Cadence (CDNS) to Report Q2 Earnings: What's in the Cards?

Cadence Design Systems Inc. CDNS is set to report second-quarter 2018 results on Jul 23. Notably, the company has surpassed the Zacks Consensus Estimate in three of the trailing four quarters while coming in line in the remaining one, recording an average positive surprise of 2.81%.

In the first quarter of fiscal 2018, Cadence delivered non-GAAP earnings of 40 cents per share, surpassing the Zacks Consensus Estimate by a couple of cents. Revenues increased 8.5% year over year to $517.3 million, beating the Zacks Consensus Estimate of $506 million.

Robust adoption of the company’s digital and signoff, custom and analog, and IP solutions along with an ever expanding customer base fueled overall year-over-year growth. The company has also witnessed significant demand from aerospace and defense sectors.

What to Expect?

For second-quarter 2018, Cadence expects total revenues in the range of $510-$520 million and non-GAAP earnings in the range of 39-41 cents per share.

The Zacks Consensus Estimate for earnings is pegged at 40 cents per share, up 17.7% year over year. Revenues are estimated to be $515.3 million, up 7.6% year over year.

The company raised 2018 outlook expecting the first-quarter momentum to sustain. Revenues are now projected to be in the range of $2.055-$2.085 billion, up from $2.015-$2.055 billion anticipated earlier. Non-GAAP earnings are now guided in the range of $1.57-$1.65 per share, raised from previous band of $1.50-$1.60.

Factor Likely to Impact Q2 Results

Collaboration & Product Rollouts: Key Catalyst

Cadence is on a collaboration spree with industry leading cloud infrastructures. At Design Automation Conference (“DAC”), the company collaborated with Microsoft’s MSFT Azure, Amazon Web Services (“AWS”) and Alphabet’s Google Cloud platform to enable smooth design development of electronic systems and semiconductors.

In the Digital IC Design and Signoff segment, the company reinforced its collaboration with Imec to tapeout the industry’s first ever 3nm test chip. The chip complemented company’s innovative digital implementation tools with Imec’s development infrastructure. It is designed to aid digital transformation of mobile architecture at advanced nodes.

Moreover, 7 nm design of Cadence has been adopted by notable companies. A major defense contractor will leverage Cadence’s digital flow for its in-house chip design.

Going ahead impressive adoption of flagship — DDR and PCI — products remains key catalysts. The company unveiled Tensilica Vision Q6, enhanced processor for embedded vision for on-device AI applications.

Further, Cadence Tensilica Vision P5 DSP enabled GEO Semiconductor’s (“GEO”) GW5400 camera video processor to run company’s in-camera computer vision. The DSP platform’s advanced driver assistance systems (“ADAS”) capabilities will enhance automated driving experience.

Cadence together with Advanced Semiconductor Engineering (“ASE”) unveiled a System-in-Package ("SiP") EDA solution to effectively verify and design Fan-Out Chip-on-Substrate (“FOCoS”) multi-die packages. The solution will enable ASE to deliver high-performance futuristic package technologies.

The company’s Custom IC Design segment is benefiting from its sustained focus on bringing in new and innovative products. Cadence enhanced Virtuoso custom IC design platform with innovative capabilities, including support for 5 nm nodes. These new enhancements shall improve electronic system and IC design productivity.

Cadence also delivered a broad cloud portfolio which enables electronic semiconductors and systems to thrive. The company claims the new Cadence Cloud portfolio to be a first-of-a-kind solution, leveraging Cadence-managed as well as customer-managed cloud infrastructure. The infrastructure enables customers’ entire design journey or peak to function smoothly. The company also launched the Palladium Cloud solution. The customers will have the option to deploy this new emulation solution with the company’s other Cloud solutions.

Furthermore, Cadence Liberate Trio Characterization Suite was also introduced. The company claims it to be the “industry’s first unified library characterization tool”. The advanced ML techniques help the designers predict critical corners and decide the corners required to be characterized. The innovative cloud-ready solutions expand the company’s portfolio in an effective manner.

The strong collaborations and smart product launches augur well for Cadence. Robust adoption of the company’s digital and signoff, custom and analog, and IP solutions along with an ever expanding customer base remains a positive. Additionally, the company is also witnessing traction in aerospace and defense sectors, which is a tailwind.

We believe that all these factors will positively impact the company’s results in the to-be reported quarter and bolster its customer base going ahead.

Cadence Design Systems, Inc. Price and EPS Surprise

Cadence Design Systems, Inc. Price and EPS Surprise | Cadence Design Systems, Inc. Quote

What the Zacks Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Cadence has a Zacks Rank #3 and an Earnings ESP of 0.00%. This combination makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks, which you may consider as our model shows that these have the right combination of elements to post an earnings beat in its upcoming release:

Advanced Micro Devices, Inc. AMD has an Earnings ESP of +2.45% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Skyworks Solutions, Inc. SWKS has an Earnings ESP of +1.00% and a Zacks Rank #3.

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