Cadence Design Systems (CDNS) BofA Securities 2024 Global Technology Conference summary

Industry growth and technology trends

• EDA industry growth has accelerated from 7-8% to mid-teens, outpacing the broader semiconductor sector due to increased automation and AI integration in chip design.

• Productivity gains from EDA tools have enabled significant reductions in design time, with AI expected to further shift R&D budgets toward tools over time.

• The proliferation of custom silicon and AI chip design is driving a wave of infrastructure build-out, benefiting EDA providers.

• AI is being embedded into EDA products, with five AI tools now running on a unified big data platform, enhancing design efficiency.

• New verticals, such as molecular bioscience simulation, are seen as long-term growth opportunities.

Financial model and growth outlook

• Double-digit revenue growth is targeted, with a focus on long-term value and incremental margin improvement.

• Over 82% of revenue is recurring, providing strong forecasting visibility; hardware and upfront revenue are less predictable.

• EPS growth has averaged 23-24% over the past seven years, driven by operating leverage and share buybacks.

• Simulation technology offers nonlinear revenue growth due to high license utilization per engineer.

• China revenue dip was anticipated due to a major customer project cancellation, but is expected to recover as engineers move to new employers.

Competitive landscape and M&A strategy

• Recent large competitor acquisitions are not expected to force similar moves; focus remains on organic innovation and selective, smaller M&A.

• Recent $1.24B acquisition of BETA CAE doubled M&A spend but is seen as completing the solution set.

• Cadence's simulation tools are positioned as technologically superior, handling much larger variable sets than competitors.

• Preference is for building new technology in-house rather than large-scale acquisitions.

• The company aims for profitable, sustainable growth, avoiding loss-making business even if it means slower top-line expansion.