of failure are expected to have bolstered demand for Cadence’s system design and verification solutions among semiconductor companies in the to-be-reported quarter. (Read More: 6 Stocks Poised to Gain From Uptick in Chip Design Activity)

Moreover, evolution of semiconductor manufacturing processes from 10 nanometer (nm) to 7 nm and even 5 nm technology is expected to have favored adoption and hence may have contributed to the company’s third-quarter performance.

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

Furthermore, increasing expenses on product development and buyouts amid stiff competition from peers like Synopsys (SNPS - Free Report) are likely to have impeded margin expansion in the third quarter.

Primary Developments in Q3

During the third quarter, Cadence rolled out its full flow and custom tool suite for Taiwan Semiconductor Manufacturing Company’s (TSM - Free Report) 3 nm process technology.

The company also unveiled UltraLink D2D PHY (physical interfaces) IP for TSMC’s 7 nm FinFET (Fin Field Effect Transistor) process technology. The availability of Cadence UltraLink D2D PHY IP on N7 process will help customers to check bit-error rate (BER), insertion loss, performance across all process corners, and maximum transmission speed.

Moreover, the company announced that its millimeter wave (mmWave) reference flow secured certification for United Microelectronics Corporation's 28HPC+ process technology. This will allow customers to access integrated RF design flow solution and reduce time to market.

Further, Cadence partnered with GLOBALFOUNDRIES on the 12LP platform and 12LP+ solutions to enable customers build faster system-on-chip or SoCs for various purposes in aerospace, industrial, chiplet architecture, and cloud and data center server applications.

Additionally, Kneron selected Cadence’s Tensilica Vision P6 DSP for usage in next-generation SoC design during the quarter under review.

The aforementioned tie ups, product roll outs and deal wins, are expected to aid the company, currently carrying a Zacks Rank #3 (Hold), expand business avenues, which in turn will drive the top line in the days ahead. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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