Release Date: February 18, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cadence Design Systems Inc (CDNS, Financial) reported a 13.5% revenue growth and a 42.5% non-GAAP operating margin for 2024.
- The company exited 2024 with a record backlog of $6.8 billion, indicating strong demand for its AI-driven chip-to-systems portfolio.
- Cadence's AI-powered products, such as Cadence Cerebrus, SimAI, and Allegro X AI, are gaining strong momentum with market-shaping customers.
- The system design and analysis business achieved over 40% growth in 2024, driven by a rapidly expanding customer base across multiple verticals.
- Cadence's IP business grew 28% year-over-year in Q4, with significant expansions and competitive displacement at top-tier customers.
Negative Points
- The guidance for 2025 assumes flat revenue from China, reflecting uncertainty and potential headwinds in that market.
- Recurring revenue growth is expected to decelerate, partly due to the assumption of flat China revenue and the strength of upfront revenue businesses.
- The core EDA growth in 2024 was in the high-single-digit range, impacted by a down year in China and a transition year for hardware.
- The company's current RPO growth progressively slowed over the course of the year, indicating potential challenges in maintaining growth momentum.
- Visibility into the hardware pipeline for the second half of 2025 is limited, which could impact future revenue projections.
Q & A Highlights
Q: Can you explain the significant increase in backlog and how it aligns with the guidance for 2025?
A: John Wall, CFO, explained that the backlog increase was due to strong bookings across all businesses, particularly in Q4. However, the guidance for 2025 is cautious, especially considering the renewal cycle and potential headwinds in China. The backlog duration is at the high end of the typical range, indicating strong future demand.
Q: How are export restrictions affecting your business in China, and what is the outlook for 2025?
A: John Wall, CFO, noted that while there are no significant changes due to export restrictions, the company is taking a prudent approach by assuming flat revenue from China in 2025. Anirudh Devgan, CEO, added that design activity in China is strong, particularly in automotive, but the guidance remains cautious due to macro uncertainties.
Q: Why is there a deceleration in recurring revenue growth despite strong AI and product demand?
A: John Wall, CFO, attributed the deceleration to the assumption of flat revenue from China, which impacts recurring revenue growth. The mix of revenue is shifting due to stronger growth in upfront revenue businesses like hardware and IP, which are growing faster than the average.
Q: What is driving the strong demand for your hardware products, and how does it impact future revenue?
A: Anirudh Devgan, CEO, highlighted the strong demand for Cadence's Palladium Z3 and Protium X3 systems, driven by their advanced capabilities and customer satisfaction. The hardware business had a record year, and the company expects continued strength, especially in AI and hyperscale markets.
Q: How is Cadence's AI product portfolio impacting customer adoption and revenue growth?
A: Anirudh Devgan, CEO, stated that AI products like Cadence Cerebrus, Verisium, and Allegro X are gaining traction with major customers, enhancing design efficiency and productivity. The company is also seeing increased design activity in edge devices and physical AI, which are expected to drive future growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
