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Here's How Cadence (CDNS) Looks Ahead of Q4 Earnings Release

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Cadence Design Systems Inc. (CDNS - Free Report) is scheduled to report fourth-quarter 2020 results on Feb 22.

For fourth-quarter 2020, Cadence expects total revenues in the range of $720-$740 million. The Zacks Consensus Estimate for revenues is currently pegged at $730.95 million, indicating growth of 21.9% from the prior-year quarter’s reported number.

Management projected non-GAAP earnings to be 72-76 cents per share. The consensus mark for fourth-quarter earnings has been steady at 74 cents over the past 30 days, suggesting an improvement of 30% from the prior-year quarter’s reported figure.

Notably, the company’s earnings beat estimates in each of the trailing four quarters, the average being 13.67%.

Factors to Note

Cadence’s fourth-quarter top line is likely to have gained from a strong pipeline of its digital & signoff, custom & analog and IP solutions as well as an improving backlog despite COVID-related headwinds. Solid momentum of Palladium Z1, Clarity 3D Solver and CloudBurst Platform offerings is expected to have aided the company’s performance.

Markedly, during the quarter under review, management announced that L&T Technology Services Limited selected the company’s Clarity 3D Solver solution. By utilizing Clarity 3D Solver, L&T Technology Services could improve the time taken to design memory devices and mobile cameras by almost three weeks.

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

Also, during the fourth quarter, Cadence rolled out a simulation solution Clarity 3D Transient Solver under its System Analysis Portfolio. Clarity 3D Transient Solver provides 10 times faster speed to work on electromagnetic interference (EMI) system design problems compared to legacy 3D field solvers.

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

An expanding customer base is raising investor optimism on the stock. Shares of Cadence have gained 85.8% in the past year, significantly outperforming the industry’s rally of 28.6%.

Additionally, evolution of semiconductor manufacturing processes from 10 nm (nanometer) to 7 nm and even 5 nm technology is expected to have favored adoption and driven the company’s fourth-quarter performance.

Furthermore, a 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.

The aforementioned product rollouts and deal wins are expected to have expanded this currently Zacks Rank #3 (Hold) player’s business avenues, which in turn, might have boosted the fourth-quarter top line. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nevertheless, coronavirus-induced economic downturn might have induced limited spending from semiconductor companies on software simulation solutions, which remains a concern.

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

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