De-Cadence?
CDNS Q1 FY12/24 Earnings Review
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May Be A Canary
Cadence Design Systems ($CDNS) sells, in essence, two things. One, software that is used by engineers to design semiconductor devices or parts thereof; and two, designs for semiconductor devices or parts thereof. If you, a company in the business of producing semiconductors, think that you are going to be making more and/or different devices in the future, you’re probably buying more stuff from Cadence and/or its major competitor, Synopsys ($SNPS). And you’ll be buying it ahead of time. If on the other hand you think you are going to be making less and/or the same kind of devices in the future, you probably won’t be buying as much stuff from Cadence or Synopsys, and you’ll be putting the brakes on spending early doors - because you can see what your end-customer demand looks like a year or two out.
What this means is that CDNS can be used as something of a leading indicator for the chip sector as a whole. The company has sufficient market share in the design tools and intellectual property licensing segments for its revenue line and order book to be a reasonable read on the market. If the revenue line is accelerating, that’s likely good news for semiconductor as a whole and that is likely good news for tech as a whole and that is likely good news for the market as a whole. And the converse is also true. But don’t look only at the revenue line - look at the remaining performance obligation aka. the order book. If RPO growth is accelerating, doubleplusgood. Decelerating? Ungood. Very ungood.
Cadence’s Q1 was somewhat ho-hum on the revenue line, more encouraging as regards the order book. Below we lay out the headline numbers (before the paywall) and then take a look at the detailed financials, valuation analysis and our stock price projection, technical analysis and rating (after the paywall).
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CDNS Headline Financials
