Mentor and PDF Solutions Climb

Mentor Graphics (MENT), the third largest player in the EDA space, announced its Q1 results on Thursday.

Its revenue of $179.2 million was 8% lower than the previous year’s Q1 revenue. The market was expecting revenues of $170.1 million. Its loss per share of $0.10 was as per the market’s expectations. During the same period last year, the company had earned a profit of $0.12 per share.

The company expects revenue of $173 million in Q2, with a loss of $0.18 - $0.23 per share. For the year, revenue is expected to be $915 million, with EPS of $0.45 -$0.50.

Mentor claims to be following a three pronged strategy:

First, “targeting discontinuities and design methodologies,” as the company did for Calibre, its highly successful physical verification effort.

Second, identifying emerging market opportunities ahead of competition such as the automotive market.

Third, growing revenue in areas where it was leaders in technology and market share such as printed circuit board design, digital logic simulation and mixed signal design.

Its recent acquisition of Ponte Solutions is a smart move, given its position in physical verification. It was also applauded by analyst Gary Smith who said:

From a strategic market perspective, buying Ponte cements Mentor’s claim as the top DFM firm with access to both keystone DFM tools, its own design rule checking engine, and like Synopsis, Cadence and Magma, an IC router.

The place and route tool comes from its recent acquisition of Sierra Design Automation for $90 million.

The question this raises for me is whether Mentor’s DFM portfolio is strong enough to cause customers to switch out of entrenched relationships with Cadence and Synopsys. It is clear that Mentor doesn’t want an LBO or a chop up, but rather wants to be in this EDA dog-fight, which is getting nastier by the day. (More on this later)

Mentor also announced a tender offer to purchase Flomerics Group, a U.K.-based provider of software for thermal analysis of electronic systems, for $50 million (25.5 million pounds)

Despite the reported loss, the company’s stock was up nearly 6% to $10.79, so the investors are buying Gary Smith’s analysis that Mentor now has a “full flow.” Well, hold on. I’d like to see them sell the flow …

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Another EDA stock that announced its results recently was PDF Solutions (PDFS). The company has consistently shown value, but struggled on scaling. In the current quarter, its revenue fell 8% over the year to $20.3 million against market’s expectations of $20.2 million with gain share revenue of $5.3 million. The loss for the quarter was $0.02 per share, in line with the street’s views. In the previous year Q1, the company had earned profits of $0.14 per share.

During the quarter the company repurchased 197,000 shares for a total repurchase value of $1.1 million.

For Q2, the company reaffirmed its guidance of revenue of $20.5 - $22.5 million; gain share revenue of $5.3 - $5.8 million and EPS of $0.06.

The company blamed the market conditions for its poor performance. During the quarter, it had achieved a significant win on its yield management system which was selected by a leading U.S.-based integrated device manufacturer for its R&D facility.

The company believe that volumes for the 65-nanometer chips will improve during the course of the year, and on memory the company expects customers to push for 55-nanometer once that nodes start going into production.

It is true, that yield issues in the sub 65-nanometer era are dramatically higher, so PDF’s value proposition continues to strengthen, not lessen. But the company absolutely must come up with a scaling solution that makes them more a product company than a consulting company, gain-share revenue model notwithstanding.

After having reached a new 52-week low of $3.86 a couple of weeks before the announcement of its results, PDFS is now trading 40% higher at $5.40.

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Comments

[razormdthe2nd]

You have to wonder who writes these articles for this woman...I mean, surely, it can't be her...look at the publication history -- an article every one or two days; sometimes more than one a day...analysis over a range of tech companies so broad as to make me highly skeptical of the value of any opinion she has to offer...and typical of "seekingalpha&quo... authors, she is not required to actually act on her commentary and put together an actual portfolio so we could all see how perspicacious she really is...and reviewing her past articles suggests her bucket has a pretty big hole in it.