Cadence Design Systems (NASDAQ: CDNS), a company based in San Jose, California, has forecasted fourth-quarter revenue and adjusted profit that are lower than what Wall Street analysts had expected. This downbeat forecast is attributed to slower research and development (R&D) spending by semiconductor companies, which are facing challenges in a tough economic environment.
The chip industry’s slower-than-expected recovery is having a negative impact on companies like Cadence, which provide software tools and hardware used in chip design. These tools are essential for creating chip blueprints before mass production.
Additionally, the tightening of U.S. export controls on high-end chip technology to Beijing is a cause for concern. This development could potentially harm Electronic Design Automation (EDA) firms like Cadence, as it has significant revenue tied to China, making up 15% of its total revenue in 2022.
Cadence’s costs have risen due to investments in integrating generative AI capabilities into its software tools. In the third quarter of 2023, the company reported a 13.8% increase in costs.
Cadence’s forecast for the current quarter includes an adjusted profit per share in the range of $1.30 to $1.36. Analysts had previously expected an adjusted profit of $1.37 per share, according to data from LSEG.
The company also forecasted fourth-quarter revenue to be in the range of approximately $1.04 billion to $1.08 billion, with the mid-point falling below the estimated $1.07 billion.
In the third quarter of 2023, Cadence reported a 13.4% increase in revenue, reaching $1.02 billion, which slightly exceeded analysts’ expectations of $1 billion. The quarterly adjusted earnings per share of $1.26 were higher than estimated.
Overall, Cadence’s downbeat forecast is reflective of the challenges faced by the chip industry, including slower growth, increased costs, and regulatory concerns related to exports to China.
