Cadence Design Systems Inc at JPMorgan Technology, Media and Communications Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Jackson Edmund Ader - JP Morgan Chase & Co, Research Division - Analyst : That's great. Can we just maybe speak to trends in your major end markets? So both semiconductors and how EDA fits into -- you mentioned systems companies. A lot of people say, well, what's a systems company outside of semiconductors? So what are the major trends of those 2 major markets? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 12, 2020 / 3:20PM, CDNS - Cadence Design Systems Inc at JPMorgan Technology, Media and Communications Conference (Virtual)

Question: Jackson Edmund Ader - JP Morgan Chase & Co, Research Division - Analyst : Now how does the EDA industry and then specifically Cadence, what role does your strategy actually play in helping your customers capitalize on the trends that you just laid out?

Question: Jackson Edmund Ader - JP Morgan Chase & Co, Research Division - Analyst : Yes. Can we just quickly follow up on that, on the system analysis? This is -- some of these are more -- are 3D solvers and maybe outside of the core, what we would consider EDA or semiconductor design. Why do you feel that this makes sense as an adjacency for Cadence to get into? And do you have any early successes that you want to share or maybe early findings that you've come across thus far?

Question: Jackson Edmund Ader - JP Morgan Chase & Co, Research Division - Analyst : Okay. Great. So we'll hop back maybe to core EDA and then -- and circle back to some of those new segments maybe a little bit later. But in core EDA, the digital design flow, Cadence has made some significant inroads into digital design, I think, when most people think the EDA industry, Cadence has been synonymous with strength in analog design. But where have you felt like Cadence has really made the most significant inroads into digital design? What is it about Cadence's tools in digital that you see stacking up well against the main competition?

Question: Jackson Edmund Ader - JP Morgan Chase & Co, Research Division - Analyst : And is this the full flow buying behaviors, is this a departure from maybe what you have seen in the market before? I realize that it's taken some time for Cadence to simply build out the full flow. But do you see maybe differences in buying behavior from some of the larger companies that maybe will go best-of-breed tools and maybe some of the smaller design houses will go full flow? Just any comments you have on difference in buying behavior.

Question: Jackson Edmund Ader - JP Morgan Chase & Co, Research Division - Analyst : Why is the integration between the tools more difficult at the smaller geometries than previously?

Question: Jackson Edmund Ader - JP Morgan Chase & Co, Research Division - Analyst : Right. Okay. That makes sense. The next area I want to talk about is hardware. So both emulators, prototyping, this has increasingly become a large portion of the EDA industry. You talked about Cadence having a very ratable software model, but there is some lumpiness with hardware. It's becoming a bigger part of the mix. So what are some of the innovations that the EDA industry has made in terms of hardware that has allowed more use cases and hardware to become more of the mix over the last few years?

Question: Jackson Edmund Ader - JP Morgan Chase & Co, Research Division - Analyst : Is the -- common front-end platform, is that a something that's specific to Cadence in terms of a competitive differentiation between the other 2 major hardware competitors? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 12, 2020 / 3:20PM, CDNS - Cadence Design Systems Inc at JPMorgan Technology, Media and Communications Conference (Virtual)

Question: Jackson Edmund Ader - JP Morgan Chase & Co, Research Division - Analyst : Okay. Actually, that's a nice segue to a question that we got from the audience. So the question is, if we look 3 years out, how do you see the competitive landscape shaping up relative to maybe what you see today? I think a lot of people you see Synopsys. And people will just frankly assume that this is just a 2-horse race, and that's not necessarily the case. So -- but if we look out into the future, how do you think the competitive landscape is going to be different than maybe it is today?

Question: Jackson Edmund Ader - JP Morgan Chase & Co, Research Division - Analyst : The reiteration of guidance in this environment was certainly impressive and surprised us, I think, to the positive. So how has COVID-19 impacted the company in terms of your internal operations? How has it impacted your customers? And why is it that you think that EDA has been able to hold up so nicely when in other industrial -- in the other industrial software complex, we've actually seen a little bit more weakness maybe than Cadence is expecting?

Question: Jackson Edmund Ader - JP Morgan Chase & Co, Research Division - Analyst : Have you actually seen any increased demand in maybe cloud deployments? Or you have offerings where a lot of your software tools or even hardware tools can be accessed through the cloud? Have we seen any material tick-up in those type of deployments?

Question: Jackson Edmund Ader - JP Morgan Chase & Co, Research Division - Analyst : Another question from the audience, just quickly. Yes. So if we could just switch gears to geography. So China is about 10% of your business. There has been some changes to the Department of Commerce, came out with interpretations on new Chinese export rules. How do you expect this to affect Cadence?

Question: Jackson Edmund Ader - JP Morgan Chase & Co, Research Division - Analyst : Okay. So just on, I guess, the fresh new rules. It's just too early to tell for the impact of the business.

Question: Jackson Edmund Ader - JP Morgan Chase & Co, Research Division - Analyst : Right. Okay. Could we -- you've mentioned IP a couple of times. This has been a growing -- similar to hardware, this has been a growing part of the EDA industry. How -- what does your IP portfolio look like relative to maybe some of the other competitors in the market? And then also, could you just revisit what is the underlying trend that is pushing IP to become more important for new designs in this day and age?

Question: Jackson Edmund Ader - JP Morgan Chase & Co, Research Division - Analyst : IP has also been an M&A target, right? Where -- how do you balance the buy versus bill equation for IP?

Question: Jackson Edmund Ader - JP Morgan Chase & Co, Research Division - Analyst : Okay. Just a couple of minutes left, so I want to hit some strategic questions. Any thoughts on -- as you continue this kind of systems analysis and moving into solvers, any thoughts on maybe inorganic M&A activity in the systems analysis rather than what you've done, which is mostly organic R&D? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 12, 2020 / 3:20PM, CDNS - Cadence Design Systems Inc at JPMorgan Technology, Media and Communications Conference (Virtual)

Question: Jackson Edmund Ader - JP Morgan Chase & Co, Research Division - Analyst : Okay. Well, Lip-Bu, we are just about out of time. So I really appreciate your joining us this morning. Thank you, everybody, for your questions, and thanks for joining us. Take care, and enjoy the rest of your day. Thanks, Lip-Bu.