Cadence Design Marches to a Different Beat (CDNS)

It appears the traders and investors in Cadence Design (NASDAQ: CDNS) march to a different tune when it comes to financial results. Yesterday afternoon, the producer of electronic design automation software reported third-quarter earnings and gave analysts a look at the next three months. For the quarter ending in September, the company had revenues of $338 million and earned $0.21 per share compared to $.10 during the same period in 2011. The prognostications of analysts called for a top line of $329 million and a profit of $0.18. In addition, Cadence Design management projected the next quarter results to fall in line with Wall Street expectations, which look for revenues of $336 million and earnings per share of $0.19.

The company also upped its guidance for the full year. For fiscal year 2012, Cadence Design expects to earn between $0.75 and $0.77 per share on revenues of about $1.32 billion. The street looked for earnings of $0.73 and $1.31 billion in revenues.

President and Chief Executive Officer Lip-Bu Tan said, “Demand for our technology was strong across the board in Q3 with ongoing strength in emulation and increasing demand for verification solutions.”

Geoff Ribar, Chief Financial Officer, added, “Results for all key operating metrics exceeded expectations for Q3 as the entire Cadence team continues to execute.”

The analysts at Needham and Company reissued its “buy” rating and $13.50 price target on the stock today.

On top of the earnings news, Cadence Design also announced that Cadence Verification IP significantly reduces verification turnaround time for ARM AMBA 4 protocols. The company noted in the press release that customers have reduced their verification schedules from months to weeks.

Unlike many companies reporting financial results, Cadence not only beat estimates, but it did not foresee a darker future. At first, traders did not know whether to jump for joy or leap for the exits. The stock opened 10 cents higher than the closing price on Wednesday and climbed to an intraday high of $12.91 a few minutes later. Then, with heavy volume pouring in, the stock stumbled to a daily low of $11.61 before the first 30 minutes of trading had expired. Share prices crawled back toward positive territory for a good portion of the day on diminishing volume. The stock ended the trading with a small two-cent gain. Over 10.5 million shares swapped hands during the trading day compared to an average day when 2.5 million shares trade.

After trading at annual low of $9.73 in early June, the stock walked higher to a 12-month high of $13.79 established about six weeks ago. Part of the move was boosted by the issuance of third quarter guidance that topped the forecasts of analysts. Considering some of the carnage observed in the tech sector during this earnings season, shareholders of Cadence Design might wonder what it takes to get equity buyers excited.

Out of the nine analysts covering the company, six have the stock rated as a “buy”. The consensus price target for Cadence Design shares is $14.44.

Cadence Design develops electronic design automation software. The company also provides engineering and educational services to help manage and accelerate electronics product development processes. The San Jose, California, company was founded in 1988.


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Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email ( or his Google+ page (