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What's in the Cards for Cadence Design (CDNS) in Q3 Earnings?

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Cadence Design Systems Inc. CDNS is set to report third-quarter 2017 results on Oct 26. Notably, the company has a mixed record of earnings surprises in the trailing four quarters, with an average surprise of 1.62%. Last quarter, the company posted a positive earnings surprise of 3.03%.

In the second quarter, excluding stock-based compensation, earnings were 34 cents per share, reflecting an increase of 17.2% from the year-ago quarter. Revenues increased 5.7% year over year to $479 million, beating the Zacks Consensus Estimate of $478 million.

Guidance & Estimates

For third-quarter 2017, Cadence expects total revenue to be in the range of $475 million to $485 million and non-GAAP earnings in the range of 33 cents to 35 cents per share.

The Zacks Consensus Estimate for earnings is pegged at 34 cents per share, the mid-point of the guidance range. Revenues are estimated to be $482 million for the quarter.

Notably, Cadence has two revenue reporting segments – Product & Maintenance and Services.

For the third quarter, Product & Maintenance segment revenues are projected to be $452 million, a year-over-year increase of 8.8%. Services revenues are expected to be around $30.9 million, almost flat year over year.

Cadence stock has gained 67.6% year to date, substantially outperforming the 31.3% rally of the industry it belongs to.

 

Key Growth Catalysts

Cadence executed a number of successful projects during the quarter. The company’s Genus Synthesis Solution was used by Toshiba Electronic Devices and Storage Corporation for the tapeout of ASIC designing. Per the company, during the third quarter it unveiled the industry’s first integrated memory design and verification solution named Legato Memory Solution.

The company delivered an IP portfolio for the automotive design of Taiwan Semiconductor Manufacturing Company TSM 16nm FinFET Compact (16FFC) technology. Cadence also collaborated with Taiwan Semiconductor Manufacturing Company (TSMC) for the advancement of design innovation of 7nm FinFET Plus for high-performance computing (HPC) systems.

Notably, the company partnered with Xilinx XLNX and TSMC for the development of Cache Coherent Interconnect for Accelerators (CCIX) based on 7nm FinFET technology scheduled for a 2018 delivery.

Additionally, the company received a number of certifications during the quarter. The company’s Design for Manufacturing (DFM) tools are now compatible with Samsung Electronics’ 28nm FD-SOI/14nm/10nm process technologies. Its full-flow digital and signoff tools and custom/analog tools are Intel 22FFL (FinFET Low-Power) process certified. Also, Cadence’s digital, signoff and custom/analog tools and flows have received v1.0 certification for TSMC’s 12nm FinFET Compact (12FFC) technology.

We believe that all these will positively impact the company’s soon-to-be reported quarter results and further boost customer base going ahead.

Zacks Rank & Key Pick

Cadence currently has a Zacks Rank #3 (Hold).

A better-ranked stock in the broader technology sector is Applied Materials, Inc. (AMAT - Free Report) sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Applied Materials is projected to be 17.1%.

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